With no fanfare, Governor Ducey quietly signed HB 2617 into law last week. Yet this new legislation threatens every homeowner’s home equity and drastically changes the State’s collection industry.
On its face, the new law seems to be beneficial. It raises the amount of home equity exempt from creditor collection efforts (known as the homestead exemption) from $150,000 to $250,000. However, it simultaneously guts many protections that the homestead exemption previously provided.
Future and past recorded judgments now attach to ANY equity in a person’s home, regardless of whether it is part of the increased $250,000 homestead exemption. Any proceeds taken out of the refinancing must first be paid to the judgment creditor to satisfy their debt and only then can any remaining amounts be paid to the homeowner. Worse still, creditors can force the involuntary sale of the home if the homeowner’s equity exceeds the $250,000 homestead.
The news is even worse for homeowners who have completed bankruptcy. Because judgments now retroactively attach to the homestead exemption, homeowners who received a discharge will likely need to reopen their cases to address this lingering secured interest. Title companies will not take the risk to insure title in a refinance or sale without direction from the bankruptcy court issuing the discharge, which would require the case to be reopened.
Homeowners currently in bankruptcy or those who file after January 1, 2022 may not be able to take advantage of the full increase to the homestead exemption. The bankruptcy protections do not mirror Arizona’s homestead exemption. A debtor cannot exempt interest acquired by the debtor 1,215 days prior to the date of filing that exceeds $170,350, meaning when a debtor purchased their homestead within the 1,215 days preceding bankruptcy filing, $170,350 is the highest exemption a debtor can claim even though Arizona’s homestead exemption is raised to $250,000.
These changes are a radical departure from the homestead protections of the past. ALL homeowners in the state of Arizona should look into these changes before completing any refinance, bankruptcy, or sale that involves their homestead. Guidant Law can help; contact us to learn more.