Introduction
While your inheritance is supposed to be a gift specifically for you, it is often considered a source of money for creditors looking to be paid. Generally, when an individual receives an inheritance, they become the legal owners of everything they receive.
This means that if the deceased leaves their home to a beneficiary, that beneficiary gains the title to the house. If there are no debts owed or liens on the home, the beneficiary is free to do whatever they would like with the home, but if there are outstanding debts or a lien on the house, the beneficiary will have to make difficult decisions.
What is a Lien?
In a civil court case, after the judge or jury hands down a verdict, a judgment is entered by the court. This judgment sets forth the results of the case, and it often includes an order for payment from one party to another.
Even though there is a court order requiring an individual to pay the other party, it is common for a person not to make any payments. When a person who owes money (the debtor) doesn’t pay up, the other party (the creditor) is allowed to take legal action, such as placing a lien on the debtor’s property.
A lien is a claim or legal right against a debtor’s assets, and their assets are used as collateral to satisfy a debt. For instance, if a debtor isn’t making payments on the $250,000 they owe to their creditor, the creditor may place a lien on the debtor’s home.
Placing a lien on an asset such as a home doesn’t always force the debtor to sell their home to pay off their debt. Instead, the lien allows for the creditor to be paid if the house is ever sold. A lien gives the creditor the right to be paid the money they are owed directly from the sale of the debtor’s property.
What Type of Property is Subject to a Judgment Lien in Arizona?
In Arizona, a judgment lien can be attached to the debtor’s real estate. This means that if the debtor owns a home, land, condo, or any other form of real estate, any and all of these properties can have a lien attached to them.
How Long Does a Lien Last?
According to Arizona law, a lien is valid for a period of 5 years. Even though a lien is valid for a certain period of time, a lien does not go away without payment.
Instead, if the debtor has not paid off their debt yet, the creditor may apply for a new lien to be placed on the property. This process may continue indefinitely until the creditor is paid.
Inheriting a Property With a Lien in Arizona
When a property owner dies, unless they have filled out estate planning documents, their property will be itemized and distributed to beneficiaries in a court-supervised process known as probate. From there, the court will name an executor whose job will be to pay off the deceased’s debts before distributing any of the assets.
If there is a lien on any property, it can be paid off with other assets such as money in savings accounts, investment accounts, or from the proceeds of a life insurance policy. Even if there are insufficient funds to cover the lien, the home can still be transferred to the inheritor. When the property is transferred to the inheritor, the lien remains on the home, and the inheritor will now be in charge of paying it off.
Arizona Homestead Protection
Arizona has a law known as the homestead exemption that allows homeowners to protect up to $150,000 in home equity from creditors. This means that if a homeowner has a lien on their home for $200,000 and sells their home for $200,000, creditors may only take $50,000.
This law also requires the homeowner to place the proceeds from the sale of their home into a separate bank account that is only used for housing expenses such as purchasing a new home. If the homeowner does not keep the money separate from other accounts and the funds are misused, the money is no longer protected, and creditors may come after it.
How A Probate Attorney Can Help You
If you are set to inherit property that has a lien on it, it’s wise for you to hire an attorney to assist you with removing the lien and protecting you from the creditors. In addition to protecting you from creditors, an experienced attorney may also contest the lien if they feel it is incorrect as well as they can go to court to negotiate a better deal for you.
Inheriting a property with a lien on it is a complex process, and it can open up the inheritor to potential lawsuits from creditors. If you are inheriting a property with a lien on it, contact the JacksonWhite Probate Team to schedule a consultation.
Call our Probate team at (480) 467-4365 to discuss your case today.