Home equity makes up most of the net worth of California seniors.
Most are house poor. Lots of equity, little in liquid assets.
But unless you take a very expensive reverse mortgage, that equity may as well be under lock and key. You can’t pay the monthly expenses from value in real estate.
When expenses pile up, when seniors need to downsize or move to assisted living, California’s homestead law doesn’t protect them.
Sell the house, and your life savings in the house are exposed to your creditors if you don’t buy a new house with the proceeds.
And just how many seniors can qualify for a new mortgage?
Even assuming they want and can maintain another home.
Yet that’s the way current law works.
Rock, meet hard place.
Bankruptcy no help for seniors
Maybe bankruptcy is the answer: get rid of the debts, and then you can access the value of your homestead: get at years worth of savings to pay for care.
Not under today’s laws.
The homestead law protection for seniors’ homestead vanishes if you don’t buy a new house allows a bankruptcy trustee to snatch the homestead proceeds six months later.
Homestead illusory for the disabled
The permanently disabled share the same enhanced homestead protections provided to seniors.
Currently, that amount is $175,000.
But just like seniors, turn that homestead into cash by selling, and you lose the law’s protection if you don’t buy another house.
The homestead’s “protection” keeps them locked in their homes.
Legislature rejected a fix
The California Assembly voted down SB 308 which would have eliminated the requirement that those forced into bankruptcy by their debts buy a new house within six months or forfeit their homestead.
But banks and credit unions have influence in Sacramento. And that influence was sufficient to bury the bill.
It’s just their knee-jerk reaction to anything that might assure financial security to seniors and the disabled.
So the problem remains.
