Does Arizona Anti-Deficiency Statute Help Investors Too?

by Evette Cecena, the Queen of HUD on August 13, 2010

Arizona real estate investors often wonder if they are protected by Arizona’s anti-deficiency statutes.  On the other hand, Arizona homeowners, wonder why investors are protected.  Although we often think of real estate investors as rich guys, that buy up a bunch of homes and rent them out or flip them, this is not usually the case.  Arizona real estate investors are no different than you and I.  They too purchased property in 2005 and 2006 when prices were soaring.  Like us they hoped that the prices would keep soaring.  The really savvy, experienced investors, however, sat on the sidelines rubbing their hands together waiting for today.  They knew they were in a Sellers market and understood the concept of supply and demand.

In a way all Arizona homeowners are investors.  We buy property with borrowed money.  We anticipate that the value will increase and outweigh the fact that we are paying mostly interest on a loan for the first few years.  When we realize that the value is actually declining we hope that it will go back up, but when it doesn’t we do what is in our best interest.  We walk away, refinance, get a modification or any number of things.  So why do so many people think that investors do not get the same protections from Arizona’s anti-deficiency statute.

The following is excerpt from an article by Christopher Combs, Attorney.

The following is for informational purposes only and is not intended as legal or tax advice.  Please seek legal counsel regarding deficiency on your property.

No Deficiency Allowed after Foreclosure of a Home

A developer built an expensive “spec” home with a mortgage loan from a bank.  The home has been rented for the past two years because the developer was unable to sell the home.  The bank has now started foreclosure proceedings.  If there is a deficiency after the foreclosure sale, will the developer be liable to the bank for that deficiency?

Answer: No.  If there is a foreclosure of a home by a mortgage lender, whether the loan was a purchase money loan, i.e., a loan used to buy a home, or the loan was a HELOC or other non-purchase money loan, the mortgage lender will not have a claim for deficiency against the owner of the home.  A.R.S. § 33-814(G).

This protection applies even if the owner of the home is an investor or a developer. In interpreting the Arizona anti-deficiency statutes the Arizona appellate courts have consistently ruled that, while the intent of the legislature in originally passing the anti-deficiency statutes may have been to provide for protection only for primary residences, i.e.,“mom and pop” homeowners, the broad language of the anti-deficiency statutes also provides protection for investors and home builders.

Note: For a “home” to have the protection of the anti-deficiency statutes, the home must be on 2.5 acres or less, be a single-family or duplex home, and have been utilized as a home, e.g., either occupied by the owner or rented out by the owner.

Source:  Christopher A. Combs, Phoenix Attorney, Combs Law Group

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