Bankruptcy

One Million Repossessions of Houses This Year; Three Million Defaults. Will the Arizona Homestead Exemption Save You? Well, No.

By Joseph McDaniel, Esq.

In an ordinary year, there are going to be about 100,000 home repossessions by banks and other lenders.

But this is no ordinary year.

The United States is currently on track for more than 1,000,000 bank repossessions of houses this year. The precise name of the precise legal technology used to achieve those repossessions are a little different from state to state to state, because the law of ownership of property is mostly state law, not federal law.

In some states, it's called a mortgage foreclosure, and that technology is available to lenders in Arizona. But here in Arizona banks usually use the trustee's sale, because it's faster and cheaper for them. A trustee's sale in Arizona usually starts after the homeowner has been in default on payments for about 90 days, and the trustee's sale, once begun, runs 90 days.

If a Chapter 7 bankruptcy is filed just prior to the trustee's sale, that will stop it for a little while, but not forever. It only stops the process until the bank files a Motion to Lift the Stay, and the answer date on that is about 30 days, and there is no effective defense in most cases.

There are only two things you can say in a response to a motion to lift the automatic stay in a Chapter 7 that can stop the process, and neither of them make a lot of sense; one is that there's equity in the property for the estate, and the other is that the property is necessary for an effective reorganization.

But there's no equity for the estate, because there's a $150,000 homestead exemption in Arizona, and if there's equity, it ain't more than $150,000!

And the house is certainly not necessary to an effective reorganization, because a Chapter 7 isn't a reorganization case!

So figure the most you'll get in extra time on a trustee's sale in Arizona if we file a Chapter 7 bankruptcy for you is sixty days on the outside.

A lot of people believe (I know this because I've been a guest speaker on some radio shows, and people always ask this one, and they never believe my answer, and they get cranky with me when I tell 'em) that the homestead statute in Arizona means that if they get sick and can't make their payments, they get to keep their house anyway.

Well, Virginia, in this context, there ain't no Santa Claus.

The homestead exemption in Arizona is simply not effective against a consensual lien like your mortgage or deed of trust.

And here's the homestead exemption in Arizona, for your leisure reading (and remember to check that this is the most recent version of the homestead statute before you rely on it in any way. In fact, check with an experienced, board certified bankruptcy lawyer in Arizona before you try to do any planning based on the law, because insolvency and bankruptcy law are ten finger exercises, and understanding the interplay of both the Federal Bankruptcy Statutes and the Arizona State Exemptions is not always easy):

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

A. 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.

B. 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.

C. 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.

NOTHING HERE CONSTITUTES LEGAL ADVICE RE A CHAPTER 7, CHAPTER 13, CHAPTER 11, OR CHAPTER 12. FIND AN ARIZONA BANKRUPTCY LAWYER WHO IS BOARD CERTIFIED IN BANKRUPTCY LAW, AV RATED, AVVO 10 RATED, ON SUPERLAWYERS, OR JUST VERY EXPERIENCED AND A FORMER CHAIR OF SOME BANKRUPTCY SECTION OR COMMITTEE. NOTHING HERE MAY BE USED AS LEGAL ADVICE IN CONNECTION WITH ANY BANKRUPTCY, WHETHER THAT BANKRUPTCY IS IN PHOENIX, GLENDALE, TEMPE, MESA, SCOTTSDALE, OR ANYWHERE ELSE.

Full post as published by Arizona Bankruptcy Attorney Blog on July 19, 2010 (boomark / email).