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Deficiency Judgments In Arizona: Will You Still Owe Money After The Foreclosure?

While losing your home is already a devastating experience, you might also be concerned about how your financial situation will change after the foreclosure process is over. In some cases, the answer is no, as Arizona law allows for deficiency judgments. This, unfortunately, can leave homeowners still owing money even after the foreclosure.

What is a Deficiency Judgment?

A deficiency judgment is a legal order after the foreclosure of the property. It allows a lender to collect the remaining balance of a mortgage debt from a borrower. In other words, it’s the difference between the amount the borrower owes on the mortgage and the foreclosure sale price of the property. For example, the property sells for less than what the borrower owes. Hence, the lender can seek a deficiency judgment to recover the shortfall.

Deficiency Judgments in Arizona

Arizona has specific laws regarding deficiency judgments in foreclosure cases. The state’s laws aim to strike a balance between protecting homeowners and ensuring lenders can recover their losses. Here are some key points to understand about deficiency judgments in Arizona:

  • Non-Recourse Loans: In some cases, Arizona borrowers may have “non-recourse” loans. This means that the lender cannot pursue a deficiency judgment after foreclosure. This typically applies to certain types of loans, such as purchase money loans used to buy a primary residence.
  • Recourse Loans: If your mortgage is a “recourse” loan, the lender has the legal right to seek a deficiency judgment. This means that if the foreclosure sale doesn’t cover the entire mortgage debt, you could still be held responsible for the remaining amount.
  • Anti-Deficiency Statutes: Arizona has anti-deficiency statutes that provide some protection to borrowers. These laws limit the circumstances under which a lender can seek a deficiency judgment. For example, the property is less than two and a half acres and was used for a single-family or two-family dwelling. It was also the borrower’s primary residence for at least six consecutive months. In this situation, the lender cannot pursue a deficiency judgment in most cases.

Strategies to Avoid Deficiency Judgments

Facing a deficiency judgment after foreclosure can have serious financial consequences. To protect yourself from this scenario, consider the following strategies:

  • Consult an Attorney: Seek legal advice from a qualified attorney who specializes in foreclosure and real estate law. A lawyer can review your specific situation and guide you on how to proceed.
  • Loan Modification or Short Sale: Explore options such as loan modification or a short sale before foreclosure becomes inevitable. These alternatives may allow you to renegotiate the terms of your loan or sell the property for an amount that covers the debt.
  • Bankruptcy: Filing for bankruptcy, such as Chapter 7 or Chapter 13, may provide temporary relief from deficiency judgments. It’s essential to consult with a bankruptcy attorney to determine the best course of action for your situation.
  • Negotiate with the Lender: In some cases, lenders may be willing to work with borrowers to reach a settlement that avoids pursuing a deficiency judgment. This could involve a loan modification, a deed in lieu of foreclosure, or other options.

For homeowners facing foreclosure, it is important to understand the laws and obtain legal counsel. Keep in mind that Arizona has specific statutes and regulations in place. Therefore, the result may change depending on your particular situation. So, whether you have a recourse or non-recourse loan, you must explore your options. Being proactive will help you lessen the negative effects of foreclosure on your finances.

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