It is no surprise to everyone in the Phoenix metro, AZ region that the real estate market is not what it once was. No longer are homes appreciating at rapid paces nor are they being sold in days. In this economy, many people are left in a position where they can not sell their house for what they still owe on the property. This leaves a property owner with a few options:
1) wait out the market,
2) let the property foreclose, or
3) work out a short sale. If you can’t wait out the market, you may have to look only at the later two options and while neither is an ideal solution, both may not be as bad as they seem.
What is a Short Sale?
A short sale is a sale where the bank agrees to accept less than the principal owed on the residence as part of the agreed sale, rather than having the house foreclosed. The short sale must involve a sale at a fair value based upon an arms length transaction. There is also no requirement that the bank approve a short sale. This is realistically a voluntary agreement that the bank can decide to enter into with the homeowner or not.
Why would a Bank Approve a Short Sale?
The most frequent reason a lender would agree to a short sale is an economic decision based upon the amount owed and the value of the property. If the real estate has little or no equity the chances of the lender receiving any funds at a foreclosure sale are slim. Foreclosure sales often result in below market sales and are costly to the bank. As such the bank can often net more by agreeing to the short sale.
What about Anti-Deficiency Laws?
Another reason a bank may consider a short sale is whether a state has anti-deficiency laws. An anti-deficiency law is a law that prevents a lender from recovering any loss over the price received at a foreclosure sale from the borrower/home owner. In essence, anti-deficiency laws limit a lender ability to recover from home owners.
Does Arizona Have an Anti-Deficiency Law?
Arizona has a relatively broad anti-deficiency that protects home owners. If your home is secured with a deed of trust and your home sells a trustee’s sale the lender may not recover any deficiency if:
* The property is 2.5 acres or less;
* Used for single family or two family property; and
* Sold pursuant to the Trustee’s power of sale.
If the property is secured by a purchase money loan, that is a mortgage used to pay all or part of the purchase price of the home, the lender may not recovery any deficiency if:
* The property is 2.5 acres or less
* Used for single family or two family dwelling; and
* The home owner did not reduce the value of the property by waste.
What if the Property is Not My Primary Residence?
The AZ Anti-Deficiency Law protects all real estate under 2.5 acres used as a single family or two family residence. There is no requirement that the property is your Homestead.
What if it is a second Deed of Trust or Mortgage? The AZ statute does not differentiate between first and second lien holders. If the requirements are met whether the lien is a first or second, or even third position, the law does not change.