Arizona homeowners should embrace the protections Arizona’s homestead exemption offers; however, it is important to understand how exactly you are protected. As of January 1, 2023, the amount of equity protected under the homestead exemption increased from $250,000 to $400,000. This increase was a part of the Predatory Debt Collection Protection Act, that was passed in November of 2022. The Arizona homestead exemption is designed to protect homeowners by allowing you to shield up to $400,000 of equity from creditors. It is important to note that the Predatory Debt Collection Protection Act also increases the homestead exemption annually, beginning in January of 2024.
§33-1101 states that a homeowner may claim homestead exemption for their interest in real property in one compact body on which exists a dwelling house in which a person resides, their interest in one condominium or cooperative in which the person resides, a mobile home in which the person resides, or a mobile home in which the person resides plus the land it is located. This includes a condo, townhome, or single-family home where the person resides. Each person is only allowed one homestead exemption. The cash proceeds protected by the exemption are protected for 18 months after the sale of the property or until the person establishes a new homestead with the proceeds.
If a creditor files lawsuit against a homeowner and obtains a judgment, the creditor may record a judgment lien against any real property the person owns. Recording a Declaration of Homestead protects the homeowner’s principal residence up to the statutory maximum and from this type of general debt:
· Debt from credit cards
· Debt from unpaid medicals bills
· Debt from accidents
· Debt from personal or business Loans
However, it is important to know that after January 1, 2022, the rights of Arizona creditors were expanded. Now, judgment creditors have the right to maintain a passive lien on a homestead. This means that judgment creditors can be paid in the event of voluntary or involuntary sale of the property, when the proceeds exceed $400,000. For example, if your home is voluntarily sold for $500,000 and your mortgage debt is $100,000, the entire $400,000 of excess proceeds will be protected under the homestead exemption. But, if you instead sell your home for $600,000, the excess amount over $400,000 (in this case $100,000) will be paid to the judgment creditors. Additionally, the homestead exemption does not protect cash proceeds from refinancing your homestead property. If you receive any cash in excess of your home loans, after refinancing, that cash will be paid to creditors first.
An Arizona Homestead is a powerful and simple tool that can be used to protect your home’s equity. We recommend contacting an experienced Arizona lawyer to discuss how a homestead can help you.