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Homestead exemptions in Arizona

Circumstances arise where you may be unable to pay your creditors and collection agents begin threatening you with lawsuits, judgments, garnishments, attachments.  You may not be able financially to pay the creditors.  Are you at risk of losing your home? This blog discusses the law in Arizona.  Other states have differing statutes and different rules apply.

We need to identify the creditors who are pursuing you.  The creditor who has a mortgage or deed of trust on your home is commonly referred to as a “consensual” creditor which means the mortgage, deed of trust or other type of lien is one which you voluntarily agreed to.  A consensual lien would include the mortgage you signed when you purchased the home, the home improvement loan where the lender was given a lien on your home or any other type of loan where you signed a lien document on your home as collateral for repayment of the loan.  Failing to pay the consensual creditor can result in loss of your home through a deed of trust sale or  mortgage foreclosure. Also, a lien placed on your home for unpaid child support or spousal maintenance and a lien placed on your home for unpaid work done on your home by contractors, can result in loss of your home.

Other types of creditors, however, have a very limited ability to force a sale of your home in Arizona because of the “homestead exemption.”   The first $150,000 of “equity” in your Arizona home is protected from creditors (see exceptions discussed in previous paragraph).  “Equity” is the difference between the market value of your home (what it would sell for) and the unpaid balance of all consensual liens you have placed on the home.  For example, your home is currently worth $200,000 and you owe $125,000 on consensual liens on the home.  The equity is the difference between the $200,000 and the $125,000 or $75,000.  The equity is less than $150,000 and is protected from creditors (see exceptions discussed in previous paragraph).  Your creditors cannot force a sale of the home!

But what if your home is worth $200,000 and you have no consensual liens on it or the total consensual liens are less than $50,000.  The equity is therefore greater than $150,000.  The creditor(s) could force a sale of your home but the first $150,000 of proceeds from the sale of the home must be delivered to you.  The creditor(s) get only the proceeds in excess of $150,000.

If your home is sold (either voluntarily by you or through a forced sale to pay creditors), The proceeds up to the $150,000 can be placed in a separate bank account and protected from creditors for up to 18 months from the date of sale or such earlier time as you purchase a new home.

The homestead exemption is available only on your personal residence.  You can have only one residence on which the homestead exemption can be claimed.  The exemption is “automatic”.  You do NOT have to record any document(s) establishing the homestead exemption. Your home can be a free-standing residence, a condominium or cooperative, a mobile home or a mobile home plus land on which the mobile home is located.