Foreclosure Deficiency Debt in Arizona
For some homeowners facing foreclosure deficiency debt in Arizona, anti-deficiency statutes may provide relief
It’s a familiar story for many Americans: The housing market is booming and you have a new job, so you decide to make your dream come true and purchase a home. You find an amazing house and take out a loan for $200,000. A few years down the road you have medical issues, your employer eliminates your position, and/or other financial hardships cause you to fall behind on your mortgage payments. Your worst fear comes true – your house is foreclosed upon. The foreclosure sale yields only $100,000 and you owe the bank $100,000. You’re stuck wondering, can the bank come after you for the remaining $100,000 dollars?
The answer to this question could hinge upon if you live in a state with an anti-deficiency statute.
What it Means to be Underwater
Although during the sub-prime market days, lenders were eager to supply borrowers with mortgage loans, ever since the negative turn in the economy, they have been just as eager to recover the entire value of these loans. When the housing bubble burst, home prices fell drastically, leaving many homeowners with debt that far exceeded their homes’ value. Home equity refers to the market value of your home minus any debt you owe the lender. A house is considered to be “underwater” or have negative or “upside down” equity when the value of the home is less than the amount still owed on the mortgage. This is a common case today because homeowners bought during the prime of the market, but when the housing bubble burst, the value of their home took a steep dive.
Formula for Calculating Your Home Equity
Market Value of the Home – Money Owed to the Bank = Home Equity
$100,000 Market Value – $200,000 Owed to the Bank = – $100,000 in Home Equity
What You Should Do When You Find Yourself Underwater
Many homeowners in debt and faced with a foreclosure sale on an underwater house are in fear they will be held responsible for the leftover debt. And in fact, in some states and circumstances you could still be on the hook for this $100,000 deficiency. A common scenario today is that borrowers are literally packing up their belongings and walking away from their homes when they discover their home is severely upside down in value.
The laws applicable to the foreclosure debt are usually those of the state in which the property sits. Some state legislatures, in an effort to afford borrowers greater protections, enacted anti-deficiency statutes. An anti-deficiency statute essentially says that a bank cannot get more than the value of the home at the foreclosure sale. If the state in which the property sits has no anti-deficiency statute, the buyers will usually owe the money. Arizona does have has an anti-deficiency statute but it is somewhat complicated.
Arizona’s Anti-deficiency Statute
Generally, Arizona’s statute protects borrowers when:
- The property is less than 2½ acres
- The property is a single one family dwelling, or
- The property is a single two family dwelling
- The property is occupied as a dwelling
- The mortgage is a Purchase Money Mortgage (often HELOC’s don’t fit this requirement)
Anti-deficiency Statutes are Not Your Only Protection for Foreclosure Deficiency Debt
If you do not qualify for the state’s anti-deficiency statute, you may still be able to find a resolution to your foreclosure deficiency debt through a negotiated debt settlement. Common types of debt that can survive foreclosures but that are not covered by the statute are Home Equity Lines of Credit (HELOC) and cash out second mortgage loans. Often a debt settlement attorney can negotiate this debt down so you pay only a fraction of what was allegedly owed.
Keep in mind that this is only a basic description of the anti-deficiency protections in Arizona and it is necessary for an attorney to do a full evaluation in order to determine whether or not you qualify. For more information on Arizona foreclosure law and whether or not you qualify for relief, contact the attorneys at McCarthy Law today for a free consultation.
Kevin Fallon McCarthy
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