Can I Keep My Home?

AN EXPLANATION OF ARIZONA HOMESTEAD EXEMPTION LAWS

Arizona Homestead Asset Protection is automatic and exempts up to $150,000 of your homestead equity from unsecured creditor claims. However, under bankruptcy law you may be limited to $125,000 if you have owned the property for less than 3 years and 4 months. Only when more than one property is owned by the same owner is it necessary for the owner to designate which property is the domicle to receive homestead asset protection.

In Arizona, every person age eighteen (18) or older who resides in the state, whether married or single, may own a domicile and hold a “homestead” exempt from attachment, execution and forced sale with certain exceptions, providing owner’s equity in the property is one hundred fifty thousand dollars ($150,000.00) or less.

Exempt from attachment, execution and forced sale means that the property may not be seized by a creditor and the property may not be sold by the Sheriff, and the resident may not be removed from the property against his or her will. It also means that the bankruptcy trustee cannot sell your homestead and use the proceeds to pay your creditors.

The value of the homestead is the value of your interest in the property, not the market value of the property. For example, if the market value of the home was four hundred thousand dollars ($400,000.00) and there was a mortgage of two hundred fifty thousand dollars ($250,000.00), the owner’s equity interest in the property would be one hundred fifty thousand dollars ($150,000.00) which is the maximum amount of the homestead exemption. Thus, the home could not be seized or sold by a creditor other than the mortgage holder(s) or other consensual lien holders including mechanic’s/material men’s lien, tax lien, and HOA lien (after 3 years).

As an example, if the property was worth four hundred fifty thousand dollars ($450,000.00) and there was a mortgage of two hundred fifty thousand dollars ($250,000.00), the owner’s equity interest in the property would be two hundred thousand dollars ($200,000.00). The excess fifty thousand dollars ($50,000.00) (over and above the homestead amount) would be subject to the claims of creditors. In this example, a creditor could force a sale of the home, but the first two hundred fifty thousand dollars ($250,000.00) would go to the mortgage company, the next one hundred fifty thousand dollars ($150,000.00) would go to the owner as the homestead amount, and the balance would go to the creditor.

The property which may be claimed as a homestead may be:

  • Our interest in a dwelling with its land and buildings occupied by the owner as a home in which the person resides OR
  • Your interest in one condominium or cooperative in which the person resides OR
  • A mobile home in which you reside OR
  • A mobile home in which you reside plus the land upon which that mobile home is located (if the mobile home owner also owns the land).

Only one (1) homestead exemption may be held by a married couple OR by a single person residing within the domicile. The homestead exemption automatically attaches to the person’s interest as identifiable cash proceeds from the voluntary or involuntary sale of the property.

The homestead exemption continues for eighteen (18) months after abandoning a domicile in the identifiable cash proceeds or until the person establishes a new homestead, whichever period is shorter. The proceeds of the sale of a homestead may lose its protection if it is co-mingled with other funds or is used to buy another asset and then sold again. In other words, if you got money from the sale of the homestead, you can hold it in a bank account of some kind but don’t invest in something like a business and then sell the business within 18 months and expect to claim it was the same money. Don’t use it to trade on the stock market or currency market or pay for a course to help you get a better job. Put the proceeds of the sale of your home into a separate bank account you identify as your “homestead account.” Do not co-mingle those funds with funds from any other source.

You are entitled to a homestead exemption on the residence you own and occupy by operation of law and no written claim or recording is required.Under and outdated law, you had to record a proper claim of homestead exemption. Under current law, the homestead exemption is automatic, unless you have more than one (1) property to which the homestead could reasonably apply. In that situation, a creditor may require you to designate which property is protected by the homestead exemption.

Arizona Homestead Exemption Statutes
Arizona Revised Statutes Title 33

CHAPTER 8 – HOMESTEAD AND PERSONAL PROPERTY EXEMPTION
Article 1 – Homesteads and Homestead Exemption

33-1101. Homestead exemptions; persons entitled to hold homesteads

  1. Any person the age of eighteen or over, married or single, who resides within the state may hold as a homestead exempt from attachment, execution and forced sale, not exceeding one hundred fifty thousand dollars in value, any one of the following:

    1. The person’s interest in real property in one compact body upon which exists a dwelling house in which the person resides.
    2. The person’s interest in one condominium or cooperative in which the person resides
    3. A mobile home in which the person resides.
    4. A mobile home in which the person resides plus the land upon which that mobile home is located.
  2. Only one homestead exemption may be held by a married couple or a single person under this section. The value as specified in this section refers to the equity of a single person or married couple. If a married couple lived together in a dwelling house, a condominium or cooperative, a mobile home or a mobile home plus land on which the mobile home is located and are then divorced, the total exemption allowed for that residence to either or both persons shall not exceed one hundred fifty thousand dollars in value.
  3. The homestead exemption, not exceeding the value provided for in subsection A, automatically attaches to the person’s interest in identifiable cash proceeds from the voluntary or involuntary sale of the property. The homestead exemption in identifiable cash proceeds continues for eighteen months after the date of the sale of the property or until the person establishes a new homestead with the proceeds, whichever period is shorter. Only one homestead exemption at a time may be held by a person under this section.

