foreclosure in arizona
BANKS NOT GIVING UP JUST YET ON AZ’S ANTI-DEFICIENCY LAWS
Investors and second home owners in Arizona should NOT rest easy on the heels of the legislature’s recent repeal of Senate Bill 1271. Recognizing bad law (SB 1271) and bad policy behind it, not to mention the certain backlash from consumers, one might have thought banks would take their defeat in stride and use their resources to work with borrowers to reduce Arizona’s unprecedented foreclosure rate. Unfortunately, the banking industry does not know how to take it lying down. Accordingly to Tom Farley, CEO of the AAR, local banking associations have rounded up a team of overpriced lawyers and have threatened to file a lawsuit challenging the repeal of Senate Bill 1271 unless they get their way with legislation that would change Arizona’s anti-deficiency statute(s) and the protections they bring to Arizona homeowners following a foreclosure or short sale.
My suggestion to Arizona’s homeowners, realtors and lawmakers: don’t let the banks push bad law and bad policy down your throat without taking them to task. Write your legislators – go to www.azleg.gov and make your voice known. Write your local bank president and tell them where your dollars will go if they move forward with their fight on this issue. Ask them if they received TARP or other subsidies on certain loans. Ask them if they are modifying bad loans or approving sensible short sale transactions. Ask them if they played any role in the current real estate mess in Arizona? Did they make money off risky loans based on shoddy underwriting standards? Ask them what they are doing to get this economy moving again – are they lending based on sound standards, will they lend more if they get their way with Senate Bill 1271?
Marc McCain, Esq.
McCain & Bursh, PLC
(602) 604-2138
STATUS OF REPEAL OF ARIZONA SENATE BILL 127
Gov. Brewer signed and transmitted House Bill 2008 which includes a repeal of Senate Bill 1271, the recent change to Arizona’s anti-deficiency law contained in ARS Section 33-814(G) governing trustee’s sales. http://azgovernor.gov/DMS/upload/PR_090409_HB2008-09-12-13TransmittalLetter.pdf.
The repeal is set to take effect on approximately November 24, 2009 (90 days after the special legislative session ended), however the repeal was made retroactive to September 29, 2009 with the intent to do away with any attempt to enforce the changes implemented by SB 1271 during the window between September 30 and November 24, 2009. The repeal means that investors of qualifying properties (properties on 2 1/2 acres or less and utilized — by anyone - as single 1 or 2 family dwelling) will continue to be protected by Arizona’s anti-deficiency statutes upon a foreclosure by a first lien holder (barring any successful lender argument that SB 1271 should be applied to any foreclosures during the “window period” or any subsequent changes to the law).
However, remember that junior liens may or may not get anti-deficiency treatment following a foreclosure or short sale, but additional rules and analysis apply. This means that in some cases, junior lien holders whose lien is extinguished in a foreclosure or who release a lien in a short sale are not covered by AZ’s anti-deficiency laws and may sue a borrower on the note. In other cases, such lien holders will fall under the anti-deficiency statutes and will be barred from collecting on the note.
Always consult with a qualified professional on your particular situation and don’t forget that any foreclosure, short sale, deed in lieu or loan modification should be considered from a tax standpoint — consult with qualified tax professionals on your specific workout.
Marc McCain
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138
Foreclosure of Residential Mortgages/Arizona Anti-Deficiency Laws
Before losing a home to foreclosure, it is critical to understand when a lender’s rights are limited to selling the home at foreclosure, and when a lender is entitled to a deficiency judgment. In addition to damaging one’s credit, a foreclosure may also result in a deficiency judgment if the foreclosure price doesn’t pay the lender in full. However, in specific instances in Arizona, a deficiency judgment is not permitted. The following terms and rules provide a summary of when a borrower may be subject to a deficiency judgment following a foreclosure.
1. A real property loan is typically secured by a Mortgage or Deed of Trust. A Mortgage is foreclosed judicially by filing a court action per A.R.S. § 33-721 et. seq. A Deed of Trust is foreclosed non-judicially via a trustee’s sale per A.R.S. § 33-801 et. seq. However, a Deed of Trust may also be foreclosed judicially as a Mortgage.
2. In judicial foreclosures and trustee’s sales, the type of property is key, not the type of borrower. Anti-deficiency rules apply only if the property foreclosed is 2½ acres or less and used for a single 1-family or single 2-family dwelling. Commercial properties don’t qualify nor do loans secured by residential homes being developed for sale but never used as dwellings.
3. If the property passes the test in #2, next determine if the loan is a purchase money (”PM”) or non-purchase money (”NPM“) loan. A PM loan is (a) any carry-back loan given upon buying a property, or (b) any loan used for all or part of the purchase price of a home. A home equity line of credit may be a PM loan if given to pay the price of the home. A PM loan doesn’t lose its PM nature when it is refinanced.
4. In a judicial foreclosure, only a PM lender on qualifying property is prevented from seeking a deficiency; NPM lenders are not — they can obtain a deficiency.
5. In a trustee’s sale, both PM and NPM lenders on qualifying property are prevented from seeking a deficiency. The borrower will not be subject to further liability for the loan.
6. If a 1st position PM lender forecloses via trustee’s sale, a 2nd position NPM lender does not lose its right to sue a borrower on the loan. Unless the 2nd position NPM lender is paid or settles the debt, a bankruptcy filing would be required to discharge the 2nd position NPM lender’s loan.
If you need to speak to an Arizona attorney, contact the attorneys at McCain & Bursh, PLC. www.mccain-bursh.com.