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It’s no secret that thousands of people across the country and in Arizona are losing their homes to foreclosure. One of the biggest issues I deal with as an Arizona real estate attorney handling foreclosure related cases is the question of what happens to a second mortgage or home equity line of credit after a first mortgage foreclosure. The answer to this question requires an analysis of each individual’s specific situation, including the terms of their loan agreement, when they obtained the loan and what the funds were used for, and the distribution of funds upon foreclosure sale of the property. Is. , Although most homeowners would be wise to speak with an Arizona foreclosure attorney about their situation, the following article provides a general framework of Arizona laws governing the collection of amounts owed by a second mortgage lender after being foreclosed on by the first mortgage lender. affects ability to do so.
As a preliminary matter, it should be understood that this discussion applies only to loans secured by properties located in Arizona. Arizona’s laws regarding a lender’s ability to collect deficiency balances differ significantly from the laws of other states, and if you have a loan on property in another state, you will need to obtain the correct information from that jurisdiction.
One of the primary distinctions of Arizona law as it pertains to a second mortgage lender’s ability to collect deficiency balances is found in Arizona Revised Statutes Section 33-729(a), which applies when money is borrowed. Limits the lender’s ability to seek a deficiency “given to secure payment of the remainder of the purchase price” provided the property is a single-family or two-family home and is two-and-a-half acres or less. In other words, if the loan was “money purchase” that was used to buy the home, the lender’s only option is to foreclose in case of nonpayment. If the lender cannot foreclose because the primary lender already has, it has no further recourse.
Of course, many Arizona homeowners facing foreclosure find themselves with second mortgages taken out after they buy their homes, with money used to make home improvements, pay off other loans, vacations. Used to take or purchase other items, or even as a down payment on other payments. houses. In cases where the funds cannot be traced to the original purchase of the property, the protections of Arizona law probably will not apply.
Reverting to the original purchase is an important practice for many lenders and homeowners, as so many second mortgages are the product of one or more refinances and/or sales and assignments by lenders. Fortunately, Arizona courts have made it clear that a refinanced loan retains its original character for purposes of the anti-deficiency statute, so a refinance will not affect the homeowner’s protection under section 33-729(a). .
Because many refinances include both purchase money and non-purchase money elements, however, homeowners should understand that some other mortgage lenders will want to recover at least the non-purchase money portion of the loan. Defenses are available for such claims, and landlords facing demands from lenders should seek the advice of an experienced Arizona Criminal Lawyer To discuss how to respond to such lender’s demands.
Unfortunately, it’s impossible to address every situation in one short article, and any homeowner facing foreclosure should know the tax implications, how to handle an HOA, and how your specific debts are treated under Arizona law after foreclosure. Additional guidance should be obtained regarding this.
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