When Does Arizona’s Anti-Deficiency Law Apply?

There’s been a lot of misinformation going around about the modified Anti-Deficiency Law in Arizona. Many homeowners are unsure whether their bank will sue them for deficiencies after a short sale or a foreclosure. Below are a few things to help clarify this law. These are general guidelines. It is best to seek legal and tax advise pertaining to your particular situation.

1. The Anti-Deficiency Law only kicks in at foreclosure not short sale. If the homeowner decides to short sale the home, the terms and conditions will be agreed upon by the seller and the seller’s creditors. Some lenders may forgive the entire debt. Some lenders may turnover a portion of your debt to a collection agency after the short sale. A homeowner may also refer to the promissory note signed by the borrower to determine the borrowers’ rights and the creditor’s recourse for non-payment.

2. The revised Anti- Deficiency Law applies to foreclosed homes under the following conditions
a. The loan was used to purchase the home called “purchase money loan”. Any loan used to buy a boat, pay off credit cards or other debts, or used as a downpayment for investment or something else is a “non-purchase loan” and is not covered by the Anti-Deficiency Law.

b. The home is a single family home and less than 21/2 acres.
c. The homeowner has lived in the property for at least six months since ownership of the home.

* If all these qualifications are present, the Anti-Deficiency Law applies