How to Conduct a Sheriff’s Sale of Real Property to Collect a Judgment in California – Part 6

If the judgment creditor has caused the sheriff to levy on the judgment debtor’s real property, and if the real property is the debtor’s homestead, additional requirements must be met before the sheriff can sell the real property.  Specifically, the court must find that the value of the real property exceeds the amount of the debtor’s homestead exemption plus the amount owing on all liens senior to the judgment creditor’s lien.  In addition, the sheriff cannot sell the real property unless, at the sale, certain minimum bid requirements are met.

CCP § 704.780(b) states as follows, in pertinent part:

“The court shall determine whether the dwelling is exempt.  If the court determines that the dwelling is exempt, the court shall determine the amount of the homestead exemption and the fair market value of the dwelling.  The court shall make an order for sale of the dwelling subject to the homestead exemption, unless the court determines that the sale of the dwelling would not be likely to produce a bid sufficient to satisfy any part of the amount due on the judgment pursuant to Section 704.800…”

By way of example, suppose the debtor’s real property is worth $1 million.  Further suppose that the debtor is entitled to a homestead exemption of $175,000 and that the real property is encumbered by a first mortgage of $900,000.  In this situation, the court will not allow the sheriff to sell the real property because the court will assume that, if the sale takes place, the highest bid will be approximately $1 million and that the entirety of this $1 million will be paid to the debtor for his homestead exemption and to the first mortgage holder.  In other words, even if the sale takes place, the judgment creditor is not expected to receive any money.  As a result, the court will not order the real property to be sold by the sheriff.

The judgment creditor must convince the court that the sale is likely to result in the judgment creditor receiving some amount of money.

If this hurdle can be satisfied, the court will allow the sheriff to proceed with the sale, but the sheriff cannot actually sell the real property unless certain “minimum bid requirements” are met at the sale. Specifically,

CCP § 704.800(a) states as follows:

“If no bid is received at a sale of a homestead pursuant to a court order for sale that exceeds the amount of the homestead exemption plus any additional amount necessary to satisfy all liens and encumbrances on the property, including but not limited to any attachment or judgment lien, the homestead shall not be sold and shall be released and is not thereafter subject to a court order for sale upon subsequent application by the same judgment creditor for a period of one year.”

In other words, the sheriff cannot sell the property unless a cash bidder bids at least the amount of the debtor’s homestead exemption plus the amount owing to senior lienholders.

In addition, CCP § 704.800(b) states as follows, in pertinent part:

“If no bid is received at the sale of a homestead pursuant to a court order for sale that is 90 percent or more of the fair market value determined pursuant to Section 704.780, the homestead shall not be sold …”

In other words, the sheriff cannot sell the property unless the highest bid is at least 90% of the property’s fair market value.  The fair market value is to be determined by the court.