Confusion about Short Sales and Arizona’s Anti-Deficiency Law

I consult with property owners several times each week concerning their risks, protections and obligations under Arizona’s foreclosure laws, as well as the legal, tax and practical implications of alternatives to foreclosure, such as short sales, deeds in lieu of foreclosure or loan modifications.  One recurring issue that I address has to do with misinformation people are receiving from real estate agents and other sources – even legal professionals- concerning short sales.

A common assumption of many home owners and real estate agents is that Arizona’s anti-deficiency statutes always apply to protect borrowers in a short sale as well as a foreclosure. This is incorrect. The anti-deficiency protections clearly apply where a purchase money lender forecloses on an Arizona property. In a foreclosure situation, Arizona statutes and case law define the circumstances in which a lender is prohibited from pursuing a deficiency action against the borrower. In many situations, the statutes allow the lender to pursue such an action against a borrower after foreclosure…

When a borrower short sells a property, there is no automatic protection from a lawsuit by the lender for the balance of the note. Although there are cases that suggest a purchase money lender may be not be allowed to obtain a judgment against the borrower for balance of the note if the property also qualifies for anti-deficiency protection, the borrower must be sure to negotiate for a release from the lender to be protected. I am aware of situations in which a home owner, ecstatic to obtain the bank’s approval of a short sale, quickly signs the approval agreement without carefully reading and understanding its terms. In many cases, the bank has a right to sue and reserves its right to sue the borrower in the future for the balance owed on the note.  It is also important to note that the 90 day limitation after a trustee’s sale for filing the deficiency action against the borrower/home owner does not apply in a short sale situation. Normal statutes of limitation apply and can run for up to 6 years in cases where the bank has the right to sue.

It is critical that all homeowners and realtors are aware of this important distinction and do not rely on misinformation when deciding whether to consummate a short sale transaction.

For more information about Arizona’s anti-deficiency laws, see my article called “Arizona Foreclosure Law aka Arizona Anti-Deficiency Law.”  For information about short sales, see “Arizona Department of Real Estate Publishes Short Sale Seller Advisory.”  For information about the federal income tax consequences of a short sale or discharge from indebtedness income see “Mortgage Forgiveness Debt Relief Act of 2007” and “Federal Income Tax Consequences of Home Foreclosures & Cancellation of Indebtedness.”

Schedule an Arizona Foreclosure Law or Short Sale Consultation with Arizona Real Estate Attorney Jeana Morrissey

If you have questions about Arizona foreclosure law and the legal consequences of defaulting on a loan secured by a lien on an Arizona home or questions about short sales or short sale contracts, hire me,  Jeana Morrissey, an Arizona real estate attorney, to review your situation and answer your questions.   I offer a one hour in office or over the phone consultation for $299.   Call me, Jeana Morrissey, at 602-906-4953, ext. 4 or  email  me at jrm@keytlaw.com.  To hire me for a consultation about Arizona foreclosure law or short sales, complete my online consultation agreement.  To schedule a consultation, call me or my legal assistant Milena at 602-424-4159.

Related posts:

1. Arizona Department of Real Estate Publishes Short Sale Seller Advisory
2. Practical Advice on Arizona Residential Short Sales
3. Arizona Law Allows Lenders to Issue Borrowers a 1099 for Discharge of Indebtedness & Sue Later for a Deficiency
4. Can I Prevent a Foreclosure of a Lien on Arizona Real Estate if the Lender Cannot Produce the Original Note?
5. Making the Decision to Walk Away: Morally Wrong….OR…Financially Sound?
6. Short Sale Purchase Takes Time
7. SB 1271 Repealed
8. Arizona Foreclosure Law aka Arizona Anti-Deficiency Law
9. Arizona Legislature Repeals SB 1271 Again – Law Would Have Changed AZ’s Anti-Deficiency Law
10. Arizona Bankers Association Sues to Stick It to Home Borrowers