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Arizona Foreclosure 101

Understanding Arizona's Anti-Deficiency Statutes

Inquiries about Arizona's anti-deficiency statutes have definitely been the most common questions fielded by our Arizona real estate attorneys over the past couple years. Here's a short, informative article on the topic:

http://ezinearticles.com/?Arizona-Real-Estate-Law---Understanding-Arizonas-Anti-Deficiency-Statutes&id=1376348

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If you've got more questions about the foreclosure process in Arizona you may want to check out our new audio program, Arizona Foreclosure 101.

Understanding Arizona's Anti-Deficiency Laws

In Arizona, absent some agreement, rule or statute to the contrary, a lender can generally seek a deficiency judgment after foreclosing on a property securing a loan, if the property does not sell for enough money to satisfy the debt in full. Fortunately for most typical Arizona homeowners, the Arizona legislature has adopted anti-deficiency statutes that preclude such recourse in many typical fact scenarios. In addition, the parties to a real estate contract may expressly agree that the lender's only recourse is foreclosure on the property itself.

In the event of non-recourse loans, the non-recourse provision should be included in the mortgage or deed of trust. In most cases, the lender agreeing to a non-recourse loan will also want assurances in the loan documents that the borrower will not commit acts of waste.

In the absence of express agreement, Arizona law provides protection for borrowers against potential liability stemming from the sale of a property at less than market value in a foreclosure sale. The borrower, however, must act quickly to protect his or her rights. If the property sells for less than the amount owed to the lender, the borrower is entitled to ask a court to determine the property's fair market value. In the event the court agrees that the far market value is higher than the sales price the buyer gets credit for the higher amount. This not only protects the borrower from an unfairly low price, but encourages lenders to make a credit bid for an amount near fair market value.

There is an even more favorable statute protecting borrowers against deficiency judgments involving single or dual-family dwellings on 2 1/2 acres or less where the loan is "purchase money," meaning it was used to pay the purchase price of the property. Typically, loans used to refinance purchase money loans are also considered purchase money loans, although the use of some of the proceeds to pay other debts, obtain cash out, or for other uses may expose the borrower to recourse liability.

Significantly, even if the loan is not a purchase money loan, the lender's election to utilize non-judicial foreclosure on the deed of trust renders it non-recourse by operation of law. The lender may, however, instead seek judicial foreclosure, which is more expensive and time-consuming, but preserves the ability of the lender to obtain a deficiency judgment. This anti-deficiency statute also allows a lender to seek a deficiency judgment against the borrower in the event of waste.

Because interpretation of the Arizona anti-deficiency statutes and related real estate laws can be very complicated, borrowers and lenders are advised to seek the assistance of an experienced real estate attorney with any questions or concerns they may have.

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If you've got more questions about the foreclosure process in Arizona you may want to check out our new audio program, Arizona Foreclosure 101.

 

Can My Second Mortgage Sue Me?

One of the most frequent questions we receive regarding the effects of foreclosure is whether your second mortgage lender can sue you to recover damages for the amount they were unable to recover from the foreclosure, if they recovered anything at all, after the first mortgage lender has foreclosed on your home.

This question cannot be answered without a complete analysis of your situation.  Among other things, in order to provide a legal opinion of your potential liability, an Arizona real estate lawyer must determine what type of home you live in, how the lender proceeded to foreclosure, when you obtained the loan in question, how the funds were utilized, and what actions the second mortgage lender may have already taken with regard to your loan. Many individuals have heard, and they are correct, that in certain circumstances in Arizona a second mortgage lender cannot sue you for a deficiency.  This is not always the case, however, and before making any decisions based on this assumption you should consult with an experienced Arizona real estate attorney to discuss the facts and circumstances of your case.

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If you've got more questions about the foreclosure process in Arizona you may want to check out our new audio program, Arizona Foreclosure 101.

Arizona Anti-Deficiency Law - SB 1271 Repealed

Many Arizona property owners will be happy to learn that yesterday Arizona Governor Jan Brewer signed House Bill 2008, repealing Senate Bill 1271 that significantly changed Arizona’s anti-deficiency law, particularly in how it applies to investors.  Specifically, SB 1271, which was to take effect September 20, 2009, amended Arizona Revised Statues Section 33-814(G) to permit mortgage lenders to obtain deficiency judgments against certain borrowers after a foreclosure.

The law before SB 1271, and as it will remain unless and until the legislature institutes another change, prevents lenders from suing for a deficiency after a foreclosure provided that the land that secured the loan was 2.5 acres or less and was utilized as a one or two unit dwelling.  SB 1271 could have allowed lenders to sue unless the borrower could prove he or she lived in the property for at least six months and could produce a certificate of occupancy.  The law was flawed in many respects, including being substantially ambiguous so as to invite a flurry of litigation over its meaning.

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If you've got more questions about the foreclosure process in Arizona you may want to check out our new audio program, Arizona Foreclosure 101.