Arizona Anti-Deficiency Statutes
Aug 14, 2009 Real Estate
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Just imagine buying a home and getting into financial trouble. You try to sell your home to no avail. So you decide to “wash your hands” and walk away. The home forecloses and all of sudden you’re served a judgment to pay thousands of dollars. This is what the new Arizona’s anti-deficiency statue addresses.
The law which takes effect September 30, 2009 prevents a bank from going after the borrowers assets, such as cars and bank accounts once the home is foreclosed upon. The statue addresses two major factors, the type of owner-occupancy and the type of loan. Based on these two type will determine if the law applies.
If the property is completed and is held as an investment and only used occasionally, this would qualify under the anti deficiency statue and the homeowner would not be liable for any deficiency arising out of a trustee sale. Once the trustee sale is complete, the deed of trust does not allow the bank to look for other assets to satisfy the remaining debt.
Let’s talk about “recourse” loans verses “non-recourse” loans. A loan is “recourse” if the borrower or homeowner is personally liable for the entire amount due even after the home is foreclosed. A lender can pursue for the deficiency after foreclosure including a judgment or a lawsuit.
A “non-recourse” loan means the lender cannot pursue a deficiency against the borrower or homeowner. The only recourse the lender has is to repossess the property.
A bank only has the option of repossessing the property if the guidelines don’t meet the Arizona anti-deficiency law. Under this circumstance, it would be a “non-recourse” loan. The bank only has one option, and that is foreclosing on the home and cannot go after any assets of the homeowner.
Some types of “recourse” liens or loans might be a Home Equity line of credit. Possibly a second position loan when the borrower received a loan for a pool. Usually second position loans use your home as collateral and were applied for by the borrower after they first purchased the home. They closed escrow originally and then at a later date borrowed money for home improvements, vacations, etc. The bank or lender then has “recourse” to pursue the homeowner for the unpaid lien through a judgment or lawsuit.
A good analogy of a “recourse” loan would be a line of credit from the bank. The bank loaned the homeowner money and used their home as collateral. This loan was acquired AFTER a Deed of Trust was initially established. Therefore the bank could pursue a judgment or lawsuit against the homeowner. One of the main reasons this law was re-addressed after being in effect since 1990, was the 2nd mortgages that were being borrowed by the homeowners and the today’s market value on a home is substantially less than what is owned of the 1st mortgage, meaning the 2nd is not getting a dime in return.
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