Changes to Arizona’s Homestead Exemption Law

Arizona’s Homestead Exemption has long protected property being used as a primary residence (or “homestead”) from a creditor’s “judgment lien.” A judgment lien is a non-consensual lien that results from a plaintiff/judgment creditor’s successful lawsuit. It is a recorded money judgement against a defendant/judgment debtor.

In 2021, the Arizona legislature amended the Homestead Exemption. The new Bill, which dramatically altered Arizona’s existing Homestead Exemption, became effective on January 1, 2022.

The most favorable change for Arizona homeowners is that the Homestead Exemption amount was raised from $150,000 to $250,000. However, less favorably, the part of the Homestead Exemption which used to prevent a recorded judgment from becoming a lien on a Homestead property was removed. Now, any recorded judgment is automatically a lien against the property. H.B. 2617 33-964 (A)

Under the new law, when you sell your home, any debts to judgment creditors will be paid from proceeds that exceed the exemption amount once any other higher priority liens have been paid. If you will receive less than 80% of the exemption amount, the title company may record a notice of partial release of judgment without giving notice to judgment creditors, but if it is 80% or more, the lien can only be extinguished in compliance with the new rules imposed by the statute, including giving them notice. A.R.S. 33-964 (B)

After receiving notice, a lienholder has 20 days to object to the release of the lien. If they do, the seller will have to clear the lien via a lawsuit. To discourage improper objections, the statute provides that the prevailing party is entitled to actual damages, court costs and attorneys’ fees. Conversely, the lienholder can choose to accept the amount owed and release the lien. A.R.S. 33-963 (3)

The Homestead amendments also affect refinances. Now, any judgment creditor will be paid in full before the homeowner receives any benefit from a cash out refinance. A.R.S. 33-963 (C)

Critics consider the new law exceedingly favorable to creditors. During the legislative debate over the new law, however, Majority Leader Ben Toma, the Bill’s Sponsor, forcefully defended it by arguing that the purpose of the changes was actually to prevent foreclosures, which he said were being incited once debtors had above the protected Homestead amount of $150,000. With the changes to the law, creditors can choose to put a lien on the property instead of foreclosing, which would be preferable for homeowners. House Caucus.

Only a month after the new law took effect in January 2022, a new Bill was introduced that, if passed, will raise the exemption amount to $450,000. The new bill is supported by Tom Farley of The Arizona Association of Realtors and the Arizona Mortgage Lenders Association, among others. The Arizona Creditors Bar Association currently stands alone in opposition.

Property law is complex and ever-changing. It is always good to have an attorney on your side during any transaction or dispute. Our Tucson attorneys can help you at any stage. For more information, call us at 520-297-4411 or click on the CONTACT US link.

June 2022. Please note: this article is not intended to, nor does it, constitute legal advice, and is for informational purposes only. To obtain legal advice, please consult a qualified attorney.