By: Ronald Ellett and Brittany Sifontes
Under Arizona law, a recorded judgment does not become a lien on a homestead property. Arizona law provides that a recorded judgment “shall become a lien . . . on all real property of the judgment debtor except real property exempt from execution, including homestead property . . .” A.R.S. § 33-964(A). The Arizona Revised Statutes further prescribes that any person, “entitled to a homestead on real property as provided by law holds the homestead free and clear of the judgment lien.” A.R.S. § 33-964(B).
There is an impressive line of cases holding that a recorded judgment does not become a lien on homestead property under Arizona State law. In all, the Bankruptcy Appellate Panel, the Arizona Supreme Court, the Arizona Appellate Court, and Judge Haines have all ruled that a recorded judgment does not become a lien on homestead property under Arizona law. Furthermore, the Bankruptcy Appellate Panel’s unanimous ruling is controlling precedent.
The only Judge to hold that a recorded judgment becomes a lien on an Arizona homestead property was Bankruptcy Judge Maggoire who, as a result, found himself duly reversed by the unanimous Bankruptcy Appellate Panel in Charles v. Carter Shield, 25 B.R. 331 (9th Cir. BAP 1982). In Charles the facts were undisputed. The Chapter 13 Debtors had equity in the homestead in excess of the homestead exemption amount. The Appellants argued that the recorded judgments did not become liens on the homestead, while the Appellees argued the recorded judgments became liens on any equity above the homestead amount. The Bankruptcy Appellate Panel followed the controlling Arizona Supreme Court cases of Union Oil v. Norton Morgan Co., 23 Ariz 326 (1922) and Security Trust & Savings Bank McClure, 29 Ariz. 325 (1925) in holding that a recorded judgment does not become a lien on a homestead under Arizona law. The Bankruptcy Appellate Panel also pointed out that the Arizona Supreme Court’s ruling in Schreiber v. Hill, 54 Ariz. 345 (1939) was also consistent with the earlier ruling by the Arizona Supreme Court. The Bankruptcy Appellate Panel noted that, “as federal tribunals, neither we nor the court below may depart from this consistent exposition of Arizona law by that state’s highest Court.” Charles v. Carter, 25, BR. 331, 334, (BAP 9th Cir. 1982).
In making its ruling in Charles, the unanimous Bankruptcy Appellate Panel rejected the obligatory argument, made by every creditor, that the statute had changed. The Charles panel considered and rejected this over-used argument. The correctness of the Charles court’s ruling was reinforced the following year by the decision of Evans v. Young, 135 Ariz. 447, 661 P2d. 1148 (App.Div 1 1983). The Arizona Appellate Court conducted a detailed review of the statue and held that A.R.S. 33-964 specifically prevents a recorded judgment from attaching to homestead property. The Evans court unanimously concluded that this result was compelled by the Union Oil v. Norton Morgan Co., 23 Ariz 326 (1922). The principle had been upheld at that point for a period of sixty-one years.
Twenty-five years later, the issue resurfaced once again in Rand v. United Auto Group, 400 B.R 749 (2008) with the judgment holder once again asserting the obligatory “the statue has changed” argument. Judge Haines reviewed the long line of cases that held that a recorded judgment does become a lien against homestead property in Arizona. Judge Haines then reviewed the consistency and logical coherence of those cases. Next, Judge Haines scoured the Arizona Statutes for any changes that could possibly produce a different result. Judge Haines held that under the plain and unambiguous language of the statute, a recorded judgment still does not become a lien against to a homestead property under Arizona law:
[T]he only statutory amendment that might affect the Evans analysis was the addition of the initial “except” clause to the beginning of A.R.S. 33–963(B), “[e]xcept as provided in section 33–1103.” Porsche argues that the addition of the qualifier “except as provided in section 33–1103” refers specifically to 33–1103(a)(4) and allows a recorded judgment to become a lien on homestead property if the debtors’ equity in their homestead exceeds the homestead exemption.
But as noted above, a plain language reading of the revised 33–964(B) reveals that this provision still does not create any judgment liens. Judgment liens are only created by 33–964(A), which contains no exception to the prohibition of any such liens on homestead property. And, as noted above, Porsche’s reading of the effect of the introductory clause of the first sentence of paragraph B would render it contradictory not only to paragraph A but also with the second sentence of paragraph B.
More importantly, however, the statutory amendment has no effect on the analysis or reasoning of Evans. It remains the case that both the homestead statute and the judgment lien statute both conceive of the “homestead” as being the real property, not the equity value of such real property. So when A.R.S. 33–964(A) and (B) both prohibit judgment liens from attaching to “homestead property,” they mean the lien does not attach to the real property, regardless of its value. It would have taken far more extensive amendments to both the homestead statute and the judgment lien statute to change that interpretation of those statutes as clearly held in Evans. It also remains the case that there remains another method in A.R.S. 33–1105 for a judgment creditor to reach the value in excess of the homestead value cap, not by obtaining and foreclosing a judgment lien but rather by requiring an execution sale and obtaining a bid in excess of the consensual liens and the homestead amount. And finally it remains the case that the judgment lien statute still does not expressly permit a judgment lien to attach to property claimed as a homestead, but merely contains an oblique cross reference in an exception to the exception to the statute that creates judgment liens.
In re Rand, 400 B.R. 749, 753-54 (Bankr. D. Ariz. 2008).
As recited by the unanimous Bankruptcy Appellate Panel, “as federal tribunals, neither we nor the court below may depart from this consistent exposition of Arizona law by that state’s highest Court.” Charles v. Carter, 25, BR. 331, 334, (BAP 9th Cir. 1982).
By: Ronald Ellett and Brittany Sifontes