Arizona Law on Deficiency from Foreclosure for Sale

by on States

Recent changes in Arizona's law on home loan payment deficiency from foreclosure for sale have been the subject of a repeal move by real estate agents across the state.

The changes have just been signed by Governor Jan Brewer and are still to become effective in September, but realtors are now urging the governor to repeal new changes in the anti-deficiency law during the special session of the state legislature on state finances.

The original Arizona anti-deficiency law, which was passed in 1971, prohibits lenders from pursuing former owners of foreclosure for sale and collecting from them the difference between the loan amount and the proceeds of sales from the foreclosure for sale.

This year, the Arizona banking industry was able to urge state lawmakers to amend the anti-deficiency law and limit the types of borrowers that would be covered by the anti-deficiency law. The bankers argued that real estate speculators and other investors have been abusing the anti-deficiency measure.

On the other hand, realtors across Arizona argued that the newly amended anti-deficiency law will ultimately hurt borrowers and increase obstacles to the recovery of the battered housing market.

Under the newly revised anti-deficiency law, a previous owner of foreclosure for sale cannot be held liable for the deficiency in loan payment only if he has lived in the foreclosed house for at least six straight months and only if the house has been previously issued a certification of occupancy. Additionally, the original provisions of the law remained, such as the size limitation of the property and the classification of the foreclosure for sale property as a single family house.

The real estate agents argued that these limitations will affect harshly not speculative buyers and builders, but buyers of second homes and buyers of homes intended for relatives.

They further argued that more borrowers will be forced to file for bankruptcy if they see that aside from foreclosures, they will also face liabilities to pay deficiencies.

Charles Delbaum, lawyer for Boston-based National Consumer Law Center, stated that the amendments will help lenders but will hinder economic recovery.

On the other hand, the bankers have called on Governor Brewer not to include the issue of anti-deficiency laws in the special session. They said any concerns about the recent amendments should be taken up in the 2010 regular legislative session.

The new legislation on deficiency from foreclosure for sale was signed by Governor Brewer in June and is scheduled to take effect on September 30.