The Arizona homestead exemption is an important protection offered to debtors when creditors are attempting to seize assets to collect a debt. The homestead exemption provides that the first $150,000 of equity in a person’s primary residence is exempt from attachment, execution, or forced sale. A.R.S. § 33-1101.
How the Homestead Exemption Works
If a homeowner has $150,000 or less in equity in their home, the creditor cannot force a sale of the home to satisfy their claim. In this case, after the debtor paid off a primary mortgage, they would receive no more than $150,000, which would be fully exempt. Therefore, the law will not permit a creditor to force a sale when they will not be able to receive any value from the sale.
If the homeowner has more than $150,000 in equity, the creditor can force the sale. The homeowner would receive their full exemption amount, and any creditors with senior liens (such as a first mortgage) would be paid off, as would the costs of the sale. Whatever amount is left over would go to the judgment creditor.
First mortgage holders, as well as some other lienholders, are exempt from the homestead exemption.
Waiver of the Homestead Exemption
An individual can waive the homestead exemption in one of three ways. A.R.S. § 33-1104. First, the homeowner can file a written declaration with the county recorder’s office waiving the homestead exemption.
Second, the individual waives the exemption by selling or transferring the house. If the property is transferred, the net proceeds of up to $150,000 are protected from creditors, provided that the debtor puts the money into a new home within 18 months. In the meantime, creditors cannot reach these funds.
Finally, the exemption can be waived if the homeowner abandons the property. Abandonment occurs when the debtor is permanently removed from the residence for more than two years.
The homestead exemption only protects a debtor’s primary residence. If you leave the residence for more than two years, you’ve lost the ability to protect it with your homestead exemption. This is an important consideration for debtors that own multiple homes because they will only be able to use the homestead exemption once.
Chernoff Law handles real estate litigation matters throughout Arizona. Contact us by calling 480-719-7307 to discuss your real estate matters.