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Arizona Anti-Deficiency Protection,
Short Sales and Foreclosure

John McKindles

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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.