AZ's New Judgment Lien Judgment Execution And Homestead

A Step-By-Step Guide to Enforcement of Money Judgments Against

a Judgment Debtor’s “Homestead” Property/Residence Under

Arizona’s New Laws to Become Effective on January 1, 2022

By Larry O. Folks

Introduction

Legislation to protect “homestead” property –

historically the family farm and now personal

residences – from loss to judgment creditors is

traceable in the United States to a statute enacted in

Texas in 1839.

Legislatures across the United States

have enacted such laws for the primary purpose of

serving the public interest to allow judgment debtors

to avoid a complete loss of the value of their

“homestead” property to judgment creditors through

forced judgment execution sales.

In Arizona, the “homestead” exemption and

related judgment lien and judgment enforcement laws

have evolved over time. As an example, in 1977, the

dollar amount of the “homestead” exemption was

increased from $15,000 to $20,000, and it has steadily

been increased over time through ongoing statutory

amendments.

More changes to these laws are on the immediate

horizon.

Arizona HB 2617. Specifically, on May 19, 2021,

Governor Ducey signed into law Arizona House Bill

2617 (“HB 2617”), which shall implement wide-

sweeping changes to the Arizona judgment lien,

judgment execution and “homestead” exemption

statutes effective on January 1, 2022.

“Preserving the Family Farm in an Urban Age,” 34-SEP Ariz. Att’y 18 (Kathi

Mann Sandweiss and Roger L. Cohen) citing Act of January 26, 1839, Laws of

Republic of Texas, 3d Cong., 1

Sess. 113.

Id.

Section 5 of Chapter 368, House Bill 2617, Fifty-fifth Legislature, State of

Arizona (2021).

HB 2617 will specifically implement significant

amendments to Arizona’s:

• judgment lien statute located at A.R.S. § 33-964

(the “Judgment Lien Statute”);

• judgment execution statute located at A.R.S. §

12-1551 (the “Judgment Execution Statute”); and

• “homestead” exemption statutes located at

A.R.S. §§ 33-1101 and 33-1103 (collectively, the

“Homestead Exemption Statutes”).

The most significant of these amendments for

judgment creditors shall be:

• the imposition of a judgment lien upon

“homestead” property upon the recordation of a

money judgment in the county where the real

property is located; and

• an increase of the “homestead” exemption

amount allowed for judgment debtors from

$150,000 to $250,000.

This article is a step-by-step practical guide to

help judgment creditors to understand the coming

changes to this area of the law to be implemented by

HB 2617 and evaluate enforcement of a money

judgment against a “homestead” property on or after

January 1, 2022, pursuant to the revised Judgment

Lien Statute, Judgment Execution Statute and

Homestead Exemption Statutes.

Id.

Step 1: Confirm that the Judgment Has Not

Expired

In 2018, the Arizona Judgment Execution Statute

was amended to extend the validity of civil money

judgments from five years to ten.

HB 2617 confirmed the validity of money

judgments for ten years that:

• were entered on or after August 3, 2013; or

• were entered on or before August 2, 2013, and

that were renewed on or before August 2, 2018.

If a civil money judgment has expired, it is no

longer enforceable. As a result, the first step to

enforcement of a money judgment against

“homestead” property is for the judgment creditor to

review the court docket and/or face of the judgment

to determine the date of entry and/or renewal of the

judgment, if applicable. That will allow the judgment

creditor to make the decision concerning whether, or

not, the judgment in hand remains enforceable.

Step 2: Determine Whether the Real Property at

Issue Qualifies for the Homestead Exemption

and the Amount of the Exemption that Applies

HB 2617 includes revisions to the Homestead

Exemption Statute located at A.R.S. § 33-1101(A)

which provide that any person eighteen (18) years of

age who resides in Arizona and is married or single

may hold a “homestead” exemption for the following

types of real property (hereinafter, a “Homestead

Property”):

• the person’s interest in real property in one

compact body on which exists a dwelling house

in which the person resides;

• the person’s interest in one condominium or

cooperative in which the person resides;

A.R.S.§ 12-1551(A).

