New Law Regarding Arizona Anti-Deficiency Judgments

Arizona’s anti-deficiency statue goes into effect September 30, 2009. The Federal Law prohibits lenders from recovering assets against borrowers, such as autos and bank accounts, after the lender forecloses on the borrower’s property. There are key requirements that apply, to fall under this new statue.

The residence must be on 2.5 acres or less, limited to a single or two family dwelling, must be “utilized” for dwelling purposes, wholly or partially occupied and it must be a finished product. Homes that are still under construction or not complete will not qualify under the anti deficiency statues.

Investment properties have to be occupied by the person on title for a minimum of 6 months to qualify under the anti-deficiency statue. In other words the investor would not be liable for any deficiency arising out of the foreclosure or trustee sale. The banks or lien holders could not look for additional assets to satisfy the remaining debt after the trustee sale is complete.

Investors beware. If the investor does not occupy the residence for a minimum of six months and there is a second lien on the property, such as a home equity line of credit, the investor could be liable for any unpaid debt or deficiency arising out of the trustee sale. This means that after the Deed of Trust is recorded after the trustee sale is completed, the bank could file a judgment or lawsuit against the investor for any remaining debt.

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.

An example of a recourse loan would be a home equity line of credit. The home was used as collateral but the loan was not originated when the borrower purchased the home.

Under the Arizona anti deficiency laws, the lender on the purchase money loan would have no recourse other than to take back the property. The lender who has the second position home equity line of credit could and usually does enter into judgment and possibly lawsuits against the homeowner.