33-1102. Exemptions by operation of law, designation of multiple properties on creditor’s request, recording

  1. A person who is entitled to a homestead exemption as prescribed by section 33-1101 holds that exemption by operation of law and no written claim or recording is required. If a person has more than one property interest to which a homestead exemption may reasonably apply, a creditor may require the person to designate which property, if any, is protected by the homestead exemption. The creditor shall demand the designation by sending a letter by certified mail, return receipt requested, to each address of the person which may reasonably be protected by the homestead exemption. The person shall designate the property by recording a homestead exemption in the office of the county recorder where the property is located or by sending the creditor a certified letter, return receipt requested, within thirty days of receiving the creditor’s demand letter. If the person receives the creditor’s letter and fails to respond as provided by this subsection, the person may only assert the homestead exemption by recording a claim in the office of the county recorder where the property is located.
  2. If the person is married, the homestead may be selected from the community property, the joint property or the separate property of the person.

33-1103. Effective date of homestead exemptions; extent of exemptions, exceptions

  1. The homestead provided for in section 33-1101, subsection A is exempt from process and from sale under a judgment or lien, except:

    1. A consensual lien, including a mortgage or deed of trust, or contract of conveyance.
    2. A lien for labor or materials claimed pursuant to section 33-981.
    3. To the extent that a judgment or other lien may be satisfied from the equity of the debtor exceeding the homestead exemption under section 33-1101.
  2. A sale as described in subsection A of this section and not excepted by subsection A, paragraph 1, 2 or 3 of this section is invalid and does not convey an interest in the homestead, whether made under a judgment existing before or after homestead is established.

33-1104. Abandonment of homestead, encumbrance of homestead

  1. homestead may be abandoned by any of the following:

    1. A declaration of abandonment or waiver.
    2. A transfer of the homestead property by deed of conveyance or contract for conveyance.
    3. A permanent removal of the claimant from the residence or the state. A claimant may remove from the homestead for up to two years without an abandonment or a waiver of the exemption.
  2. A declaration of abandonment or waiver shall be executed by the claimant and acknowledged. A declaration of abandonment or waiver is effective only from the time of its recording in the office of the county recorder in the county in which the homestead property is located.
  3. This article shall not be construed to repeal the provisions of section 25-214, subsection C, pertaining to the acquisition, conveyance or encumbrance of community property.
  4. Any recorded consensual lien, including a mortgage or deed of trust, encumbering homestead property shall not be subject to or affected by the homestead claim or exemption.
  5. Notwithstanding the provisions of subsection A, paragraph 2 of this section, a transfer of the homestead property by deed of conveyance or contract for conveyance under a trust, as defined in section 14-1201, in which the claimant retains the power to administer and revoke the trust shall not constitute an abandonment of the homestead.

33-1105. Sale by judgment creditor of property subject to homestead exemption

A judgment creditor other than a mortgagee or beneficiary under a trust deed may elect to sell by judicial sale as specified in title 12 the property in which the judgment debtor has a homestead under section 33-1101, subsection A, provided that the judgment debtor’s interest in the property shall exceed the sum of the judgment debtor’s homestead plus the amount of any consensual liens on the property having priority to the judgment. A bid shall not be accepted by the officer in charge of a sale under this section which does not exceed the amount of the judgment debtor’s homestead plus the amount of any consensual liens on the property having a priority to the judgment plus the costs of the sale allowable under title 12. After receipt of a sufficient bid, the officer shall sell the property. From the proceeds, the officer shall first pay the amount of the homestead to the judgment debtor plus the amount of any consensual liens on the property having a priority to the judgment and then pay the costs of the sale. The remaining proceeds shall be applied in accordance with the provisions of section 12-1562, subsection A. If the sale does not occur, either because of voluntary abandonment by the judgment creditor or because no sufficient bid is made, the judgment creditor may not charge any costs or attorney fees incurred in connection with the sale against the judgment debtor by addition to the judgment or otherwise.

Keeping your Arizona home in a Chapter 7 Bankruptcy vs. Chapter 13 Bankruptcy

Situation

Chapter 7 Bankruptcy

Chapter 13 Bankruptcy

Mortgage current, equity less than $150,000

Home shouldn’t be affected. Continue to make regular payments.

Home shouldn’t be affected. Continue to make payments outside the plan to avoid paying commission to the trustee

Mortgage payments are behind, equity less than $150,000

The trustee won’t have much interest. Make up all back pay unless the mortgage company agrees otherwise

Must make regular monthly payments and make up back payments through the plan.

Equity is greater than the exemption

Trustee can sell the home, pay you $150,000, and pay the rest to the creditors.

Trustee can’t sell your home. Plan payments will be higher to cover the amount of nonexempt equity over the life of the plan.

No equity, mortgage is more than the property is worth and is in default

Temporarily stops foreclosure. Chapter 7 won’t save the home, but you won’t be personally liable for the loan.

If mortgages don’t qualify for dential mortgages, bifurcation is an option.