It’s no secret that thousands of people across the country and in the state of Arizona are losing their homes to foreclosure. One of the biggest issues I deal with as a real estate attorney in Arizona that deals with cases related to foreclosures is the question of what happens with the second mortgage or home equity line of credit after the first mortgage foreclosures. Answering this question requires an analysis of each individual’s specific situation, including the terms of their loan agreement, the circumstances in which they obtained the loan, what the money was used for, and the distribution of the money when the mortgage was sold. . Although most homeowners would be wise to speak with an Arizona attorney about a foreclosure, the following article provides a general framework for Arizona laws that affect a second mortgage lender’s ability to collect an outstanding deficit balance after a first mortgage lender forecloses.
As a preliminary matter, it must be understood that this discussion only applies to loans secured by property located in Arizona. Arizona laws regarding a lender’s ability to collect a deficient balance are fundamentally different from the laws of other states, and if you have a loan on property in another state, you must obtain the correct information from that jurisdiction.
One of the primary distinctions of Arizona law as it relates to a second mortgage lender’s ability to collect a deficiency balance is found in Arizona Amendment Statute 33-729(a), which limits the lender’s ability to seek a deficiency if money lent “is given to secure payment of the balance.” The remainder of the purchase price, provided that the property is a one-family or two-family house and consists of two and a half acres or less. In other words, if the loan is the “purchase money” used to purchase the home, the lender’s only option is foreclosure in the event of non-payment. If the lender can’t foreclose because the primary lender already has one, they have no other recourse.
Of course, many Arizona homeowners facing foreclosure find themselves with second mortgages taken out after they purchased their homes, with money used to make home improvements, pay off other debts, take vacations or purchase other items, or even use As advance payments on another turn. In such cases where the money cannot be returned to the original purchase of the property, it is likely that the protections provided by Arizona law will not apply.
Going back to the original purchase is an important exercise for many lenders and homeowners, because many second mortgages are the product of one or more refinancings and/or sales and assignments by lenders. Fortunately, the Arizona courts have made it clear that a refinanced loan retains its original character for the purposes of anti-deficiency law, so refinancing will not affect the protection a homeowner may have under Section 33-729(a).
Since many refinances involved both purchase money and non-purchase money items, homeowners should understand that some second mortgage lenders will seek to recover at least the unpurchased money portion of the loan. There are defenses available for such claims, and homeowners who are faced with demands from lenders should seek experienced advice Arizona foreclosure attorney To discuss how to respond to the demands of such a lender.
Unfortunately, it’s impossible to address every situation in a short article, and any homeowner facing foreclosure should seek additional guidance on tax implications, how to handle an HOA, and how your specific loans will be handled under Arizona law after foreclosure.