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After foreclosure and owing your lender


Monday, April 19th, 2010

Arizona has many homes that are upside down on their mortgages (that is, the homeowner owes more than the value of the property) and some, perhaps a lot, of these properties will wind up in foreclosure. So what happens when the lender forecloses and sells the property for less than what is owed? In some states lenders can pursue the homeowner for the difference but not in Arizona. You see Arizona is a non recourse state. This means by law the lender cannot sue you for the difference.

 

The current law has been in place since the mid 1980’s and generally protects homeowners from lenders trying to recover any remaining balance after the property is sold. The law was challenged last summer in the form of SB 1271 which would have allowed lenders to go after some homeowners if there was a balance due the bank following a foreclosure sale. Luckily the bill was repealed late last summer but the threat of a change in the law remains. Why?  As long as there is a housing crisis with depressed values the lenders will lose money on almost every sale. So, given the amount of dollars involved, it seems a prudent business practice would be to figure out a way to go after some of those dollars.

 

By the way, this non recourse concept applies to short sales as well. However, if you have a second mortgage you may want to get the lender to give you a “release of liability” statement for added protection. If you refinanced your home you may have some protection but would be smart to seek out legal advice. At the end of the day you are better off doing a short sale rather than a foreclosure. A good place to start seeking help to explore a short sale would be go to the web and search for “Arizona short sale experts” where you will find a variety of resources.

 



Article by Burt Carlson

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: non recourse loans in arizona