Can a debt collector put a lien on your home? Worse yet, can a debt collector foreclose on your house?
*** New Arizona Court Decision ***
Recently, the Arizona Court of Appeals addressed these questions in Pac. W. Bank v. Castleton, No. 1 CA-CV 17-0667 (Ariz. Ct. App. Dec. 27, 2018).
This court decision brought some needed clarity to the question of whether or not your home is in danger if you are struggling to pay your credit card bills. Let’s address these questions separately.
Can a Debt Collector Put a Lien on My Home?
Before a debt collector can even think of putting a lien on your home they are required to file a lawsuit against you, win that lawsuit, and have the court sign a formal judgment against you. If there is no judgment there can’t be a lien (exempt for certain tax debts and HOA debts).
Under Arizona law, an individual or a married couple may claim a homestead exemption in their personal residence of up to $150,000 in equity, which is “exempt from attachment, execution and forced sale.” A.R.S. § 33-1101(A). This “homestead exemption” applies to a single family home, a condominium, or mobile home, so long as you actually reside there.
Further, Arizona provides that any person entitled to a homestead exemption “holds the homestead property free and clear of the judgment lien.” A.R.S. § 33-964(B).
This is where it gets confusing. Arizona law also has a statute that states “[p]ursuant to the judgment lien statutes, a recorded judgment becomes a lien on all real property owned by the judgment debtor, A.R.S. § 33-961(A), unless the property is “exempt from execution, including homestead property.” A.R.S. § 33-964(A). ”.
So one statute states that your home is exempt, but the other statute states that a “judgment Lien”, when recorded with the county recorder, acts as a lien on “all real property”.
The Arizona Court of Appeals held that the key to resolving these two seemingly conflicting laws is found in A.R.S. § 33-964(A), which states that If the “property is exempt from execution, including homestead property” that there is no lien.
So, the Arizona court ruled that a creditor with a judgment cannot put a lien on your home if it is your “homestead” (i.e., you live there).
The court went even further and ruled that even if you have more than $150,000 in equity that a creditor with a judgment cannot lien your home.
This is huge.
Because often what a creditor would do after they received a judgment would be to record it and then sit back and wait for you to sell or refinance your home. Then, because they had a lien (or so they thought), they would be paid out of any proceeds you have that exceeded your $150,000 homestead exemption. Under this Arizona court decision, the court has ruled that the judgment would not act as a lien against your homestead property even if you have more than $150,000.
If you own a home this will make it much more difficult for creditors to collect from you and further will give you additional leverage if you are trying to settle debts because they don’t have collection power they once thought they did.
Can a Debt Collector Foreclose on Your Home?
You may be thinking, “didn’t he just answer this?”
This question is slightly different. As discussed in the question above, a debt collector cannot put a lien on your home if it is your homestead.
However, in the Pac. W. Bank v. Castletondecision the Arizona Court of Appeals ruled that a creditor that has a judgment can satisfy the judgment “by conducting a judicial sale under § 33-1105, but only if it could sell the Home for more than “the sum of the homestead plus the amount of any consensual liens on the property having priority to the judgment.” A.R.S. § 33-1105” Pac. W. Bank v. Castleton, No. 1 CA-CV 17-0667, at *5 (Ariz. Ct. App. Dec. 27, 2018)
Let’s unpack that a bit.
What the court is saying is that a creditor with a judgment can force the sale of your home, even your homestead home, but only if they could sell your home for more than the total of any mortgages you have on the home plus your $150,000 homestead exemption.
For example, let’s say you have a home that is valued at $350,000. Let’s say you have a first mortgage of $225,000 owing. To determine if a creditor could force the sale of your house you take the amount owed on your mortgage ($225,000) and add that to the homestead exemption ($150,000), and you get $275,000. Because the house is valued at $350,000 if the creditor were to force the sale of the house the creditor could pay off the mortgage, pay you $150,000 for the homestead exemption, and then use any additional proceeds to pay off any amounts owed to the creditor under the judgment.
However, let’s say that your home is valued at $350,000, but you still owe $300,000 on your mortgage. When we add the mortgage ($300,000) to the homestead exemption ($150,000) we get $450,000. Because the house is only valued at $350,000 the creditor would not be able to force the sale of your house because there isn’t enough value in your home to pay off both the homestead exemption and the mortgage loan.
This is all good news for consumers, particularly those are dealing with junk debt buyers who often obtain default judgments against consumers without proper notice.
If you are needing to file bankruptcy or needing some help with your debt problems you can give me a call at (480) 420-4028 or schedule an appointment online by clicking below:
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John Skiba, Esq.
We offer a free consultation to discuss your debt problem and help you put together a game plan to eliminate your debt once and for all. Give us a call at (480) 420-4028