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CLIENT ADVISORY - September 23, 2009

Arizona Anti-Deficiency Law Among The Strictest

by Brady J. Lighthall, Esq.

Anti-deficiency laws in Arizona are some of the strictest in the country. At the present, a secured lender may not pursue a borrower for a deficiency on a loan that is secured by property consisting of less than 2.5 acres and that is utilized for a one- or two- family dwelling. These rules have made it easy for homeowners to walk away from their homes without fear of any recourse. Lenders, on the other hand, have been forced to take significant losses on loans secured by properties that have declined in value. Fortunately, some relief for lenders is on the way.

Senate Bill 1271 creates a drastic change to Arizona's current hard-line anti-deficiency rules. The bill was signed into law on July 10, 2009 by Arizona's governor and becomes effective September 30, 2009. Under the new legislation, secured lenders will be able to seek deficiencies after foreclosing on a property that is not the borrower's main residence. Specifically, the new law affects any homeowner who has not lived in the property for six consecutive months. This would include investment property, tenant-occupied property, and property that was purchased to be a second or vacation home. The new law is not retroactive and is applicable only to foreclosures that occur after September 30, 2009.

A suit for a deficiency judgment must be filed within 90 days of the Trustee's Sale. The deficiency amount is determined by a court, and is usually calculated by figuring the difference between the total debt owed to the foreclosing lender and the amount bid at sale or fair market value of the property, whichever is greater.

To view a copy of Senate Bill 1271, go here.

Please contact me with any questions concerning the changes to Arizona's anti-deficiency law. I would be happy to discuss ways in which you can use the new legislation strategically to your advantage.

Brady Lighthall is an associate in the Real Estate Default Group of Weltman, Weinberg & Reis Co., L.P.A. and is located in the Cincinnati office. He can be reached at (513) 723-6082 or via e-mail at blighthall@weltman.com.