Can You Lose Your Home to Unpaid Consumer Debt?

Can You Lose Your Home to Unpaid Consumer Debt?

Updated on August 1, 2021

Is it possible to lose your home to unpaid consumer debt that you have not taken care of? A new law was added into the Enforcement of Judgments Division of the California Code of Civil Procedure (“CCP”). This new law, codified as CCP § 699.730, is entitled “Principal Place of Residence Not Subject to Sale; Judgment Lien Based on Consumer Debt; Exceptions.” CCP §699.730 took effect as of the first day of this year (2021). The law protects homeowners from foreclosure based on monetary judgments for small and unpaid consumer debts. Prior to this law, many homes were subject to foreclosure for small-scale consumer debt. This was too harsh of a result. This new law, aimed to remedy this harsh result, generally prohibits foreclosures for unpaid consumer debt unless the debt was originally secured against the subject property. As with many laws, there are exceptions. The following provides an overview.

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Exceptions to Judgment Lien Based on Consumer Debt

Subdivision (a) of CCP § 699.730 reads, “[n]otwithstanding any other law, the principal place of residence of a judgment debtor is not subject to sale under execution of a judgment lien based on a consumer debt unless the debt was secured by the debtor’s principal place of residence at the time it was incurred.” The law defines consumer debt as “debt incurred by an individual primarily for personal, family, or household purposes.” (CCP § 699.730(a).) Accordingly, unless the consumer debt was originally secured against the debtor’s residence, or not for personal, family or household purposes, then creditors cannot enforce a monetary judgment for the unpaid consumer debt by foreclosing on the residence.

There are exceptions. One of them is for debts other than student loans that are owed to financial institutions that meet certain dollar thresholds. Per CCP § 699.730(b)(7)(A)(i)-(ii), that amount must be in excess of $75,000. Specifically, (i) the original judgment must exceed $75,000, and (ii) the amount owed on the judgment at the date of execution must also exceed $75,000. The code defines financial institutions as “a state or national bank, state or federal savings and loan association or credit union, or like organization, and includes a corporation engaged in a safe deposit business.” (CCP § 680.200.)

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CCP §704.760 (d) Requirements

Section 704.760 of the CCP was amended to conform to the new law above. This section of the code specifies the information that an application for sale submitted to the court is required to state. Specifically, when applying to the court for the sale of a debtor’s residence pursuant to a monetary judgment, CCP §704.760 (d) now requires that an applicant include a statement that the judgment on which the execution sale is based was either secured by the debtor’s principal place of residence at the time it was incurred or an exception applies. (CCP § 704.760(d).)

This new law does not modify all other homeowner protections. Those other protections continue to apply, including homestead exemptions. Thus, consumer debt that is excepted from the new law would still need to be greater than homestead limitations.

Are you afraid that you may lose your home to unpaid consumer debt? Are you trying to collect on non-consumer debt? Our real estate attorneys at Schorr Law have a great deal of experience with real estate matters and disputes. To see if you qualify for a free 30-minute consultation, contact us today!