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Arizona's Anti-Deficiency Statutes Arizona law as outlined in Arizona Revised Statutes, Title 33, Chapter 6.1 provides protection for 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. This only applies if the decrease in value is not due to the homeowner’s neglect. 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 (when a homeowner does anything to devalue the property including removal of fixtures).
The only exception to Arizona's anti-deficiency statutes are VA loans. As decided by recent litigation, VA is allowed to obtain a deficiency judgment despite current state laws that prohibit such actions.
What about a HELOC (Home Equity Line of Credit)?
HELOC loans present a problem for homeowners facing Foreclosure because they remain the responsibility of the borrower after the First Lien Holder forecloses on the property. Because these types of loans become unsecured debt after a foreclosure, the lender can pursue a deficiency judgment against the borrower or simply sell the bad debt to a collection agency, which has 6 years to attempt to collect the debt. This is one of the most vital reasons to Short Sale your home instead of simply letting it go into foreclosure.
Call for more information 623.748.9583
It should be noted that because of the popularity of the 80/20 or 80/10/10 mortgage products many AZ homeowners have a HELOC and do not even know it. Most loans written between 2004 and 2007 where the borrower did not put at least 20% down on the property were written with a HELOC so the borrower would not have to pay PMI (Private Mortgage Insurance).Chances are that if you have a second “mortgage” it is actually a HELOC.
Because interpretation of the Arizona anti-deficiency statutes and related real estate laws can be very complicated, borrowers are advised to seek the assistance of an experienced real estate attorney with any additional questions or concerns.
NEW Anti-Deficiency Law (SB 1271) in AZ
This new law exposes the property owner to considerably more risk of being sued by the lender in the event of a foreclosure. In a short sale, we will aggressively negotiate with the lender to release the lien as well as provide written release of any further deficiency for the property.
Call for more information 623.748.9583
Update on SB 1271
October 1, 2009
We are very pleased to announce that SB 1271 has been repealed due to the efforts of many including Dax Watson, Esq. While most everyone who had read the bill recognized that it was not only severely flawed, but also unconstitutional, it was the legal opinions of Dax and his office that played a large role in convincing the governor to repeal the law.
The [HOLT] Group is proud to be aligned with Dax Watson, Esq. and his office. We highly recommend that all of our short sale clients as well as anyone facing a foreclosure or considering a short sale seek legal counsel from a qualified real estate attorney. We are of the opinion there is none more knowledgeable than Dax and his staff.
Because of our ongoing relationship with Mr. Dax Watson, Esq., our clients receive a deeply discounted rate for a consultation with Dax or another member of his staff. Please contact us to learn more.
Dax R. Watson, Esq.
MACK DRUCKER & WATSON
3200 N. Central Ave., Suite 1200
Phoenix, Arizona 85012
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