New Arizona Homestead Laws Will Delay Many Real Estate Transactions

Big changes are coming to Arizona homestead laws. Under current Arizona law, in most situations, up to $150,000 of equity in your residence is automatically protected from creditors. In other words, you are entitled to keep $150,000 in sales proceeds from the sale of a homestead property, even if you have creditors that are trying to collect from you. The Arizona homestead exemption applies to a person’s residence where they reside and is automatic – you do not need to file a homestead declaration to claim the exemption.

In May 2021, Governor Ducey signed into law Arizona House Bill 2617, which addresses the homestead exemption.

The primary changes to the homestead exemption, which will go into effect on December 31, 2021, include the following: (a) the automatic creation of a judgment lien against homestead property upon the recording of a money judgment in the county where the property is located; and (b) an increase in the homestead exemption to $250,000 from $150,000.

Under the new law, once someone sells homestead property, recorded judgments in the county where the homestead property is being sold automatically create valid and enforceable judgment liens against the property. No additional enforcement steps are necessary for a judgment creditor to collect from the sale of the homestead property. Existing creditors who recorded a judgment will get paid, whereas, currently, they are not automatically paid. Similarly, if a homeowner obtains a “cash out” refinance, the judgment creditor’s judgment lien balance must be paid in full first from the “cash out” proceeds before additional proceeds are distributed to a homeowner or anyone else. While most lenders, as a matter of policy, require that judgments be satisfied prior to providing “cash out” funds, it will now be automatic.

Another “wrinkle” in the new law pertains to a title company’s handling of a sale of homestead property. Specifically, if a title company determines that the proceeds from the sale of homestead property will result in payment to the judgment debtor (i.e., the homeowner) in an amount less than $200,000, the title company may record a partial release of the judgment without notice to the creditor. But, if the amount of the proceeds to be paid to the judgment debtor (i.e., the homeowner) from the sale of the homestead property exceeds $200,000, then the creditor must be given notice and an opportunity to object to the sale prior to any attempt by the title company to record a release of the judgment.

In short, while the new homestead laws in Arizona will increase a homeowner’s exemption from $150,000 to $250,000, the new laws are a victory for judgment creditors. The new laws automate the process by which a judgment lien attaches to homestead property and make it much more difficult for judgment debtors to avoid paying recorded judgments.

Where Can I Find More Information?

Arizona’s homestead exemption is found in the Arizona Revised Statutes at Title 33, Chapter 8, sections 1101-1153 (33 A.R.S. § § 1101 et seq.) online at http://www.azleg.gov/ArizonaRevisedStatutes.asp.

Find an Experienced Phoenix Real Estate Attorney

Facing a possible foreclosure is a stressful experience and you do not want to attempt to negotiate or handle the experienced real estate attorneys working for a lender on your own.  The attorneys at MacQueen & Gottlieb have significant experience with the foreclosure process, trustee’s sales, and homestead laws in Arizona. Our team can review your case, detail your available options, represent your and legal interests in any negotiations with a lender. Contact us today at 602-412-1031 to schedule an initial consultation or make an appointment online.