Question: I'm an 89-year-old widow whose husband took care of our finances for 45 years. I don't have homeowners insurance because I don't have a mortgage. Friends share advice for protecting my assets. One says I need a mortgage, another says a trust. Others say I should get a homestead, and my CPA says I should lower my property taxes.
I'm worried because this community is a revolving door of new owners, and our boards have become more aggressive. I've had to forage for thousands of dollars to pay special assessments, which are becoming more frequent. I'm concerned that I may not be adequately protected, let alone have enough money to support myself if I continue to live here. How can I protect my only asset?
Answer: The steps you can take to increase protection for your home include homestead exemptions, insurance, trusts and title transfer instruments. Although it is impossible to insulate your home completely from liability, you can and should minimize the risk.
Homeowners associations can foreclose on property without going to court. This means of foreclosure is the most powerful weapon in an association's debt collection arsenal.
For overdue assessments or dues in excess of $1,800 or more than 12 months delinquent, an association may use judicial or nonjudicial foreclosure.
When using either method of foreclosure, the association records a lien on the owner's property. If the entire lien is not paid, the property may be sold to satisfy the lien. The association may recover assessments, reasonable costs of collection, reasonable attorney's fees, late charges and interest.
Under Dreyfuss vs. Union Bank of California, the property's appraised market value doesn't apply in the forced-sale context. Even a great disparity between the sales price and the value of the foreclosed property will not be sufficient ground for setting aside a nonjudicial sale.
A Declaration of Homestead is designed to protect a portion of your home's equity from creditors, but does not protect deed-restricted property, such as a condominium, from a homeowners association's nonjudicial foreclosure.
Regardless of the relatively small exemption available in California and limitations with regard to nonjudicial foreclosure, claiming a Declaration of Homestead is a simple and inexpensive method of gaining protection for your interest in your home. Forms and instructions for filing are at your county recorder's office or its website.
The Homeowners Exemption aids in reducing your real property taxes. In Los Angeles County, a Homeowners Exemption gives residential property owners a $7,000 deduction from the assessed value before taxes are levied. For Homeowners Exemption forms and information, call (213) 974-3211.
The key to getting the full benefit of the Declaration of Homestead and the Homeowners Exemption is not to procrastinate in completing forms and filing the paperwork.
Your friends may be encouraging you to have a mortgage because in the event of an attempted foreclosure, it serves as another layer for notice to be served. Mortgaged real property located in a common-interest development might have an advantage over mortgage-free property. Because boards have to abide by legal notice requirements, a mortgage on the owner's title may present an obstacle to those associations seeking nonjudicial foreclosure.
Regardless of whether you have a mortgage, you should carry general liability and property insurance with an additional umbrella policy of a minimum of $1 million.
Special assessments in a common interest development are a way of life. Those who do not have the funds to fulfill their assessment obligations may have to move or lose their property to the association.
One way to minimize potential losses is to purchase loss assessment coverage through your homeowners insurance. Loss assessment coverage typically pays for your share of any special assessments the association imposes, up to the limits of the policy and after accounting for the deductible.
Loss assessment coverage is purchased in addition to the individual owner's general liability and property insurance. General loss assessment coverage does not apply to earthquake assessments.
Most trusts are not asset protection vehicles but rather a means of avoiding probate. Typically, the more control you have over assets placed in a trust, the less protection the trust provides from creditors. A trust also may be individually sued and its property foreclosed on by an association.