ADJUSTMYLOAN.COM EXPLAINS ARIZONA’S ANTI-DEFICIENCY LAW

Okay…first a quick disclaimer:  AdjustMyLoan.com (Arizona Loan Modification Experts) is not giving you legal advice, stop foreclosure advice, or creating any type of client-Attorney relationship.  This is informational only and we suggest you speak with a trained real estate / tax attorney about your specific situation and the rules / laws in Arizona as they pertain to Arizona’s Anti-Deficiency Statutes.  Now, on to the good stuff.

When a homeowner purchases residential property in Arizona and defaults on their loan(s), their lender(s) have certain remedies they can pursue.  They can sue the borrower directly or conduct either a Judicial or Non-Judicial foreclosure.  Since Arizona is a Trust / Deed state, in most cases lender(s) file for foreclosure (sending you a Notice Of Default) and conduct a Trustee Sale (non-judicial foreclosure).

In some states, when a home is sold at a foreclosure sale and the amount it sells for is not enough to cover the underlying debt secured by the real estate, the lender can come after the homeowner for the Deficiency.  Arizona has two “Anti-Deficiency” statues that will often apply to loans secured by residential real estate that can protect you from this happening!  The first one applies to mortgages that are foreclosed on judicially (this practice is rarely used anymore but if you want to learn more, see A.R.S. 33-729(A)).  The second Anti-Deficiency statute applies only to deeds of trust when foreclosed via a trustee sale (see A.R.S. 33-814(G)).

This is the anti-deficiency rule most homeowners care about and the one we will focus on.

In order to be protected under this statute, you must have residential property that is used for single-family or dual-family dwelling, and on 2 1/2 acres or less.  (Commercial properties and Multi-Family units larger than a duplex are not protected under this statute)  Next, you want to understand what kind of money you borrowed.  Answer this question; Did the money you borrowed pay for all or part of the home you purchased?

PURCHASE MONEY

If all or part of the money you borrowed was used to purchase the property, NO DEFICIENCY will be available except in the case of voluntary waste (A.R.S. 33-729(A)).  Voluntary Waste is when you damage the home and diminish the value (so if you are short selling your home or letting it go to foreclosure, don’t hire a salvage company to come gut the property…you can be held liable for all damages!!!)  We consider money borrowed to purchase the property as “Purchase Money” because you basically went to a bank and borrowed money to buy a home and the home itself was the only security for the loan!

Refinance loans also fall under this protection as long as you did not get a “Cash Out Refi”.  The law is a little unclear if a lender can actually come after you if you did a “Cash Out Refi”  because the Anti-Deficiency protection under A.R.S. 33-729 (A) applies to loans used for payment of all “or part” of the purchase price!  (See Bank One v. Beauvais, 188 Ariz. 245, 937 P. 2d 809 (App. 1997))  So if you did a “Cash Out Refi” and you are being sued for a deficiency, you may have a chance….but probably not!

NON PURCHASE MONEY

If the money you borrowed was not used to purchase the property “Non-Purchase Money“, then you might have a problem (Home Equity Lines of Credit fall under this type of money).  Your lender can choose to either sue you directly on the note and waive security of the mortgage or deed of trust, file a Judicial Foreclosure and after the sale sue you for any deficiencies, or just continue with a Trustee Sale.  If they just continue on with the Trustee Sale, then you are in the clear and should be protected against further judgements (See A.R.S. 33-814 (G)).  If the lender decides to file a Judicial Foreclosure they will file a lawsuit and seek a judgement foreclosure on the mortgage or deed of trust.  This process is expensive and time consuming (sometimes lasting up to 12 months).  If this happens, the homeowner will have up to 6 months from the date of the filing to bring the loan current, but if they fail to do so, the property will be sold at a sheriff’s sale and the lender will have up to 3 months to sue for the deficiency.  The amount of deficiency is typically limited to the difference between the total amount owed and the fair market value of the property (not necessarily the auction price).  Lastly, the lender can just sue on the note, forgoing any security in the property.  They would do this if you have little or no equity, have other collectible assets, and they do not want to wait up to a year for a Judicial Foreclosure to work its way through the system.  THIS IS THE ONE YOU NEED TO BE WORRIED ABOUT AND IF YOU DO GET SUED…HIRE AN ATTORNEY IMMEDIATLY!

FHA, VA, AND HUD LOANS

These type of loans have different collection rules and can result in action against the person.  If you have these type of loans, we suggest you get real proactive real quick when working with the lender(s) and if you do get in trouble, hire an attorney to represent you!

SUMMARY OF ALL THIS LEGAL MUMBO JUMBO

Arizona is a Trust / Deed state meaning we use Deeds of Trust to secure residential real estate.  If you have a single family or duplex home on 2 1/2 acres or less, and your loan is “Purchase Money”, you are protected from deficiency regardless if the lender uses a trustee sale or judicial foreclosure.

If your loan is NOT “Purchase Money” you may be liable for any deficiency if your lender uses a Judicial Foreclosure, or waives the deed of trust and sues directly on the note.  If your lender decides to do the traditional Trustee Sale, you are protected from further deficiency judgements!

CAN AN ARIZONA LOAN MODIFICATION GIVE ME DEFICIENCY PROBLEMS?

No, an Arizona Loan Modification will not trigger a deficiency judgement because you are not selling the property, you are just recasting the mortgage.  AdjustMyLoan.com helps homeowners audit, package, propose, and negotiate loan modifications on their behalf.  In every loan modification proposal we build, we ask for a reduction in the principal amount owed  (Principal Balance Reduction).  Many homeowners are “upside down” in their mortgage(s) and owe as much or more than their home is currently worth so we attempt to reduce the amount owed to reset the loan back to current market values.  If approved by your lender(s), this Principal Balance Reduction can trigger a tax event and the lender could issue a 1099(c) in the amount that was written off, BUT WILL NOT AFFECT OR CAUSE A DEFICIENCY EVENT!  We ask all lender(s) to waive their right to 1099(c) our clients as part of the acceptance of our proposals…in most instances this works and the lender absorbs the tax ramifications as part of the deal!

ADJUSTMYLOAN.COM “ARIZONA LOAN MODFICATION EXPERTS” WANTS TO EARN YOUR BUSINESS!

AdjustMyLoan.com is a national loan modification company based out of Phoenix, Arizona.  Our Loan Modification Experts want to educate homeowners on any “Stop Foreclosure” options available to them and teach them how a loan modification can help them avoid foreclosure, lower their monthly mortgage payment, and maintain their credit.  We are a member of the Better Business Bureau and have many referrals and testimonials to prove our business ethics.  We offer FREE LOAN MODIFICATION CONSULTATIONS to see if you qualify for any Arizona Loan Modification Programs and have a tracking system so you can follow your loan modification progress from start to finish.  If you are interested in learning how a loan modification can help you and your family, call the phone number below today!