Under the Arizona homestead exemption, homeowners can exempt up to $150,000 of equity in their homestead. Specifically, A.R.S. §33-1101 states:
A. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following:
1. The person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides.
2. The person’s interest in one condominium or cooperative in which the person resides.
3. A mobile home in which the person resides.
4. A mobile home in which the person resides plus the land upon which that mobile home is located.
Simply put, if a homeowner has $150,000 or less in equity in their home, they do not have to worry about a creditor attaching a judgment or forcing the sale of their home. However, there are exceptions for some creditors such as the mortgagee, lienholder for labor or materials, and child support arrearages. See A.R.S. §33-1103.
Interestingly, in December 2018, the Arizona Court of Appeals ruled on a case where a judgment creditor tried to pursue the buyers of the debtors’ home claiming that the recorded judgment attached to the home and therefore “runs with the land.” The court, however, held that “because of the protection afforded by the homestead statutes, the Judgment never attached as a lien to the Home.”
In this case, the debtors defaulted on a loan for an apartment complex and were later sued for breach of contract. Subsequently, the creditor obtained a default judgment which was recorded and thereafter timely renewed. Years later, the debtors defaulted on a loan secured by their home and they eventually sold that home by way of a short sale.
More than three years after the short sale, the creditor of the default judgment sued the buyers in the short sale, seeking declaratory relief and to quiet title, claiming that the creditor’s judgment was an enforceable lien against the home even though it no longer belonged to the debtors.
The court explained that under A.R.S. §33-964(B), the general rule is that “a judgment lien does not attach to homestead property, and that homeowners hold their homestead property free and clear of judgment liens.” The court also acknowledged that “once a lien has attached, it ‘runs with the land.’” However, the court ultimately found that the creditor’s judgment lien never attached to the home in the first place and therefore “the [prior owners] conveyed the Home free and clear of the Judgment.”
Based on the above, you can rest assured that buyers will not have to worry about a prior homeowner’s creditor trying to claim that a creditor’s judgment is an enforceable lien against a new homeowner’s property. Moreover, if a homeowner has $150,000 or less in equity in their home, absent an exception to the homestead exemption, the homeowner does not have to worry about a creditor attaching a judgment or forcing the sale of their home.