PHOENIX — If you're looking to buy or sell a home in Arizona, a recently signed law could put a wrinkle in the process.
In May, Governor Doug Ducey signed what was known as HB 2617 into law. It focuses on how debt collectors can place liens on your home in order to recoup what you might owe.
On the surface, Bankruptcy Attorney Lamar Hawkins says it looks like a good thing for homeowners - raising the amount of money that is supposed to be protected from debt collectors from $150,000 to $250,000.
"The problem is, that it gutted the protections that the homestead exemption previously provided, past and future recorded judgments now attach to any equity in a person's residence," said Hawkins.
In the past, only consensual deeds, or contracts that you voluntarily agreed to could be attached to a home's value, but now Hawkins says it can be pretty much anything.
"[It] can be something as simple as a credit card," said Hawkins.
Think of it this way.
You are looking to sell your home for $500,000. You owe $300,000 on your loan, so the $200,000 that is left over is equity.
Under the old law's protections and limit of $150,000, creditors would only be able to recoup up to $50,000.
Now, Hawkins says any time a debt collector gets a judgment against you it attaches to your home's equity - meaning they could walk away with the whole $200,000 you may have planned to buy your next place.
"So, in essence, we raised the homestead exemption from $150,000 to $250,000, but made it completely worthless to everybody that owns a house in the state of Arizona," said Hawkins.
He says people who have debt, or even a bankruptcy judgment, need to be aware of these changes since the law allows debts from the past to revitalize themselves and debt collectors a chance to claim any equity they may have.
So, what can you do to make sure you don't get any surprises when selling or even refinancing?
Hawkins says the most cost-effective way is to contact a title company and have them do a title search for you. This will show any judgment liens you may owe.