A number of new laws became effective on New Year’s Day, including a major change in the homeowner’s exemption for personal residences. If you or a family member owns a home – or you may need to collect a debt from a California homeowner – the new rules could be important.

When you owe a debt and fail to pay, the creditor may sue you and obtain a judgment against you. To collect, the creditor can seek to garnish your paycheck or bank accounts, or seize your assets and force a sale to pay the judgment. Those assets can include your home.

Every state has laws that protect or “exempt” some of your assets from this kind of seizure. The protection for a debtor’s residence is called the homeowner’s exemption.

In California, the old law provided an exemption of $75,000 for a single person, $100,000 for a married couple or an individual with a dependent living in the home, and $175,000 for those over 65 or disabled.

The new law increases and simplifies the exemption. It is now the greater of the following:

  • The median sale price in your county for a single-family home in the calendar year prior to the year when the debtor claims the exemption, up to a maximum of $600,000,
  • $300,000.

The median price of a single-family home is $600,000 or more in many of California’s 58 counties. Debtors living in these counties are now able to protect much more of the equity in their homes than under the prior rules.

In Los Angeles County, for example, the median home price is currently about $715,000, according to real estate industry estimates, while in Marin County it is more than double that. Debtors in these counties now have $600,000 of their home value shielded by the new exemption level.

In counties such as Kern, where the median value is about $250,000, and Lassen, where it is about $180,000, debtors are protected up to $300,000.

Some debts are not affected by the exemption. These include “consensual liens,” such as mortgages and home equity lines of credit. The exemption also does not protect against unpaid state taxes.

With many Californians facing unprecedented financial strain because of the COVID-19 pandemic, the increase in the homeowner’s exemption is likely to be a significant benefit.

By Lynda I. Chung