The primary purpose of the California's homestead law is to protect a person or family’s residence from certain types of creditors. It allows debtors and their families to remain in the home in some situations even when a sale of the home could pay off the creditors. Generally, a homestead is protected from forced sale by certain creditors, to the extent of the homestead exemption, which is the amount of equity that is protected by law. A judgment creditor cannot force the sale of a home unless they first show the court that before they are paid, (1) the homeowner will receive their homestead exemption and (2) that any and all prior liens will be paid. This legal article will discuss the two types of homesteads, the Residential (or automatic) homestead and the declared homestead and other issues related to homesteads.

California homestead law provides some protections for homeowners against certain judgment creditors trying to force the sale of the home or attach sale proceeds. The statute provide for two types of protections in the form of exemptions: the residential homestead exemption and the declared homestead. The residential homestead exemption does not require the recording of any document and the homeowner qualifies for the exemption based on residency. The declared homestead requires the recording of a homestead declaration and provides additional protections as compared to the residential exemption.

Buyers of residential real estate using either FHA or VA financing are limited on what is allowed concerning their closing costs. When a buyer makes an offer on CAR for RPA-CA, paragraph 3-C-3 states that the buyer has a number of days after acceptance to submit CAR form FVA to the seller that states what repairs and other costs the seller is to pay. The seller is under no obligation to agree to any or all. Below are attachments for what is allowable for the buyer to pay and what is not. The other attachment is CAR form FVA.

FHA & VA Notice.pdf (157.50 kb)

Property taxes are collected in 2 payments starting July 1 through June 30. The First installment is due Nov. 1 and past due Dec. 10. This payment covers the first 6 months from July 1 – December 31. The second payment is due Feb 1 and is past due April 10. This covers the 2^nd 6 months January 1 – June 30.

Most people wait until just the past due date to pay. If you have an impound account, the lender does not send the money until around December 8 and April 5. But these taxes are due and payable on the dates above whether you are refinancing, selling or buying. If they are due, they need to be paid before the transaction is completed or through escrow. Prorated taxes are not a part of refinancing. If they are due, then they must be paid in full. For sales, an example will show how property taxes are paid through escrow.

Let’s say the transaction closes on June 15. The property taxes were paid back in April for the period January 1- June 30, but the seller did now owe taxes after June 15^th to June 30^th. The buyer owes the 15 day period from June 15 to June 30. So the buyer pays the seller the prorated share for those 15 days.

Now let’s day the closing date is July 31. Those property taxes are not due until Nov 1. The buyer will be the one getting the tax bill for Nov 1. The seller has not paid these taxes, because they are not due, but the seller has owned the property for 31 days into the first period. So the seller owes the buyer 31 days of property taxes that will be paid through escrow. So the buyer will get a credit.

Locking in peace of mind

Mortgage rates are near historic lows, but they are rising, leading some borrowers to consider locking in their rate. When borrowers lock in their interest rate, it freezes the terms of the loan while it is being processed, potentially saving borrowers thousands of dollars over the life of the mortgage.

Some things to consider

1. Locking in a rate may be especially important for those who are refinancing, where even a quarter of a percentage point could throw off a borrower’s calculations and make a refinancing less financially desirable.
2. Rate locks can provide buyers with some peace of mind, not to mention one less thing to think about in an otherwise onerous application process.
3. Lenders typically will give loan rate guarantee agreements when a borrower has a purchase agreement, but a few will provide them to those who are preapproved for a mortgage.
4. The cost of reserving an interest rate depends both on the duration of the lock and the amount of the loan. The longer the lock, the more costly it is. Most locks are for 30, 45, or 60 days, but some lenders will go as long as six months.
5. Most lenders offer some version of a free lock, though it may be only for 30 days. Others charge points – or fractions thereof – based on the loan size, which could amount to several hundred dollars. One point is equal to 1 percent of the loan amount. Sometimes these charges are refundable at closing.
6. Borrowers may want to skip a rate lock, or delay taking one, if they are unsure when their home purchase will close.
7. Knowing how long to lock in rate requires a clear picture of the mortgage process, and a good estimate from the lender on how long it will take to approve the loan and complete all the paperwork and other requirements. For some lenders handling refinancing, this can be 15 or 20 days; others take longer.

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It was stated in San Diego Real Estate Investment Part: 2 that it make sense for an investor to research and then concentrate on the areas of San Diego County that will give them the highest return on investment. Many of those areas are not necessarily on the coast. Investing in residential real estate is all about return on investment. There are examples below that demonstrate this concept. When you click on the Lakeside duplex, you will see that after purchasing this property for $275,000 and just holding it for 5 years the internal rate of return (IRR) is 10.3% and the return on investment (ROI) is 55%. Compare that with purchasing a duplex in Mission Hills for $595,000, holding it for 5 years, the IRR is 1.3% and the ROI is 7%. Another comparison is a Pacific Beach duplex selling for $560,000 and for the same holding period returns an IRR of 2.4% and an IRR of minus 13%. If you have the $595,000 to purchase the duplex in Mission Hills, might be better to purchase 2 duplexes in Lakeside. Better yet why not buy a 4-plex in Lakeside. A 4-plex in Lakeside selling for $442,000 with the same holding period returns an IRR of 14.3% and a ROI of 77%. There is also an example for a Lemon Grove duplex and a La Mesa 4-plex. There are many other areas of San Diego County that an investor can make the same type of comparisons. Please remember that when building these investment models, assumptions are a key element. If one is increases their down payment, holding period, loan interest rate, annual increases for income, annual increases for expenses etc. then measurements for ROI and IRR will change as well.