Most loans today are secured by real or personal property collateral, so the homestead exemption is of less importance to institutional lenders than it used to be. However, if you do find yourself administering an unsecured loan, or if you discover that the loan you thought was well secured turns out to be unintentionally unsecured, then it is good to know about the California homestead exemption.
The purpose of the homestead exemption is to protect judgment debtors from losing all of their property. This means that if a creditor obtains a judgment against a debtor and the obligation was not previously secured by collateral, the judgment creditor can obtain an lien against property of the judgment debtor, except that some property will be exempt. Exempt property cannot be taken and sold to satisfy the judgment.
Under current law, the base exemption is $50,000. There is an exemption of $75,000 if the judgment debtor or spouse of the judgment debtor resides in the homestead and is a member of the family unit. The exemption climbs to $150,000 if the judgment debtor or the spouse of the judgment debtor is age 65 or older, disabled or age 55 or older with limited income.
Beginning on January 1, 2010, the exemption amounts will be increased. The base exemption amount will increase to $75,000. The common exemption for judgment debtor and spouse will increase to $100,000. The exemption applicable to a judgment debtor or a judgment debtor spouse age 65 or older, disabled or age 55 or older with limited income, will increase to $175,000.
Recently, a bankruptcy debtor in one of our cases tried to claim that certain property was within the homestead exemption and other exemptions and thus could not be recovered by the bank under its personal property secured interest that had been perfected by filing a UCC-1 financing statement. We pointed out to the bankruptcy court that the homestead exemption applied only against unsecured debts and offers no protection against the bank’s security interest. As a result, the debtor converted his case to a Chapter 7 Bankruptcy, and the bank will get back all of the collateral that is left.
The JMBM Special Assets Team™ can help you work through the confusing world of exemptions to make certain that you recover what you are entitled to recover and that you do not waste time and money attempting to recover property that is exempt by either California or Federal statute.
This is Dick Rogan, bank lawyer and author of www.SpecialAssetsLawyer.com, signing off for now. Join us again soon to check out what’s new in the World of Workouts.
Year after year, day after day, workout professionals in the know rely on JMBM’s Special Assets Team™ to handle problem commercial and real estate loans. Whatever problem loans you have, chances are, we’ve seen it. Give us a call.
Our Perspective. JMBM represents commercial banks, special servicers, private lenders, asset-based lenders, hard money lenders and factors. We help lender clients throughout the United States craft business and legal solutions to their commercial and real estate troubled loans. For more information, please contact Dick Rogan at RRogan@JMBM.com, or (415) 398-8080.
Richard A. Rogan is Chair of the JMBM Special Assets Team™. He also serves as the co-managing partner of JMBM’s San Francisco office and co-chair of its Bankruptcy Practice Group.
JMBM’s Special Assets Team™ has represented hundreds of lenders in California and throughout the United States. We regularly appear in bankruptcy courts, district courts and superior courts. We are proud to serve as trusted counsel and advisors who look for a business solution and try to help lenders find the best possible resolution for each troubled loan. Whether a loan is being newly documented, restructured or litigated, JMBM’s Special Assets Team™ has the skill, know-how and experience to solve your problem in a practical no-nonsense way.
NOTE TO CONSUMERS: As a matter of Firm policy, JMBM does not represent individual consumers who have disputes with their lenders. Many lenders have specialized consumer workout professionals who have the time to help consumer borrowers. There are many fine attorneys who specialize in representing consumers. Individuals with consumer lending problems should contact a lawyer or law firm who specializes in consumer insolvency and bankruptcy in their local area. When in doubt, we suggest you contact your local bar association’s Lawyer Referral Service. [For example, see Bar Association of SF or LA County Bar Association Lawyer Referral Services]
JMBM does not provide legal advice to consumers, and cannot respond to consumer inquiries.