A Change In Arizona's Anti-Deficiency Laws
by Valerie Marciano and Janessa Koenig
For the past 20 years, Arizona's Anti-Deficiency Statute has
prevented lenders from obtaining a judgment against borrowers when
the collateral for the loan was a single one or two-family dwelling
on 2-1/2 acres or less of land, and the loan was made for the
purchase of the property. The only remedy the lender could pursue,
if a homeowner did not pay, was to foreclose on the property. In
other words, the lender could not get a monetary judgment and
attach any of the borrower's other assets.
The Arizona legislature just passed Senate Bill #1271, and
Governor Brewer signed the new law which will take effect on
September 29, 2009. However, due to public backlash, this
bill was repealed. The Arizona House included a repeal
of the bill in the budget that they recently approved and Gov.
Brewer signed on September 4, 2009. There have been
discussions of a revised bill being reintroduced in the 2010
Legislative Session.
The new law would have limited the anti-deficiency protection as
it only extends to homeowners who have resided in the residence for
at least six (6) consecutive months. Not only does a Certificate of
Occupancy have to be issued on the residence to receive the
anti-deficiency protection of the new law, but also the homeowner
will have the responsibility of proving that he or she actually
resided in the residence for the required six consecutive months
time period.
Before the change was made to the anti-deficiency law, a
homeowner - and even an investor - would be protected by the
anti-deficiency statute if the loan was made for the purpose of
purchasing a single one or single-two family dwelling that was
located on 2 ½ acres or less, and utilized for that purpose. Thus,
even if the property was purchased solely as an investment, the
investor could protect other assets from the lender's reach. In
other words, the lender could not get a money judgment and attach
the borrower's other property, such as second homes, boats, cars,
and even bank accounts containing cash.
The change in the anti-deficiency law will directly impact
investors who were building "spec" homes, as well as individuals
who purchased residential properties for investments.
The new law will allow lenders to foreclose on these investment
properties and if the fair market value of the property is less
than the amounts owed the lender on the date of the Trustee's sale,
then the lender may bring a lawsuit to collect the deficiency
against the borrower within 90 days after the Trustee's sale.
As is often the case when the legislature passes new laws it
creates numerous unanswered questions. In this case, it is
uncertain to whom or how the new law will be applied. For example,
will the new law only apply to foreclosures or Trustee's sales
occurring after September 29, 2009? Will the new law apply only to
foreclosures or Trustee's sales that are initiated after this date?
Does the new law apply to existing loans or only to loans that are
made after September 29, 2009?
About the authors:
Valerie Marciano is a partner at the Phoenix law firm of Jaburg
Wilk. She practices in the areas of real estate litigation,
creditor's rights, and bankruptcy litigation. Val has assisted
various lenders with workouts of distressed real estate assets and
foreclosures, and subsequent deficiency actions.
Janessa Koenig is a partner at the Phoenix law firm of Jaburg
Wilk. Her practices centers on creditor's rights and
foreclosure.