What’s the law? It used to be that under Arizona’s “homestead exemption” some of the money invested into a home was protected from the reach of creditors. HB 2617 increases the amount of equity now at risk. With the new law, the reach of creditors now extends to $250K in homeowner equity. That’s up $100K from what it was under the homestead exemption. Creditors can take their equity bite retroactively via the reopening of bankruptcy proceedings in cases that were long thought over and done with.
By George Finn | Rose Law Group Reporter
There are two points to take away from this change. Creditors can secure your property as collateral from a judgment; and foreclosing on judgment lien and forcing a sale requires a greater threshold for a creditor to overcome.
It will be interesting to see the effect this has on the already strained supply of real estate inventory and the red-hot market prices considering this would deter seller’s from listing their home. Under this revision of the law, if a debtor wishes to refinance or sell, and a judgment lien encumbers the property, the debtor will be obligated to satisfy any judgment liens at closing resulting in less proceeds available for a purchase.
However, if the debtor decides not to sell or refinance, there is greater protection from foreclosure. Judgment creditors may only force a sale if the homeowner’s equity in the property exceeds $250,000 as opposed to the previous requirement of $150,000.
There may also be an increase in the number of lawsuits because creditors are now afforded an additional avenue to collect on their judgment. They may not be able to force a sale, due to not meeting the equity threshold, but if the owner decides to sell, the encumbrance must be removed in a conveyance. If the debtor decides to refinance, the encumbrance must be removed to ensure the lender has priority over other liens.