California Amends, Increases Its Homestead Exemption

By Michele Sabo Assayag and Joshua K. Partington

On September 15, 2020, California Governor Gavin Newsom signed into law Assembly Bill 1885 (“AB1885”), increasing the creditor homestead exemption for personal residences available in California. The text of the revised homestead exemption, which becomes effective January 1, 2021, can be found in California Code of Civil Procedure § 704.730, and states as follows:

704.730.

(a) The amount of the homestead exemption is the greater of the following:

(1) The countywide median sale price for a single-family home in the calendar year prior to the calendar year in which the judgment debtor claims the exemption, not to exceed $600,000.

          (2) $300,000.

(b) The amounts specified in this section shall adjust annually for inflation, beginning on January 1, 2022, based on the change in the annual California Consumer Price Index for All Urban Consumers for the prior fiscal year, published by the Department of Industrial Relations.

The prior exemption included three tiers, with $75,000 available for a single person, $100,000 for a married couple (or an individual with a dependent living in the home), and $175,000 for homeowners over 65 years of age or disabled. AB1885 does away with the three tiers and, instead, includes an increased baseline exemption of $300,000, which will be adjusted annually for inflation and, thus, will most likely increase from year to year. Moreover, the exemption could be as much as $600,000 if the homestead is located within a county with a median sale price of $600,000 or more.

With many California counties having a median sale price for single-family homes well above $600,000, debtors with residences in these counties may be able to protect much more equity in their homes than was previously available under the prior exemption.

While the new California law does not modify any of the previously existing statutory exceptions to homestead, such as those for consensual liens (i.e., mortgages or home equity lines of credit) or for state taxes, the increase in the available amount of the homestead exemption will likely be of significant benefit to consumers who have equity in their personal residences that they wish to protect from actions by their creditors.