Arizona’s anti-deficiency statue prohibits a lender from recovering against borrowers assets, such as automobiles and bank accounts, after the lender forecloses on the borrower’s residence. However, the type of loan and type of residence are key factors in determining whether this statute applies.
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.
As for the dwelling, the home must reside on 2.5 acres or less and either a single family home or multi-plex property. It has to be a “primary” residence or at least lived in by the original owner for a period of at least 6 months. Since the law requires some form of occupancy that mean the law does not apply to homes under construction. That means there will have to be a “Certificate of Occupancy” attached to the home.
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 bank or lender does not have recourse (non-recourse) other than to repossess the home. This is true when the requirements as stated above fall outside the laws parameters.
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.
Some types of “recourse” liens or loans might be a Home Equity line of credit. Possibly a second position loan when the borrower received a loan for a pool. Usually second position loans use your home as collateral and were applied for by the borrower after they first purchased the home. They closed escrow originally and then at a later date borrowed money for home improvements, vacations, etc. The bank or lender then has “recourse” to pursue the homeowner for the unpaid lien through a judgment or lawsuit.
When interviewing an agent to sell your home it is really important that they are knowledgeable about this new law and disclose or relay this information to the seller. Many sellers will walk away from the homes and find out they will be liable for some of this remaining debt.