The Arizona Homestead 

        I. Introduction

When people get into financial trouble, one of the first things they think about is whether their home is safe from creditors. Creditors, on the other hand – who are often eager to find assets of the debtor to satisfy an unpaid judgment – often look to the biggest asset that most consumer debtors own: their home. Both debtors and creditors, however, should proceed with caution. Creditor, for example, should be careful not to expend time and resources attempting to collect on an asset that they have little hope of reaching. Creditors also must be cognizant about being too aggressive in their efforts to collect an unpaid debt, which could create liability for violating certain rights of the debtor. Debtors, likewise, need to be diligent about asserting their rights and protecting their exempt property.

      II. Protecting One’s Home—the Arizona Homestead

Arizona has what’s called a homestead exemption, which gives certain protection to the debtor’s home. See A.R.S. §§ 33-1101 et seq.  Under the homestead exemption, the first $150,000 in equity in a debtor’s home is exempt from certain creditors, which means that generally creditors cannot reach that equity. What this means practically is that if a debtor has less than $150,000 in equity in her home, her home is completely exempt from the claims of certain creditors. Id.

But there’s an important caveat. If a debtor has more than $150,000 in equity, although the first $150,000 is protected from creditors, any amount over $150,000 is not. What this means practically is that for debtors who have more than $150,000 in equity in their home, a judgment creditor may force the sale of the debtor’s home to reach the equity in excess of $150,000. See A.R.S § 33-1105. In this situation, the debtor will be entitled to the first $150,000 from the proceeds of the sale. Id. The rest of the proceeds would be used to pay the cost of the sale, the balance on the mortgage or mortgages, and the judgment creditor. Id. Once the property has been sold, the debtor has 18 months from the date of sale to reinvest their homestead proceeds in a new home. See A.R.S. § 33-1101(C). During this 18-month period, creditors may not attach or execute on the debtor’s $150,000 of exempt proceeds. Id; see also In re White, 389 B.R. 693, 697 (B.A.P. 9th Cir. 2008).

     III. Exemptions to the Homestead Exemption

As mentioned above, there are some types of creditors to which the homestead exemption does not apply. For example, the homestead exemption does not protect a debtor’s home against consensual liens, such as mortgages or deeds of trust. See A.R.S §33-1103. Further, a contract for sale, mechanic’s lien for labor or materials, and judgments for the payment of spousal or child support are also exempt from homestead protections. Id. Additionally, although not directly mentioned in the homestead statute, government tax liens and some liens placed on a home by a homeowners’ association (HOA) are likewise exempt from homestead protections. See A.R.S. § 33-1807; A.R.S §§ 42-17153-17154; see also Gietz v. Webster, 46 Ariz. 261, 50 P.2d 573 (1935).

       IV. How to Claim a Homestead

The Arizona homestead exemption is automatic, meaning that no written claim or particular action on the part of the debtor is required to establish its protection. See A.R.S. §§ 33-1101-1105. A prolonged period of residence creates a homestead by operation of law. Id; see also In re Allman, 286 B.R. 402, 403-404 (Bankr.D.Arizona 2002); In re Calderon, 507 B.R. 724, 730 (B.A.P. 9th Cir. 2014). If a debtor has more than one residential property to which the homestead exemption could reasonably apply, a creditor may require by certified letter that the debtor designate which property is protected. See A.R.S. § 33-1102.

       V. Waiver and Abandonment

                  It is important to note that debtors may forfeit their homestead protections by either waiving their right to it or abandoning the property. See A.R.S. § 33-1104. Abandonment or waiver may occur in at least three different ways: (1) a debtor may file a declaration of waiver or abandonment with the county recorder’s office, (2) the debtor may sells or otherwise transfers the property to someone else (although, as we saw above, in the event of sale the debtor retains the protections on the first $150,000 of the proceeds for 18 months), or (3) debtors are permanently removed from the property. Id.

The first two waiver scenarios are fairly straight forward, but what does a “permanent removal” in the third one look like exactly? Well, the law further explains that a debtor may be away from the property “for up to two years without an abandonment or a waiver of the exemption.” Id. Courts interpreting the law have reasoned that if a debtor has been away from the home for fewer than two years, there is a presumption that she has not abandoned the property. See In re Calderon, supra at 730. On the other hand, if a debtor has been living away from the home for more than two years, courts will presume that the property has been abandoned for the purposes of homestead protections. Id.

Please note that the preceding information is informational only, and is not intended to be legal advice. If you, or someone you know is facing a foreclosure action on a home or would like to commence a foreclosure action, or any other real estate legal matter, contact the experienced Tucson attorneys at Harlow Spanier & Heckele PLLC.  (520) 495-0869 or [email protected]