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 law which takes effect September 30, 2009 prevents a bank from going after the borrowers assets, such as cars and bank accounts once the home is foreclosed upon. The statue addresses two major factors, the type of owner-occupancy and the type of loan. Based on these two type will determine if the law applies.

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.

The law addresses two types of loans: “recourse” and non-recourse”. A bank or lender has “recourse” if the homeowner is liable for the entire amount due on all liens after the homes is foreclosed upon. That means the banks or lenders can aggressively pursue the homeowner for the unpaid debts through a judgment or lawsuit.

The other factor addressed in the Arizona anti-deficiency status is the type of loan. Loans are weighed as “recourse” or “non-recourse”. If the homeowner or investor is responsible for the entire debt or lien after a trustee sale, this would be considered a “recourse” loan. The banks could then pursue several avenues against the homeowner to recoup the debt.

Typically, a first position “purchase money” loan is a non-recourse loan. In English, this means the loan on the home was originated at the time the home was purchased and the property was secured by a deed of trust.

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.

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.

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