Homesteader Pushes Claim 
 

By Sonia M. Younglove

The California homestead law assigns every person a specific amount of equity in their home—their homestead exemption of $50,000, $75,000, or $150,000, depending on certain factors.

When creditors try to get paid by forcing the sale of this “principal dwelling” or attaching the proceeds of a voluntary sale, they must first make sure that before their debt is paid from the sale proceeds (1) the homeowner will receive that assigned amount of equity and (2) any prior liens and encumbrances will be paid. If the creditor cannot prove to a court that those two things will occur, the creditor cannot force the sale of the house nor can it reach the proceeds of a voluntary sale.

If a homeowner has a recorded homestead, this homestead exemption also applies to a subsequent home if purchased with the homestead proceeds within a six-month period after the voluntary sale or damage or destruction of the original homestead property. In SBAM Partners v. Wang (2008), the 2nd District Court of Appeal addresses the homestead issue and purchase of a subsequent principal residence.

In 1995, a judgment was entered against Wang. An abstract of judgment, which places a lien against any real property owned or later acquired by the debtor, was recorded in Los Angeles County the same year. In 1997, Wang purchased a condominium as his principal residence. The condo was not purchased with the proceeds from the sale of Wang’s prior homestead residence. In 2005, SBAM renewed the judgment for an additional amount and recorded the renewal in the same county. In 2006, SBAM applied for an order for the sale of Wang’s condo to enforce the judgment.  Wang argued that the condo was entitled to a homestead exemption because attachment of the lien did not occur until the date of purchase, at which time the condo was entitled to a homestead exemption. SBAM argued that a homestead exemption cannot be created for a property acquired after creation of the lien. The trial court ruled in SBAM’s favor.

Is Wang entitled to a homestead exemption for his condo, which was acquired after SBAM’s original judgment lien was recorded? The answer depends on the court’s interpretation of California Code of Civil Procedure Section 704.710. The homestead character of real property is determined as of the date of attachment of the judgment lien. For already-owned property, attachment occurs at the time the lien is created. Under certain conditions, after-acquired property is also eligible for homestead protection under the six-month safe harbor rule and attachment occurs at the time of purchase.

However, under Section 704.710, in order for after-acquired property to receive the homestead exemption, one condition is that it must have been purchased with the proceeds from the sale of the exempt property. The appellate court grappled with this revision of Section 704.710, which apparently narrowed the safe harbor. Previously, the safe harbor applied to any after-acquired real property used as a home. Unfortunately for Wang, non-exempt proceeds were used to purchase the condo and, thus, the appellate court affirmed the trial court’s holding. The condo was not entitled to a homestead exemption.

California Mortgage Relief Bill Helps Homeowners and Tenants

>> SB 1137—the California Perata/Bass Mortgage Relief Bill (Civil Code Sections 2923.5, 2923.6, 2924.8, 2929.3, Code of Civil Procedure Section 1161b)—was passed as an urgency measure to provide immediate relief to homeowners and tenants whose properties are in foreclosure. The law went into effect July 8, 2008. Under this law:

• Lenders will be required to have contact with homeowners to explore options to avoid foreclosure. This provision takes effect 60 days after the measure becomes law.

•Tenants will get notice (in six different languages) once a notice of sale has been posted on a property. This provision takes effect 60 days after the measure becomes law.

• The bill increases the current notice required to be given to residential tenants of foreclosed properties from 30 days to 60 days prior to eviction.

• Locals can impose $1,000-per-day fines on financial institutions that don’t maintain vacant properties if problems are not fixed within 30 days, including adequately caring for the exterior of the property, failure to take action to prevent trespassers or squatters from remaining on the property, or failing to prevent mosquito larvae from growing in standing water.

The bill applies only to loans made between Jan. 1, 2003, and Dec. 31, 2007.

Q. My seller is worried about identity theft. Does she have to include her Social Security number on the Seller’s Affidavit of Non-foreign Status (Affidavit)?

A. Yes. If a seller does not “complete” the Affidavit (C.A.R. Form AS combines the federal and California withholding forms), then escrow will need to withhold 10 percent of the sale proceeds for federal withholding and 3 1/3 percent of the sale proceeds for California withholding. The Affidavit is not complete without a tax identification or Social Security number.

However, the federal Housing and Economic Recovery Act of 2008, effective Oct. 1, 2008, includes a provision, Section 3024, that provides sellers with an alternative procedure to furnishing the Affidavit to the buyer: (1) the Affidavit may be given to a “qualified substitute,” and (2) the qualified substitute must furnish a statement to the buyer stating, under penalty of perjury, that the qualified substitute has the Affidavit in his or her possession. The term “qualified substitute” is the person responsible for closing the transaction (including any attorney or title company or the buyer’s agent, but not the listing agent).  This would also include independent escrows but, most likely, not in-house escrows of the listing agent.

Sonia M. Younglove, Esq., is C.A.R. senior counsel.