Case Law Update

January 7, 2019 Gregory P. Gillis Construction Law

Court opinions have been issued in two recent Arizona cases regarding judgments.

The first opinion, In Re Casillas, Sr., addressed the deadline to renew federal judgments under Arizona law and the impact of a pending bankruptcy case on that deadline.

The Court first noted that there is no federal statute specifically governing renewal of judgments. Therefore, judgments issued by the U.S. District Court for Arizona are renewed in accordance with Arizona law. The Court in Casillas, citing prior bankruptcy cases, determined that renewal of a judgment is a ministerial action and not an enforcement action. Therefore, the automatic stay of bankruptcy does not stay the deadline to renew a judgment.

Effective August 3, 2018, the deadline to renew judgments in Arizona was extended from five years to ten years from the date of entry by the court or prior renewal. As a result, any state or federal judgment that did not expire prior to August 2, 2018, is now valid for ten years instead of five years. This extended deadline may allow equity to build in a judgment debtor’s home, making it easier to enforce judgment liens against the home.

The second case, Pacific Western Bank v. Mark Wallace Castleton, addressed the seeming disparity between Arizona statutes that (a) provide that judgment liens do not attach to homestead property and (b) allow the forced execution sale of homestead property.

The Court noted that, pursuant to Arizona’s judgment lien statutes, a recorded judgment becomes a lien on all real property owned by the judgment debtor (A.R.S. § 33-961[A]), unless the property is exempt from execution including homestead property (A.R.S. § 33-964[A]).

In Arizona, a person may claim a homestead exemption in their personal residence of $150,000 in equity which is “exempt from attachment, execution or forced sale” (A.R.S. § 33-1101[A]). Any person entitled to claim a homestead exemption holds the homestead property free and clear of the judgment lien (A.R.S. § 33-964). These statutes establish the general rule that a recorded judgment does not become a lien on homestead property. The statutes were clarified in the earlier case of Evans v. Young, which allowed a judgment creditor to reach excess equity in homestead property by invoking the right to an execution sale under A.R.S. § 33-1105. This statue allows the forced sale of property to a bidder whose offer exceeds the sum of the homestead exemption plus the value of any consensual liens on the property having priority to the judgment.

The Pacific Western case found that this process must be followed in order to realize on any excess amounts above the homestead exemption. A.R.S. § 33-1103(A)(4) enables a creditor to satisfy a judgment from property that is subject to a homestead, but the creditor can do so only by following the forced sale procedure of A.R.S. § 33-1005. Thus, a judgment debtor’s personal residence that is homestead property may be sold by forced execution sale, provided there is excess equity over the debtor’s $150,000 homestead exemption and any consensual liens having priority to the judgment.

For parties with outstanding judgments, recent statutory changes provide that existing judgments are now valid for ten years. Even if the judgment debtor has filed bankruptcy, a judgment may be renewed without violating the automatic stay.

These are intricate areas of the law, and any attempts to conduct an execution sale against homestead property should be done with the advice of your attorney.