See, A.R.S. § 12-1551(D) as revised by Chapter 368, House Bill 2617, Fifty-fifth

Legislature, State of Arizona (2021).

• a mobile home in which the person resides; or

• a mobile home in which the person resides plus

the land on which that mobile home is located.

For the most part, the analysis is very straight-

forward to determine whether the real property

subject to collection is a Homestead Property. The

main exception to be aware of as a judgment creditor

is to determine whether the property is a rental

property that the judgment debtor cannot claim as a

Homestead Property.

HB 2617 shall also implement the major change to

the Homestead Exemption Statute of increasing the

dollar amount of the exemption from $150,000 to

$250,000.

Step 3: Determine Whether the Judgment Is a

Lien Upon the Homestead Property

For many years, the Arizona Judgment Lien

Statute has included:

• the general rule that a recorded money

judgment creates a statutory judgment lien on

all real property then owned by a judgment

debtor, or acquired by the judgment debtor in

the future, in the county where the judgment is

recorded; and

• the exception to the general rule that a recorded

money judgment is not a lien upon real property

that qualifies under the definition of a

Homestead Property, which is typically the

judgment debtor’s personal residence, whether

it be a single-family home, condominium or

mobile home.

See, A.R.S. § 33-1101 as revised by Chapter 368, House Bill 2617, Fifty-fifth

Legislature, State of Arizona (2021). Judgment creditors should also be

advised that the homestead exemption amount is the same for an individual

or a married couple.

A.R.S. § 33-1101(A) as revised.

See, the Judgment Lien Statute located A.R.S. § 33-964 (A) and (B) and the

definition of “homestead” property located at A.R.S. § 33-1101(A) and Pacific

Western Bank v. Castleton, 434 P.3d 1187,1189-1190, 246 Ariz. 108, 110-111

(AZ App. 2018)(which includes a comprehensive analysis of a judgment

creditor’s rights with respect to collecting upon a recorded money judgment

against a debtor’s homestead property under Arizona law prior to the

Under the current statute effective through

December 31, 2021, even though the judgment

creditor does not have a lien on the Homestead

Property, the judgment creditor is given the legal

remedy to force a Sheriff’s execution sale of the

Homestead Property, if there is equity in the property

above all consensual liens on the property and the

$150,000 homestead exemption available to the

judgment debtor.

HB 2617 repeals the exception to the general rule

by revising the Arizona Judgment Lien Statute.

As a

result, as of January 1, 2022, all civil money judgments

recorded with a county recorder shall become a lien

upon:

• all real property, including Homestead Property,

owned by the subject judgment debtor in that

county on the date that the judgment is

recorded; and

• all real property that may be acquired by the

subject judgment debtor in that county in the

future.

The practical requirements for a judgment creditor

to obtain a valid recorded judgment lien have not

been changed by HB 2617 and will continue to be

that:

• a certified copy of the judgment will need to be

obtained for recordation; and

• a judgment information sheet must be recorded

with the judgment.

The Judgment Lien Statute also includes certain

transitional rules in new A.R.S. § 33-964(G)

enactment of House Bill 2617).

Pacific Western Bank v. Castleton, 434 P.3d 1187, 1190, 246 Ariz. 108, 111

(AZ App. 2018).

See, A.R.S. § 33-964(A) as revised by House Bill 2617.

Id.

See, A.R.S. § 33-961(judgment recording requirements) and A.R.S. § 33-

967(D)(which provides that the priority of a recorded judgment is established

on the date that the judgment is recorded with the required judgment

information sheet attached). These practical requirements have not been

changed by House Bill 2617.

See, A.R.S. § 33-964(G) as revised by House Bill 2617

concerning when a judgment lien is imposed by the

new statutes. The transitional rules are:

1. If a sale, transfer or refinance of the judgment

debtor’s Homestead Property is completed prior

to January 1, 2022, then the judgment creditor

does not have a judgment lien upon the

Homestead Property.

