Arizona Anti-Deficiency Protection,
Short Sales and Foreclosure
John McKindles
August 2009
More Articles on Dealing with
Financial Challenges and
Real Estate Issues
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Many homeowners are faced today with having to make a decision whether to
undergo foreclosure (also known as a “trustee sale”), pursue a “short sale,” or
continue to make their mortgage payments until their money runs out. Meanwhile,
in many residential areas, property values continue to decline. This economic
scenario plagues owner occupants as well as investors.
Causing further concern
to owner-borrowers is the impending impact of a new law, a revised A.R.S. §
33-819(G), that starting September 30, 2009, would significantly reduce the
number of residential borrowers who qualify for anti-deficiency protection.
Arizona’s anti-deficiency
statutes (A.R.S. §§
33-729(A) and
33-814(G)) generally provide that, if a lender forecloses on a residential
property and sells the property for less than the debt owed against it, the
lender cannot take legal action against the borrower to collect the remaining
debt. If the borrower or property does not meet the requirements for
anti-deficiency protection, the lender may obtain a deficiency judgment against
the debtor and/or guarantors.
Many borrowers who do not
qualify for anti-deficiency protection and who face losing their homes via
foreclosure do not have the financial resources to defend against their lender’s
collection complaint, thereby assuring a default deficiency judgment for the
lender against the borrower.
As a consequence, it is
now more important than ever that homeowners base their difficult decisions on
professional guidance and legal counsel. Knowledgeable advice is particularly
valuable with respect to “short sales,” i.e., a transaction in which the
mortgage lender allows the property to be sold without requiring full payment of
the debt owed against the property.
Predictably, in a
depressed real estate market, short sales are popular; however, they are not a
panacea, as they have their own potential pitfalls. For example, if a borrower
enters into a short sale agreement with the lender, but the lender does not
agree specifically to waive its right to pursue the borrower for the deficiency
resulting from the sale, the borrower will have effectively forfeited the
anti-deficiency protection to which the borrower would have been entitled had
the home been sold through foreclosure.
The McKindles Law Firm
has helped guide many homeowners through this tricky process and defended them
in court against lenders. We would be happy to help you with such a decision,
together with taking action on your behalf, if appropriate.
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