Question: We decided to stay in the home in Chandler after trying to sell it for more than a year. We hired contractor to do some remodeling work in the kitchen but it was very poor quality work andas a result, we only paid the contractor $4,000 of the $10,000 bill. The contractor has now recorded a $6,000 mechanic’s lien against our home. We have approximately $80,000 equity in our home, and our understanding is that the homestead exemption protects up to $150,000 equity in our home from any judgments of creditors. If we do not pay the contractor the remaining $6,000 owed for the remodeling work and we are sued by the contractor, will the $150,000 homestead exemption protect the $80,000 in equity that we have in our home?
Answer: No. The “bad” news for you is that under Arizona real estate law the $150,000 homestead exemption does not protect you against mechanic’s liens. The “good” news for you is that, if the mechanic’s lien against the home is not foreclosed upon by the contractor within six months from the date of the recording of the mechanic’s lien, the mechanic’s lien will be extinguished. The foreclosure of a mechanic’s lien requires a foreclosure lawsuit, and many contractors do not want to spend the time and expense incurred in foreclosing their mechanic’s lien. The contractor, however, would still have the right in the next six years to sue you in Justice Court for the $6,000 owed.
Note: Arizona’s $150,000 homestead exemption protects up to $150,000 in equity in a home from judgments for credit card bills, medical bills, or similar debts. If a homeowner consents to a secured interest in the home, e.g., a mortgage loan, the $150,000 homestead exemption unfortunately does not protect a homeowner against the foreclosure of the home. Although most states have some type of homestead exemption, the protection of these homestead exemptions varies significantly from state to state. For example, Florida has an unlimited homestead exemption. This unlimited homestead exemption in Florida protects homeowners from all judgment creditors no matter how large the amount of the judgment, and is the reason that O.J. Simpson and former baseball commissioner Bowie Kuhn moved to Florida and purchased expensive homes.