Homestead exemption protections vary significantly by state, but are meant to protect a person’s primary place of residence. It offers asset protection in the event of bankruptcy and in some states against liability creditors. State protections vary dramatically in their rules, whether it is offered at all, the amount of the exemption. In the words of one California court, the purpose of homestead exemption laws is “to protect the sanctity of the family home against loss caused by a forced sale by creditors . . . [&] ensure that insolvent debtors & their families are not rendered homeless by virtue of an involuntary sale of the residential property they occupy . . . .” Amin v Khazindar, 112 Cal.App.4th 582.
A few states such as New Jersey seem to offer no homestead protections. In Pennsylvania, the homestead & farmstead exemptions do not seem to protect against creditors but only apply to property taxes. Some states protect homesteads no matter how high the value, such as Florida, where the exemption amount is unlimited after 40 months use as the primary residence for up to 160 acres.
In California, a debtor may obtain the benefits of a homestead exemption either by recording a homestead or through an automatic homestead. The declared homestead exemptions were created by the California legislature first, but because many homeowners had failed to satisfy its technical requirements, an automatic homestead exemption was created. Code of Civil Procedure §§ 704.910 – .995 [by declaration], 704.710 – .850 [automatic]. In California, even though the declared homestead statute excludes the interest of the beneficiary of a trust, the automatic homestead exemption does not. As a result, one federal court held in 2020 that a debtor-beneficiary of a trust, where title to the property is held in trust, was nevertheless be entitled to a homestead exemption. In re Nolan, 618 B.R. 860.
California as of 2021 allows for a minimum homestead exemption of $300,000, up to $600,000 depending on the median sale price for a single-family homes in that county, with the amounts set to increase based on inflation.