On September 18, 2020, the California Legislature filed Assembly Bill Number 1885 with the Secretary of State to amend the law governing the California homestead exemption. The purpose of the bill is to increase the amount of the California homestead exemption. Prior to this bill, the homestead exemption was either $75,000, $100,000, or $175,000 based on the characteristics of the residents who sought to claim a homestead. Now, beginning January 1, 2021, the homestead exemption will be the greater of:
(1) The median sale price for a single-family home in the county in which it is situated the calendar year before the calendar year that the judgment debtor claims the exemption. However, the amount cannot exceed $600,000.00.
Moreover, the above amounts will be adjusted annually for inflation beginning January 1, 2022. The inflation will be based on the change in the California Consumer Price Index for All Urban Consumers. This is significant as the prior versions of the California homestead exemption law did not account for inflation. Indeed, the homestead exemption amounts of $75,000, $100,000, and $175,000 have been in place since 2010.
When January 1, 2021 comes, judgment creditors may have a more difficult time enforcing their judgment liens. This is because the lien reaches only the surplus equity of the homestead. The judgment creditor will not be able to enforce the judgment lien unless the equity in the property exceeds all liens, encumbrances, and the amount of the homestead exemption. In other words, if all the liens and encumbrances plus the amount of homestead exemption is less than the equity in the property, then the judgment lien is worthless. Therefore, because the California homestead exemption will increase to at least $300,000.00, that means the equity in the judgment debtor’s home must be a minimum of $300,000.00 before the judgment creditor can enforce the lien.
As to declared homesteads, even if the declaration was recorded before January 1, 2021, the increased amount of the exemption will still apply for the purposes of judgment liens and voluntary sales. The exception is if a judgment creditor obtained a judgment lien on a declared homestead before January 1, 2021. In that case, the amount of the exemption at the time of the judgment lien will apply.