Arizona Revokes Some Homeowners’ Foreclosure Protection

One of the reasons it’s so easy to walk away from the debt you owe on a home is that the lenders in many states are precluded from coming after you for any loss that they suffer when they foreclose and resell the home. It’s called anti-deficiency protection and to a lot of peoples’ surprise the Arizona legislature revoked the protection for certain buyers.

The new law stipulates that anyone that doesn’t occupy a property for a continuous period of six months will not be eligible for protection under the anti-deficiency statute. The lender will have the right to pursue the borrower for any shortfall between the price it receives when it sells the foreclosed property and the amount owed on the mortgage. The law affects foreclosures started after September 30, 2009.

The purpose is to curb speculators who buy properties in the hope of flipping them at a higher sales price. In the past, if the market didn’t cooperate and bring a higher price these flippers had a propensity to just mail in the keys and move on. The reality is that while it might curb some of this type of speculation, it also puts owners at jeopardy. Specifically, second home owners would fall under the statute since almost by definition they wouldn’t live in the house for the required period of time.

The law took a lot of people by surprise even though it was advertised and debated. The realtor community is trying desperately to either amend or repeal the law but that might probe difficult. The legislature is currently meeting but in a special session which limits its permissible activities to only those that were cited for calling the special session. Additionally, there doesn’t appear to be among the legislators any particular concern about the bill nor has any one of them stepped forward to carry the banner for repeal.

The banking lobby, particularly the community banking lobby, is the group that pushed hardest for the legislation. Given their clout and a general antipathy towards single family home investors, it might be difficult to rally much support for repeal. Eventually, I suspect there would be some modification to more precisely limit the laws application to investors but that might take some time.

It’s hard for me to argue that an investor should receive protection under the anti-deficiency statutes. They were designed long ago to prevent owners from being completely ruined by the event of foreclosure and have certainly been taken advantage of over the past few years by unscrupulous investors. It seems, though, that the statute might be poorly drafted and could use some tweaking.

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About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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2 Comments on Arizona Revokes Some Homeowners’ Foreclosure Protection

  1. This is concerning. It’s nufortunate that what is such a sad time for some can also be such a great opportunity for those looking to invest. My hope is that those you can invest, will and will hopefully provide some stimulus to the housing market.

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