Exceptions to the Homestead Exemption

The Arizona homestead exemption protects a homeowner’s interest in real property from certain judgment creditors. The first $150,000 of equity in the home is exempt from seizure by creditors, but there are some exceptions where creditors will be allowed to sidestep the homestead exemption.

Forced Sales by Creditors

In a typical situation, a creditor could file a lawsuit to get a court judgment to enforce their claim. Then, the creditor could attempt to force the sale of the debtor’s home to satisfy the claim.

First, the creditor would have to deliver the proceeds to any senior lienholders. This would include anyone who filed a lien prior to the creditor, including a first mortgage holder. After paying off the senior liens and costs of the sale, the creditor could keep the proceeds to satisfy their claim.

The homestead exemption prevents this from happening in many cases. If the debtor has $150,000 or less of equity in their home, the creditor cannot force the sale. However, if the debtor has over $150,000 in equity, the creditor will be able to force the sale, but will be required to pay the debtor the full $150,000 homestead exemption. Any leftover equity will go to the creditor, after paying off senior lienholders and sales costs.

Exceptions to the Arizona Homestead Exemption

The homestead exemption does not apply to all creditors. A.R.S. § 33-1103 sets forth several types of creditors to whom the exemption doesn’t apply. First, consensual lienholders don’t have to worry about the homestead exemption. This would include mortgage holders and any other liens agreed to by the debtor.

The homestead exemption does not apply to mechanic’s liens, certain homeowners’ association liens or liens for domestic support obligations. In addition, government tax liens, whether from the IRS or a state tax authority, are not subject to the homestead exemption.

It’s important to understand whether a lienholder has to comply with the homestead exemption. If they are required to abide by the homestead exemption, the debtor will receive the protection automatically, without being required to file anything. This protection could be the difference between the debtor keeping their home or being forced to move.

Chernoff Law handles business and real estate litigation matters throughout Arizona. Contact us to discuss your case with an experienced real estate attorney.