New Arizona Law Negates Homestead Protection and Allows Creditors to Attach Judgment to Your Home
A new law, which could be described as a wolf in sheep’s clothing, will take effect in Arizona on January 1, 2022. This law, HB2617, has both positive and negative effects on Arizona homeowners. The positive effect of the law? The homestead exemption will be increased from $150,000 to $250,000. There are negative effects associated with this law too, however. The law will retroactively turn any existing judgment into a lien on the judgment debtor’s homestead. An amendment to the bill, called the Toma Floor amendment, will also allow judgment creditors to receive proceeds if a debtor refinances a mortgage on their home – proceeds that would otherwise have been exempt before this new law and amendment were passed.
By taking away the homestead exemption, a debtor’s home will no longer be protected from creditors. All judgments will automatically be converted into a lien that threatens a debtor’s homestead. This new law puts the interest of the creditors ahead of the homeowner’s interest in the home, and puts the homeowner at risk of losing their home.
What does this mean to an Arizonian who files bankruptcy?
When you file bankruptcy in Arizona, you are relieved from personal debt liability. Creditors can no longer sue or garnish your income for a debt. A bankruptcy discharge is designed to give you, the debtor, a fresh start, by eliminating all of your debts.
Before this law was passed, bankruptcy judges knew that no lien could be attached to a debtor’s homestead. This bill will threaten prior bankruptcy cases that may need to be reopened, at cost to the homeowner, to obtain a court order in order to avoid a lien that did not even exist at the time of the original bankruptcy.
It is likely that bankruptcy filings in Arizona will increase as a result of the passage of this law, in order to eliminate the judgment liens on homestead property.
What does this mean to Arizonians who want to refinance a mortgage?
Under this new law, judgment creditors can seize the homestead proceeds of a refinance of a mortgage. If you refinance an existing mortgage to reach excess equity in your home, using that excess equity to help you to pay bills, the new Toma Floor amendment to this law removes the homestead exemption by creating an exception to its application when a refinance occurs. Now, judgment creditors can take the homeowner’s equity on refinance, without regard for any exemption. This will occur without warning to the homeowner in a refinance. The homeowner who has just refinanced will be expecting to receive money needed to pay for bills, repairs to the home, and whatever else they have refinanced to help them pay using their home’s equity. Instead, the judgment creditor will get that money – -not the homeowner – without warning. The homeowner will be left with nothing but a higher balance on their mortgage.
Who can help me to understand the nuances of this law?
Bankruptcy law in Arizona can be quite confusing, especially in the case of a law like HB2617 that, on the surface, looks good because it raises the homestead exemption. When you delve deeper into the law, however, you will find its negative effects on debtors and the threats to those who wish to refinance. It truly is a wolf in sheep’s clothing.
If you have found yourself in debt and don’t know what to do or where to turn, we are here to help! Contact our Arizona bankruptcy lawyers today for more information. We will sit down with you and discuss all of the aspects of your unique and individual case, and how this law may apply to your situation.