Anti-Deficiency Law - Lender Can't Collect No! No! No! 1Arizona and several other states have adopted anti-deficiency statutes which protect residential homeowners from lawsuits after foreclosure of their residence even if the amount owed to the lender is greater than the value of the home.

With the decline of home values over the past several years, the protections afforded homeowners under Arizona’s anti-deficiency statute are of increasing importance. The anti-deficiency statute applies to residences consisting of 2.5 acres or less used for a single family or dual-family dwelling.

The protection extends to the money borrowed from the lender which was used to purchase the property. In Arizona, most home loans are secured by deeds of trust rather than a mortgage. Lenders generally prefer deeds of trust better because they can foreclose on the home without starting a foreclosure lawsuit in court and the homeowner also loses redemption rights after the sale which is not the case for mortgages.

The lender can take back the property and make no other claims against the homeowner even if the value of the home is less than the amount owed to the lender. Ariz. Rev. Stat. Ann. § 33-729(A) for purchase money mortgages and Ariz. Rev. Stat. Ann. § 33-814(G) for Deeds of Trust.

After a foreclosure, the homeowner does not escape altogether. There are consequences to the homeowner in the form of an adverse credit hit. Depending on other obligations which the homeowner has incurred and other credit problems, the homeowner will have their credit rating reduced about 150 points after the foreclosure sale. It will take about two years to rehabilitate that credit.

Purchasing another home will have to await several years due to federal rules, regulations and other internal bank regulations. The practical alternative is renting a home or condominium unit.

Lat J. Celmins