Arizona House Bill 2617 (AZ HB 2617) amends four statutes relating to judgment liens and the homestead exemption; it was signed into law on May 19, 2021, and goes into effect on December 31, 2021. A judgment lien is a lien on real property created after a civil judgment is properly recorded. The homestead exemption is the amount of a home’s equity that is exempt from a forced sale. The homestead exemption generally “protects Arizona homeowners from the forced sale of their homes.” Meaning, when a homeowner meets the requirements for a homestead exemption in their property, that property becomes entitled to some protections. Before AZ HB 2617, the homestead exemption generally prevented judgment liens from attaching to the homestead property. While judgment liens could still attach to the homestead property in a forced sale, a judgment lien would not impair the debtor’s interest in the homestead exemption.
Before the AZ HB 2617, “[a]ny person entitled to a homestead exemption ‘[held] the homestead property free and clear of the judgment lien.’” AZ HB 2617 removes many protections for homeowners with adverse civil judgments. A judgment lien now attaches directly to a homestead property after the creditor records a judgment lien in the county where the property is located. The judgment lien’s attachment is automatic and retroactive, meaning past civil judgments will become judgment liens. While AZ HB 2617 also increases the homestead exemption amount from $150,000 to $250,000, judgment liens now attach to that increased exemption. Homeowners with adverse judgments against them, also known as judgment debtors, no longer own their homestead free and clear of any judgment liens. Creditors with successful civil judgments, also known as judgment creditors, have several new ways to collect on judgment liens.
AZ HB 2617 dramatically reduces the homestead exemption’s protections for debtors. After December 31, 2021, creditors can use the homestead property to collect on civil judgments. AZ HB 2617 entitles judgment creditors to cash proceeds from a judgment debtor’s cash-out refinance. Additionally, a creditor may be entitled to collect on its judgment lien through a debtor’s voluntary sale of their homestead property. Finally, judgment creditors maintain their right to force the sale of the homestead property if certain conditions are met.
While homeowners will qualify for a larger homestead exemption amount, judgment debtors will likely be unable to take advantage of the increase. Judgment debtors will have less access to refinancing capital and will potentially face greater difficulty when voluntarily selling their homestead property.