Judgment Lien Against Principal Residence Prohibited

Question: We are in escrow to sell our Gilbert home. When our daughter went to UCLA four years ago, we guaranteed payment of her credit card. Although our daughter is doing fine now, she dropped out of UCLA and never paid the balance on her credit card. We were sued as the guarantors of her credit card, and we now have a $30,000 credit card judgment against us. The title company says that this $30,000 credit card judgment, unless we pay it off, prevents us from selling our Gilbert home because both the buyer and the buyer’s lender need a “clean” title insurance policy. We need this $30,000 to purchase a new home. Is the title company correct?

Answer: Probably not. Since a 2018 Court of Appeals decision, the Homestead Exemption in Arizona has prohibited judgments from being liens on the principal residence of a homeowner. 246 Ariz. 104. Therefore, you should be able to sell your Gilbert home now and collect all of the sale proceeds, including the $30,000. Furthermore, both the buyer and the buyer’s lender should be able to get a “clean” title insurance policy.

Note: Effective December 31, 2021, however, a new Arizona law removes the Homestead Exemption protection from judgment liens. In other words, after December 31, 2021, a judgment lien will have to be paid before a homeowner can close the sale of a home protected by the Homestead Exemption. This new Arizona law also increases the Homestead Exemption from $150,000 to $250,000.