If you are sued in court and lose, the person who sued you may try to force the sale of your home to collect their money. A homestead makes it harder for them to do this.
A homestead protects some of the equity in your home. If your home is worth more money than you owe on it, you have equity. For example, if your home is worth $350,000 and you owe $300,000, you have $50,000 in equity. A homestead can protect the $50,000.
There are two types of homesteads, automatic and declared.
What is an automatic homestead?
If you live in the home you own, you already have one. It protects some of your home equity until you sell your home. You do not have to sign or file anything to have an automatic homestead
What is a declared homestead?
A declared homestead is a legal form that you record with the Registrar-Recorders office. A declared homestead protects some of your equity for six months after you sell your home if the following three conditions are all true:
You sell your home and buy another home within six months;
The protected amount is used to buy another home;
You record a homestead on the new home.
Only the home...
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