2. If the judgment debtor receives a bankruptcy

discharge prior to January 1, 2022, then the

judgment creditor does not have a judgment

lien upon the Homestead Property.

3. If the judgment debtor has filed for bankruptcy

protection prior to January 1, 2022, and

ultimately receives a discharge, then the

judgment creditor does not have a judgment

lien upon the Homestead Property.

4. For any sale, transfer or refinance that is

completed on or after January 1, 2022,

judgments that are recorded before January 1,

2022, and that are still valid attach to the

homestead property, are enforceable, and create

judgment liens pursuant to the priority rules

listed in the statute.

Step 4: Determine What Collection Rights the

Judgment Creditor Has Under the Circumstances

as a Result of Its Judgment Lien Upon the

Homestead Property

Judgment creditors must evaluate their collection

rights granted by the new statutes under the particular

circumstances of their case. Several recurring scenarios

faced by creditors when collecting upon money

judgments secured by real property are specifically

addressed by HB 2617 and discussed below.

Id.

“Cash Out” Refinance Transaction by the

Judgment Debtor Concerning a Homestead

Property Secured by a Judgment Lien

HB 2617 grants judgment creditors a new

collection right when a judgment debtor refinances a

mortgage loan on a Homestead Property and there

are “cash out” proceeds available from the refinance

transaction.

In particular, A.R.S. § 33-964(C) has been added to

the Judgment Lien Statute to provide that the

judgment creditor’s judgment lien balance must be paid

in full from the refinance “cash out” proceeds before the

judgment debtor or any other person receives any of

the proceeds.

The new text of A.R.S. § 33-964(C) is as

follows:

C. 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, except

that monies used to pay direct costs associated with

the refinance or to satisfy liens with priority over a

judgment lien on a homestead property do not

constitute cash proceeds. In subsequent refinance

transactions on the homestead property that is subject

to a judgment lien, the judgment lien is subordinated

by operation of law to the new lender’s interest in the

homestead property. A notice of subordination may

be recorded by any person who is a party to that

refinance.

HB 2617 makes a conforming change to the

Homestead Exemption Statute, located at A.R.S. § 33-

1101(C), to provide that “the homestead exemption

does not attach to the person’s interest in identifiable

cash proceeds from refinancing the homestead

property.”

HB 2617 also added the following new subsection

A.R.S. § 33-1101(D), which gives the parties’ guidance

concerning how to determine whether there is equity

in a Homestead Property for the purpose of

complying with several provisions of the Judgment

Lien Statute, Judgment Execution Statutes, and

See, A.R.S. § 33-964(C) added by House Bill 2617.

Id.

See, A.R.S. § 33-1101(C) added by House Bill 2617.

Homestead Exemption Statutes as revised. The new

section provides as follows:

D. For the purposes of determining the amount of

equity in a homestead property that is sold or for

determining whether the property owner is receiving

cash back from refinancing the homestead property,

the parties may rely on the valuation of the property

in the final closing document disclosure that is used

for that transaction

The effect of the above revisions to the Judgment

Lien Statute and Homestead Exemption Statute is to

grant judgment creditors a very significant new

substantive collection legal right to enforce their

judgment lien by executing upon the “cash out”

refinance proceeds that did not exist prior to

enactment of HB 2617.

Stated alternatively, the new amended statutes

will close the loophole that existed to allow judgment

debtors to strip the equity out of their Homestead

Properties and not pay the refinance “cash out”

proceeds to judgment creditors, because the proceeds

by definition under current law are not encumbered

by a lien in favor of the judgment creditors.

Voluntary Sale of Homestead Property Subject to a

Judgment Lien by the Judgment Debtor

HB 2617 has added to the Judgment Lien Statute

a new section, A.R.S. § 33-964(B). This new section

grants a judgment creditor rights with respect to

payment of its judgment lien balance upon a

judgment debtor’s voluntary sale of a Homestead

Property as follows:

B. On the sale of homestead property that is subject to

a judgment lien, the judgment creditor shall be paid

from the proceeds of the sale after the homestead

exemption amount is paid to the judgment debtor as

prescribed in section 33-1101 and after payment of

any liens on the property that have priority over the

judgment lien[.]

