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If I Short Sell In Arizona, What Are The Legal Ramifications?

by Charlie Allred

Arizona is one of the few states that have anti-deficiency laws.

A.R.S. §§ 33-729(A)

http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/33/00729.htm&Title=33&DocType=ARS

A.R.S. §§ 33-814(G)

http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/33/00814.htm&Title=33&DocType=ARS

These laws prohibit lenders from collecting on a mortgage after the home is foreclosed, when that mortgage was used as purchase money for the property.

The key to the anti-deficiency laws is the way the mortgage was written.  The laws only apply to purchase money mortgages.  This means that you are only protected if your mortgage was used at the time you purchased your property for the financing of the property.  Purchase money mortgages are typically only 1st loans on a property; however, I have seen some as 2nd loans as well.

Any other types of 2nd loans where the mortgage money was not used to purchase the property are not protected by the anti-deficiency laws.  This includes re-financed mortgages, Home Equity Lines of Credit and second mortgages taken out after the purchase of the home.

If you have a 2nd loan on the property and you are letting the home foreclose, I would suggest contacting a bankruptcy attorney or a certified public accountant regarding the consequences and your options to protect yourself from the deficiency balance.

Because the anti-deficiency depends on your specific mortgage, it is best to short sell and have all terms your Mortgage company agrees in writing!  This is in the form of a Short Sale Approval Letter- the Approval includes all terms moving forward.

Posted in: Arizona Short Sale FAQ's

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