Even More New Rules – SB1271 Anti Deficiency Law Change

August 5, 2009 | By Kelley Koehler | Filed Under Tucson Foreclosures and Short Sales 

It’s the week to update rules, apparently. Hang in there with me.

SB 1271 is an amendment to ARS 33-814, for those of you who want to do some of your own Google research. For the rest of us…

Arizona Revised Statute 33-814 says that within 90 days of a foreclosure sale, legal action can be brought against that borrower to recover any deficiency – the lender can sue you for any money that they’re owed after the property is auctioned off. BUT – a lender can’t pursue a deficiency judgement if the property foreclosed on is 2.5 acres or less and used as a single family home.

So if you’re a homeowner in Arizona, live in your own home on less than 2.5 acres, and the bank takes your home back via foreclosure, they probably can’t come after you for any money. If you don’t live on the property or if it is on 2.5 acres or more, then the bank can come after you for the difference between what is owed and what is made at the trustee sale, at the auction. (That’s a simplification, but generally correct.)

SB 1271 is a bill amending that rule, going into effect September 30, 2009. This bill says that the owner had to have “utilized” the property for 6 consecutive months in order for that owner to be exempt from a deficiency judgement. I’m told the language is a little vague – at this point, the best interpretation is that you have to have lived in the house for at least 6 consecutive months.

The Arizona Association of REALTORs has a bit of a problem with this bill, and is appealing to the governor to not enact the bill. You can see AAR’s request to stop SB 1271 here. Go ahead and read their letter to get a better idea of their objections. Some points they bring up are that it takes away an incentive for lenders to work with homeowners in distress, since they can foreclose quickly and then sue the owner for the difference. Another objection is due to the 6 consecutive months requirement – Arizona has a lot of vacation home owners, second home owners who only live here 4-5 months out of the year. Even if they own the home for many years, they may not have “utilized” it for 6 consecutive months.

I’ll let you know as updates come along.

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