First, the new bill that takes effect in January 2022 does the following things, mostly good:
- A judgement lasts 10 years rather than 5 (they can be renewed)
- The homestead exemption, currently $150,000, is increased to $250,000.
- A recorded judgement will be a lien against all property owned by the judgment debtor, including homestead property.
This last one is interesting. It means that if you do a cash out re-fi, you will have to pay off any judgements before you get any money! Prior to this, a recorded judgment was not a lien, but the creditor could still petition the sheriff to sell any real property to get paid. But during a cash out re-fi, the creditor would not be paid.
“If the judgment debtor receives cash proceeds from refinancing the homestead property that is subject to a judgment lien, the judgment creditor must be paid in full from those proceeds before the judgment debtor or other person receives any proceeds…”
But what happens if you sell your house and you have judgment liens?
“If the judgment debtor receives cash proceeds from refinancing the homestead property that is subject to a judgment lien, the judgment creditor must be paid in full from those proceeds before the judgment debtor or other person receives any proceeds
If the anticipated payment to the judgment debtor will exceed $200,000 (80% of the exemption), the lien is extinguished as to the homestead property, subject to compliance with requirements for notice and opportunity to object on the part of the judgment creditor. Specifically, in such circumstances:
- The title insurer must mail a notice to the judgment creditor (20 days before the sale is final) by certified mailing, informing the judgment creditor of the position of the title insurer (not the judgment debtor) that the judgment creditor’s lien will be extinguished by the voluntary sale (A.R.S. § 33-364(B) as amended eff. 1/1/2022); and
- If the judgment creditor has “good cause to believe that the judgment lien should not be extinguished,” the judgment creditor has 20 days after the date of the title insurer’s notice to submit an objection.”
What does this mean? It is confusing. What is the definition of “good cause”? And here is the real issue:
If the judgment debtor will not get paid anything, or will get paid in full, then the sale can go through. But if the judgment debtor would only be partially paid, then the sale cannot go through! Why? Because the debtor needs to either be not paid at all, so there is no release of the lien, or they get paid off so the lien is released. There is not middle ground. This has to be an oversight by the legislature, because under current law (§ 33-1103(A)(4) ) the creditor can still force a sale as long as the proceeds of the sale will exceed the homestead exemption. Hope they get it fixed.