For Arizona homeowners that are considering selling their homes as a short-sale, there are important aspects about your mortgage(s) that you need to know. I will go through the readers digest version here, but be advised I am not a lawyer (nor want to be) so please contact a licensed real estate attorney or legal counsel for advise.
Arizona is a non-deficiency state, which means that properties of two and one-half acres or less and used for single-family or two-family dwellings; that the lender cannot bring a deficiency suit. This applies to mortgages that are held in deed of trust (which 99% of Arizona mortgages are). HOWEVER, the caveat is that the borrowed funds for the loan(s) must of been used to purchase or refinance the secured real estate. Meaning, if you used a line of credit to buy a boat, take a trip or build a pool that this loan is not subject to Arizona’s non deficiency statute. The reason being is that this money was financed by what is called a non purchase loan. Furthermore meaning….a mortgage lender may be able to obtain a deficiency judgment against you for the balance of the non purchase loan.
So to recap, if the property was bought using purchase money (loan that is applied to the purchase of real property) then there is no recourse for a lender to come after a homeowner for the mortgage balance if the property is sold short or goes into forclosure. On the other hand, if the property has liens that are held with non purchase money (loan that was used to buy stuff), the lender has every right to pursue a defiency judgement in the state of Arizona.
I hope this helps clarify that a foreclosure or short-sale will wipe anyway any debt on a property execpt on any loans that were made with non purchase money.