This change is a codification of the judgment

creditor’s substantive right to payment under existing

See, A.R.S. § 33-1101(D) added by House Bill 2617.

See, A.R.S. § 33-964(B) added by House Bill 2617.

Id.

lien priority and Homestead Exemption Statutes now

that the judgment creditor’s recorded judgment is

recognized as a statutory judgment lien upon the

Homestead Property.

The primary effect of this new law will be to

expand judgment creditors’ rights to sale proceeds

without having to take other enforcement steps that

were previously necessary as a result of the judgment

creditor not having an actual lien upon the sale

proceeds.

New A.R.S. § 33-964(B) also grants title companies

the right to record a partial release of the judgment

creditor’s judgment under certain circumstances. If the

title company makes a determination that the

payment to the judgment debtor from the proceeds

of the sale of the Homestead Property shall total less

than 80% of the amount of the $250,000 homestead

exemption (i.e., less than $200,000), then the title

company may record the partial release of the

judgment without prior notice to the judgment creditor.

Alternatively, if the title company determines that

the sales proceeds to be paid to the judgment debtor

will exceed the $200,000 threshold, then the judgment

creditor’s lien upon the Homestead Property will be

extinguished if:

• the title company mails a notice (including

certain specific information listed in the statute)

to the judgment creditor by certified mail, return

receipt, which informs the judgment creditor of

the title company’s position that its judgment

lien will be extinguished by the sale transaction;

and

• the judgment creditor fails to object within the

required 20-day statutory notice and objection

period.

If the judgment creditor sends the title company

an objection, prior to expiration of the 20-day

statutory objection time period, which provides that

the judgment creditor has good cause for its

judgment lien not to be extinguished by the sale

Id.

transaction, then the title company may not record the

partial release of the judgment lien.

If a court subsequently determines that the

judgment creditor did not have good cause to object,

then the prevailing party is entitled to a court order

extinguishing the judgment lien on the Homestead

Property and an award of actual damages, court costs

and attorneys’ fees and costs.

If a title company records a notice of a partial

release of judgment lien wrongfully, then the title

company is liable to any party for the actual damages,

including attorney’s fees and costs, that are caused by

wrongfully recording the release.

Involuntary Sheriff’s Execution Sale of the

Homestead Property Forced by the Judgment

Creditor

HB 2617 has been revised to expressly authorize a

judgment creditor to force an involuntary Sheriff’s

execution sale of a Homestead Property (with equity in

it that exceeds the homestead exemption amount)

encumbered by its judgment lien by amending A.R.S. §

33-1103(A) to provide as follows:

A. Real property that is subject to the homestead

exemption provided for in section 33-1101, subsection

A is exempt from involuntary sale under a judgment or

lien, except in connection with:

…..

4. A recorded civil judgment or other nonconsensual

lien that is not otherwise prescribed in this subsection

if the debtor’s equity in the real property exceeds the

homestead exemption under section 33-1101

(emphasis added).

Id.

See, A.R.S. § 33-1103(A) as revised by House Bill 2617.

The example of the Maricopa County Sheriff’s

forced execution sale requirements discussed below is

useful to understand the requirements and collection

rights of a judgment creditor to pursue this collection

remedy.

Judgment creditor (the “Judgment Creditor”)

obtains a money judgment (the “Judgment”) against

an individual judgment debtor (the “Judgment

Debtor”). The Judgment is recorded with the Maricopa

County Recorder (“County Recorder”) while Judgment

Debtor owns a residence located in Maricopa County

that is the Judgment Debtor’s Homestead Property.

