Tuesday, April 6, 2010

House rejects expansion of 'homestead' rights

House rejects expansion of 'homestead' rights

Howard Fischer, Capitol Media Services

March 16, 2010 - 5:29PM

Bankers have beaten back efforts to give Arizonans more protection from losing their homes in cases of bankruptcy.

Mortgage modifications see sharp increase

The House on Tuesday gave preliminary approval to a proposal by Rep. Matt Heinz, D-Tucson, to expand the "homestead" protections of state law. That statute defines what cannot be taken from debtors.

But they first stripped out a provision that would have let individuals have equity of up to $300,000 in a home without having it sold out from underneath them. That is double the current figure.

What's left in HB2698, which now needs a final House roll call before going to the Senate, is a new protection for 401(k) retirement plans. That brings them under the same shield from bankruptcy as things like individual retirement accounts.

Heinz, recognizing he could not get the measure as proposed, agreed to accept what he could get.

Bankruptcy is generally governed by federal law, including what individuals can keep if they seek protection from creditors. For example, that generally includes the tools of someone's trade.

But Congress has allowed each state to decide how much someone can protect in home equity.

That was $100,000 until 2004, when lawmakers agreed to hike that to $150,000 to reflect rising home values. That figure, however, represents equity - how much interest people have in their homes - and not the value of the house itself.

Heinz said that still isn't enough for a couple reaching retirement age who bought a house in the 1980s for $100,000, paid off the mortgage, and now find themselves having to declare bankruptcy.

"It might be worth $300,000 or even more," he said. "I just don't believe it is fundamentally acceptable or fair to remove from people (from their homes) in that situation."

But Jay Kaprosy, lobbyist for the Arizona Bankers Association, said that the $150,000 limit is more than sufficient. He said it already is higher than the limits that exist in most other states.

And Kaprosy said lawmakers should not lose sight of what caused the bankruptcy in the first place.

"Decisions were made and debts are owed," he said.

Kaprosy said it might be easy to simply assume that banks are in the position of being able to absorb those debts. But he said others are involved, ranging from credit card companies to small businesses providing services.

"There are folks that are out money because of this," he said.

"Those debts will have to be paid from somewhere," Kaprosy continued. "And that means that the rest of us, in some way, shape or form, are going to have to pay for those debts, either in higher costs - either at the bank or the credit card - or at the retailer."

Heinz said he wasn't asking to have Arizona "become an O.J. state." That refers to the fact that O.J. Simpson managed to hang on to his large home even after declaring bankruptcy in the wake of a civil judgment against him in the murder case of Nicole Brown Simpson and Ron Goldman.

But Kaprosy said $300,000 is still too much. He said $150,000 provides "ample funds for individuals to get back on their feet" after declaring bankruptcy.

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