Arizona is one of the few states with a strong Anti-deficiency law. Our Arizona law was responsible for protecting thousands of Arizona homeowners from even greater hardship when they lost their homes to foreclosure during the recent real estate crash. The law limits the rights of a lender. It provides that a lender cannot sue a homeowner for a deficiency balance where a foreclosure sale does not produce enough money to pay off the loan or loans. The lender must take the loss, not the homeowner.
Over the years, Arizona Courts have recognized the statute’s intent is to protect Arizona homeowners and have interpreted the law broadly. Anti-deficiency protection was afforded to homeowners where no one had actually lived in the home. Even investors were protected.
As of the end of 2014 this is changing. ARS §33-729 and ARS §33-814 have been amended effective for mortgage loans that originate after December 31, 2014. Starting in 2015, Anti-deficiency protection will no longer be available for:
1. Persons engaged in the business of constructing and selling homes for loans on properties acquired in the course of their business;
2. Real property containing a home that was never substantially completed; and 3. Real property containing a home that, although completed, was never used as a dwelling.
Arizona’s legislature has benefited lenders by cutting back on some of the protection offered by Arizona Law. But lawmakers were careful not to water down the protections for the people the law was always intended to help—Arizona homeowners who live in their homes.