Judgment Creditor obtains a Writ of General

Execution from the Clerk of the Superior Court to

direct the Sheriff of Maricopa County, Arizona

(“Sheriff”), to schedule a Sheriff’s execution sale of the

Homestead Property. This is a straightforward

application process; it does not require a hearing, and

the Writ of General Execution is summarily issued by

the Clerk of the Superior Court. The Writ of General

Execution is delivered to the Civil Enforcement

Division of the Sheriff’s Department along with an

initial $200 fee deposit. The Sheriff will schedule an

execution sale of the Homestead Property to enforce

the Judgment only if all of the legal requirements

discussed below are satisfied (“Sheriff’s Execution

Sale”).

The Sheriff’s Execution Sale of the Judgment

Debtor’s Homestead Property will be scheduled by the

Sheriff after:

• it is determined that the legal requirements of

A.R.S. §§ 33-1103(A) and 33-1105(A) are met,

which is that the value of the Homestead

Property exceeds the total of any senior liens

upon the property plus the $250,000 statutory

homestead exemption amount due to the

Judgment Debtor pursuant to revised A.R.S. §

Maricopa County is Arizona’s most populous county. The procedures of the

Sheriffs of other counties differ is small respects, but the process is generally

the same in all Arizona counties.

The requirements for real property to qualify as a Judgment Debtor’s

“homestead” property and for the $250,000 homestead exemption to apply

are set forth at A.R.S. § 33-1101 et seq. as revised by House Bill 2617.

33-1101(A) (the “Homestead Exemption

Amount”);

• the Sheriff makes demand upon the Judgment

Debtor to pay the Judgment, and the Judgment

Debtor fails to pay the Judgment balance; and

• the Sheriff determines that the Judgment

balance cannot be collected by selling the

Judgment Debtor’s personal property.

The Sheriff initially enforces the Writ of General

Execution by recording it with the Maricopa County

Recorder as the act of levying upon the property. In

addition, the Sheriff must publish the Notice of Sale

for three weeks prior to the date of sale and post the

Notice of Sale at three designated public places at

least 15 days prior to the date of the Sheriff’s

Execution Sale. The Sheriff will mail a copy of the

Notice of Sale to the Judgment Creditor well in

advance of the Sheriff’s Execution Sale date.

Once the Sheriff’s execution sale of the

Homestead Property is scheduled, Judgment Creditor

will have to comply with the Sheriff’s bidding

requirements to prepare for and participate in the

Sheriff’s execution sale of the Homestead Property.

The statutes relevant to and specific bidding

requirements of the Sheriff are discussed below.

The Arizona statute, which includes the conditions

that must be complied with before the Sheriff will

even schedule a Sheriff’s Execution Sale of a

Homestead Property, is set forth in full below.

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

A.R.S. § 33-1105.

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.

The Sheriff’s interpretation and implementation of

A.R.S. § 33-1105 to schedule a Sheriff’s Execution Sale

of a Homestead Property and accept a Judgment

Creditor’s bid are set forth below:

• In advance of the Sheriff’s Execution Sale date,

the Judgment Creditor must provide the Sheriff

with the dollar amount of unpaid real property

taxes upon the Homestead Property to be paid

to the Maricopa County Treasurer upon

completion of the sale, good through two weeks

and one day after the scheduled date of the

Sheriff’s Execution Sale (“Senior Real Property

Tax Lien Amount”).

• In advance of the Sheriff’s Execution Sale date,

the Judgment Creditor must provide the Sheriff

with payoff amounts of all Deeds of Trust and

other liens of record senior upon the Homestead

Property that are senior to the money Judgment

being enforced good through two weeks and

one day after the scheduled date of the Sheriff’s

Execution Sale (the “Senior Lien Payoff

Amount”).

• The Judgment Creditor is required by the Sheriff

to bid $1.00 over the total amount of the Senior

Real Property Tax Lien Amount + the Senior Lien

Payoff Amount + the $250,000 Homestead

Exemption Amount as its opening credit bid at

the Sheriff’s Execution Sale.

