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Q: What is a Homestead and do I need one?

A: THE CALIFORNIA HOMESTEAD EXEMPTION

A homestead is an exemption provided by California law to enable a real property owner to protect all or a portion of the equity in their home from being lost if a creditor is trying to collect on a judgment. No action is required to create a homestead exemption. It automatically exists for every property that qualifies for the exemption. Here’s how it works:

If a creditor gets a judgment against the debtor for failing to pay a bill or for injuring the creditor in some way, the creditor can seek to collect on the judgment by forcing the sale of the debtor’s assets. If the debtor owns real property, the creditor can record a Abstract of Judgment in the County where the real property is located and this recording will put a lien against each property for the amount of the judgment. Unlike the lien of a real estate loan which a debtor voluntarily allows to be put on the property, a judgment lien is an “involuntary” lien, ie: the debtor did not consent to this lien on their property.

If the judgment creditor is trying to force the sale of the debtor’s home to pay the judgment, the debtor is allowed to protect his equity in their home up to a set amount. As of 2010, the homestead exemption limits are:

$75,000: Basic homestead for single person
$100,000: Head of household
$175,000: Over 65 or physically disabled or under 55 with less than $15,000 in annual income ($20,000 if married).

In order for a judgment creditor to be able to sell the debtor’s home, the equity in the home must be greater than the exemption. So, for example, if a debtor’s home is worth $300,000 and they have a $200,000 loan against it, their equity is $100,000. If the debtor is single, they could protect $75,000 of this equity, but the creditor could force the sale of the home to obtain the remaining $25,000. But if the debtor qualified for any of the higher exemption limits, the creditor would be barred from forcing the sale until such time that the equity exceeded the exemption.

In addition to a homestead exemption, California law allows homeowners to record a declared homestead. A declared homestead differs from a homestead exemption in that a declared homestead protects the homeowner’s equity if the homeowner sells his or her home. A declared homestead is created when a homeowner (not yet, necessarily, a debtor) prepares and signs an appropriate form of declared homestead and records the document in the county recorder’s office. Once this document is recorded, it creates a declared homestead in the property described in the homestead document.

How is a declared homestead different from a homestead exemption?

A homestead exemption is useful only if a judgment creditor is trying to force the sale of the debtor’s home to pay a judgment. However, if the debtor voluntarily sells the home, the homestead exemption is of no use. In contrast, with a declared homestead recorded before a judgment lien is recorded, the debtor can voluntarily sell the home and keep the equity up to the exemption amount before anything would go to the judgment creditor.

So what’s the bottom line? Everybody receives a homestead exemption by law, which protects some of their equity in the event their home is sold at auction by a creditor. A declared homestead goes one step further and protects a portion of your equity against creditors no matter who sells your home – you or the creditor.

Q: I just discovered undisclosed defects in my home, what can I do?

A: Duties of Disclosure in Real Estate Transactions.

California law imposes duties on sellers of 1-4 unit residential real estate to disclose to the buyer any material facts known to the seller affecting the value or desirability of the real estate being sold. In 1985, the State Legislature Civil Code, § 1102 et seq., entitled “Disclosures Upon Transfer of Residential Property” which requires every such seller to deliver a Real Estate Transfer Disclosure Statement for this purpose. Real Estate contracts also usually require disclosures pursuant to this statute, as well as other disclosures. Other statutes also impose other disclosure obligations in sales of this type.

The statutory real estate transfer disclosure statement contains a checklist to give notice of problems or potential problems with the property which must be made in “good faith,” which is expressly defined to mean “honesty in fact in the conduct of the transaction.” Beyond this TDS, the seller of a residence in California also has a common law duty: “where the seller knows of facts materially affecting the value or desirability of the property which are known or accessible only to him and also knows that such facts are not known to, or within the reach of the diligent attention and observation of the buyer, the seller is under a duty to disclose them to the buyer.” Failure to disclose is a violation of the common law and statutory duty as is stating a half-truth or other misleading statement. Neither an “as is” sale nor the buyer’s independent inspection exonerates a seller or the seller’s agent from fraudulent misrepresentations concerning known defects not otherwise visible or observable to the buyer.

A breach of this duty of disclosure will give rise to a cause of action for both rescission of the contract and/or damages for the loss of value in the property, plus costs, attorneys fees, and other relief.

Q: My neighbor’s tree is lifting my house, can I cut it down?

A: CALIFORNIA TREE LAW

Before 1994, property owners generally were free to cut a neighbor’s trees, branches or roots which were encroaching into their property. However, that changed dramatically as a result of the case of Booska v. Patel, which determined that a neighbor does not have the absolute right to cut encroaching roots and branches so that they end at his or her property line. You must take into account the health of the tree before you start cutting or chopping. In short, a neighbor must act “reasonably” when pruning encroaching roots and branches.

In this case, Booska and Patel were neighbors. The roots of Booska’s 40-year-old Monterey pine tree extended into Patel’s yard and were cracking his walkway. So Patel, hired a contractor who cutoff the roots at the property line. This caused the tree to become unsafe, a nuisance, and unable to support life. Booska sued Patel for the loss of the tree Patel claimed that he had an “absolute right” to sever the roots on his property without regard to any injuries inflicted on Booska’s land. While Patel won at trial, on appleal the Court ruled that “whatever rights Patel has in the management of his own land, those rights are tempered by his duty to act reasonably”.

The result? If you negligently kill or damage (for example causing disease to) the neighbor’s tree while trimming them, you might be liable for reasonable costs of replacing destroyed tree with identical or substantially similar tree (that is, a mature tree). Such replacement can be very expensive proposition. Your homeowner’s policy may or may not cover the claim depending on the policy language.

Moreover, many communities have tree ordinances that govern what can be done with trees. In some California cities, certain types trees are illegal to cut down or prune.

If a neighbor’s tree branches or roots encroach on your property, you should first seek informal resolution. Ask your neighbor to trim his own tree to keep it from encroaching into your property. If the neighbor refuses, you might put them on written notice that their tree is creating a dangerous condition and that if the tree causes any personal injury or property damage occurs to your property, your neighbor will be legally responsible to pay for all damages incurred. If they still refuse, you might consider legal action to abate the nuisance their tree is creating.

But, if you do decide to trim the trees or cut the roots yourself, be careful and cautious because, if a court finds that you negligently damaged the neighbor’s tree, you can be held liable for damages.