Arizona Court of Appeals Division One Holds That a Court May Not Rely on Equitable Grounds to Deny a Homestead Exemption Under A.R.S. § 33-1101(A)(1), if the Resident Meets the Statutory Qualifications.

The Rogones filed suit and obtained a judgment in California against the Sassers.  While the California suit was pending, the Sassers completed three property transactions with assistance from the Aiken Schenk firm, including transferring property in Arizona (the “Property”) from one entity to another.  The Rogones brought suit in Arizona to enforce the California judgment.  The trial court ruled that the Sassers executed all three property transactions to delay, hinder, or defraud the Rogones, set aside the transfer of the Property, and ordered the Sassers to sell it and apply the proceeds towards payment of the California judgment.  The trial court amended the judgment twice initially, first to make clear that sale proceeds from the Property were to be applied to the California judgment only “in excess of any valid statutory homestead,” and second to expand the scope of the judgment.  The court also awarded the Rogones attorneys’ fees against the Sasser, but not Aiken Schenk.  Soon after the Arizona judgment, the Sassers moved into the Property and claimed a homestead exemption.  The trial court, however, ruled that they were not entitled to the exemption on equitable grounds.

The Sassers moved for a new trial, but the trial court denied that motion.  After an initial appeal and reinvestment of jurisdiction by the Court of Appeals, the trial court entered a third amended judgment from which the Sassers timely appealed and the Rogones timely cross-appealed.

The ArizonaAppeals Court affirmed in part and reversed in part.  The Court primarily held that a court may not deny a homestead exemption based on equitable grounds.  Under A.R.S. § 33-1101(A)(1), a person may claim a homestead exemption of up to $150,000 if he or she is at least 18 years old and claims an “interest in real property in one compact body upon which exists a dwelling house in which the person resides.”  A.R.S. § 33-1103(A) provides that a homestead is exempt from sale under a judgment except in certain expressly enumerated circumstances, none of which includes discretionary equitable considerations.  Accordingly, the Court held that the legislature had clearly precluded the use of equitable grounds to deny a homestead exemption and reversed the trial court.

The Court rejected the Rogones’ argument that the Sassers were not entitled to a homestead exemption because they moved into the Property after the judgment had been entered, explaining that a debtor may declare a homestead any time prior to a sale.  See A.R.S. § 33-1102(A). 

The Court affirmed the trial court’s decision to vacate the second amended judgment, explaining that the trial court had properly exercised its discretion under Ariz. R. Civ. P. 60(c)(6) based on the circumstances. 

Finally, the Court affirmed the award of attorneys’ fees against the Sassers because their defense was groundless, constituted harassment, and was not made in good faith.  But it also rejected the Rogones’ argument that the Aiken Schenk firm should have been jointly and severally liable for those fees, explaining that there was no evidence that the firm knew that the Sassers intended to defraud the Rogones through the property transfers.

Judge Swann authored the opinion; Presiding Judge Gould and Judge Thompson concurred