Change In Arizona Foreclosure "Anti-Deficiency" Law Has Homeowner Advocates Howling

In Phoenix, Arizona, The Arizona Republic reports:

• A new law passed by the Arizona Legislature that makes homeowners liable for tens of thousands of dollars on homes lost to foreclosure is now the focus of an intense repeal battle. An amendment to the state's foreclosure laws, passed in the recent legislative session, was designed to protect small community banks from people buying speculative new homes they can't sell for a profit.

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• Real-estate lobbyists and attorneys for homeowners are working to have the law repealed before the Legislature adjourns after completing its work on the budget. Banks are pushing hard to keep the amendment in place. If the new rules stand, they go into effect Sept. 30.

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• The amendment was made to the state's anti-deficiency law, passed in the mid-1980s, which kept lenders from recovering anything more than the home on a typical residential foreclosure.(1) About two dozen states have anti-deficiency laws. Some small speculators have been using the anti-deficiency law to protect their other assets. Under the new law, a homeowner must live in a house for six consecutive months to establish residency and to be covered by the anti-deficiency law. Homeowners who lose a home to foreclosure, and who fail to meet the six-month residency requirement, will be liable for the difference between the foreclosure sale price and the original loan. For example, if a lender forecloses on a home with a $400,000 mortgage balance and can only resell the home for $200,000, then the borrower still will owe the lender $200,000.

For the story, see New law triggers fear for housing (It holds some owners liable for debt, even in foreclosure).

In a related story, see Realtors target foreclosure law.

(1) Arizona law, A.R.S. § 33-729(A), generally prohibits a lender from obtaining a deficiency judgment against an Arizona homeowner if the mortgage secured by the home was obtained to purchase the home (as opposed to a mortgage refinancing).