If the Sheriff’s Execution Sale is of real property that is not a homestead

property, then the Judgment Creditor does not have to pay cash to pay off

the senior liens on the property and is only responsible for paying the

Sheriff’s fees to schedule and conduct the sale. Also, under this circumstance,

The Judgment Creditor must have a representative

physically present at the Sheriff’s office to attend the

Sheriff’s Execution Sale, which is a public auction. The

representative must fully understand the bidding

process and make the Judgment Creditor’s opening

credit bid and any additional higher bids during the

auction sale.

At the beginning of the public auction Sheriff’s

Execution Sale, the Sheriff will announce the total

judgment principal amount, interest accrued upon the

judgment amount until the date of sale, and the

Sheriff’s sale commission and other hard costs. This is

known as the Judgment, Interest and Costs (“JIC”)

announced amount for informational purposes.

For a Homestead Property execution sale, the

actual bidding begins at $1.00 over the total amount

of the Senior Real Property Tax Lien Amount + the

Senior Lien Payoff Amount + the $250,000 Homestead

Exemption Amount as the Judgment Creditor’s

opening credit bid at the Sheriff’s Execution Sale.

If the Judgment Creditor is the successful bidder

for the Homestead Property, the Judgment Creditor is

responsible for paying the $250,000 Homestead

Exemption Amount, the prior unpaid real property

taxes, the prior consensual liens, and the Sheriff’s costs

of sale in cash within five days after the date of the

Sheriff’s Execution Sale.

Any additional amount over the foregoing sums

generated by the bidding process would go toward

satisfying the Judgment. (When the homestead

exemption does not apply, the Judgment Creditor is

responsible for paying only the Sheriff’s fees for the

sale of the property.)

Should the property be more valuable than the

homestead exemption, prior consensual liens,

Judgment amount, and Sheriff’s costs of sale, any bid

over that amount is sent to the Clerk of the Superior

Court as excess proceeds. (If the Judgment Creditor

the Sheriff’s procedure is to have the Judgment Creditor bid $1.00 as its

opening bid. The Judgment Creditor and other bidders must do their due

diligence to understand what liens will have to be paid off if they are the

successful bidder and plan their bidding strategy accordingly. In addition, the

Sheriff’s hard costs and sale commission must be verified with the Sheriff and

taken into account by any bidder at a Sheriff’s Execution Sale.

was the high bidder, the Judgment Creditor would be

responsible dollar-for-dollar for any amount over the

satisfaction of the Judgment, homestead exemption,

prior consensual liens, and Sheriff’s fees).

Conclusion

Effective as of January 1, 2022, judgment creditors

should be prepared to comply with the sweeping new

changes that HB 2617 imposes on the current

judgment enforcement process in Arizona. Failure to

understand these changes and implement policies to

address them may result in the judgment creditor’s

rights being prejudiced.

In addition, the changes to Arizona law imposed

by HB 2617 will have multiple bankruptcy law

implications that will certainly be litigated once the

laws become effective.

Several major bankruptcy law implications will

include, without limitation, that:

• judgment creditors will be secured creditors on

the petition date and have the rights of a

secured creditor in bankruptcy proceedings;

• unless set aside by the Bankruptcy Court,

judgment liens should now pass through the

bankruptcy and remain enforceable post-

discharge in rem against the Homestead

Property through a forced Sheriff’s execution

sale or otherwise; and

• bankruptcy debtors will likely pursue avoidance

actions when the circumstances apply pursuant

to Bankruptcy Code Section 522(f)

(to avoid

the judgment lien as impairing the debtor’s

homestead exemption) or Bankruptcy Code

Section 506(d) and various Bankruptcy Rules to

attempt to strip the judgment lien from the

Homestead Property.

The United States Bankruptcy Code is located at 11 U.S.C. § 101 et seq.

Author

• Larry Folks

Folks Hess, PLLC

1850 N. Central Ave., Suite 1140

Phoenix, Arizona 85004

• www.AZDefaultLegalServices.com

• 602-256-5906 Direct Line

• [email protected]