How Does the Homestead Exemption Work, and
Should It Allow You to Not Pay Your Homeowners’ Association Assessments?

Most homeowners have probably at least heard of the homestead exemption. Many probably don’t fully understand how it works, however. The homestead exemption protects up to $150,000 of equity in your home from the claims of creditors (with some important exceptions that I will discuss in a moment).

What do I mean when I say that the homestead exemption protects up to $150,000 of equity in your home? I mean that $150,000 of equity in your single family residence, condominium, co- op apartment, or land with manufactured home is not subject to the claims of creditors. If you own your home without a mortgage and its current market value is less than $150,000, it is completely exempt from claims of creditors. If you own your home without a mortgage and it is worth more than $150,000, your creditors can take it to satisfy your debts, but they have to give you the first $150,000.

HannahTo fully explain how the exemption works, a basic familiarity with the debt collection process is necessary. If a creditor pursues a lawsuit against a debtor, the creditor’s objective is to obtain a judgment against the debtor. If the judge rules that the debt is legally owed, a judgment is entered against the debtor. After obtaining the judgment, the creditor will usually record the judgment in the office of the county recorder of the county where the debtor lives. Recording the judgment creates a lien (a “judgment lien” in lawyer lingo) against any real estate the debtor owns in that county.

The creditor can enforce the judgment lien by either undertaking the legal process for a sheriff’s sale of any real estate the debtor owns, or waiting until the debtor sells any of his real estate. Now, let’s assume that the judgment lien is $100,000, the only real estate the debtor owns is his home, and the home is worth $200,000. If the home is sold at a sheriff’s sale, or if the debtor sells the home while it is subject to the judgment lien, the creditor gets only $50,000, while the debtor gets the remaining $150,000.

The debtor’s $150,000 remains exempt from the judgment lien (and the claims of any other creditors) as long as he promptly invests the money in a replacement residence. In our example, then, he still owes the creditor $50,000, but the creditor can’t collect the remaining debt from a sale of the debtor’s home.

In years past, in order for the debtor to assert his rights under the homestead exemption, it would have first been necessary for him to record an affidavit declaring that his home was subject to the homestead exemption. It was usually referred to as a declaration of homestead. The requirement that a declaration of homestead be recorded in order to claim the homestead exemption was done away with many years ago, although you can still do it (or a creditor can demand that you do it) if you own more than one house and it isn’t clear which one you claim as your residence for purposes of the homestead exemption.

In the above example I assumed that the debtor’s home had no mortgage on it. I did so only to keep the explanation simple. The presence of a mortgage doesn’t change how the homestead exemption works. The exemption attaches to the debtor’s equity, that is, the difference between the value of the property and the amount he owes on the mortgage.

There is an important distinction between a mortgage and a judgment lien. If the debtor’s equity in his home is less than the amount of the homestead exemption, the homestead exemption prevents the creditor from using a sheriff’s sale to satisfy the judgment lien. If the debtor doesn’t pay his mortgage, however, the homestead exemption doesn’t prevent the mortgage lender from forcing a sale of the property to satisfy the mortgage. The distinction arises from the fact that the mortgage, unlike the judgment lien, is a consensual lien, meaning that it was placed against the property with the consent of the debtor. The debtor agreed to let the mortgage lender place the lien against his home in exchange for the mortgage loan, so he shouldn’t then be able to claim that his equity is exempt from that lien.

A few years ago, when homeowners’ associations became unpopular, legislation was proposed to restrict the ability of homeowners’ associations to enforce their assessments by making the homestead exemption effective against liens for unpaid homeowners’ association assessments. Such a law would be contrary to the concept that the homestead exemption is ineffective against consensual liens. A lien for unpaid homeowners’ association assessments is consensual because the homeowners agreed to such a lien when they bought a house in a subdivision governed by documents granting such a right to the association.

If the law is changed so that the homestead exemption does apply to homeowners’ association liens for unpaid assessments, the practical effect will be to make it impossible for a homeowners’ association to collect unpaid assessments from homeowners who have less than $150,000 equity in their home, unless the association can collect the assessments from other assets of the homeowners.

Aside from consensual liens, the other important category of liens that the homestead exemption doesn’t cover is tax liens. Not surprisingly, legislative bodies have concluded that they don’t want to make most taxpayers’ largest single asset exempt from the collection of taxes. So if you don’t pay taxes, the taxing authorities can put a lien on your house and enforce that lien without regard to the homestead exemption. The legislature can do this because they make the rules on both the homestead exemption and the collection of taxes.

Just remember that if you live in a neighborhood that is governed by an association, you can’t rely on the homestead exemption to protect your home if you get behind on the assessments, nor will the exemption protect your home if you get behind on taxes. But even if you have never recorded a declaration of homestead, $150,000 of equity in your home is protected from creditors by the homestead exemption.

quote of the month

Nathan B. Hannah is a Shareholder in the Tucson office, and practices in the areas of estate planning and administration, real estate, and commercial transactions.  He is also a noted blogger, and you can find more of his articles on his private blog,

Contact Attorney Hannah:  or  520/ 322-5000