Many people are aware that Arizona has anti-deficiency laws protecting homeowners from liability to their lender after a foreclosure. That protection, however, only applies to certain properties that qualify under the governing statutes. In Arizona, the anti-deficiency protections for residential borrowers is set forth in Arizona Revised Statute Sections 33-729 (A) and 33-814 (G).
In general, these statutes provide that lenders who foreclose on residential properties are precluded from seeking a judgment for any deficiency owed as long as certain conditions apply. One of the important considerations is whether the mortgage was a purchase money mortgage, meaning the funds were used to actually purchase the house secured by the deed of trust. ARS Section 33-729 (A). ARS Section 33-814 (G) applies even if the funds were not purchase money, as long as the lender foreclosed on the deed of trust.
Regardless of which of the two Arizona anti-deficiency statutes is applicable, the property securing the deed of trust must qualify for protection under the statutory scheme. The qualifications are the same under both statutes. First, the property must comprise of two and one-half acres or less, meaning that a lender will be allowed to pursue a deficiency in all cases where the property securing the loan is larger than two and one-half acres.
Secondly, the property must be utilized for either a single one-family or single two-family dwelling. Unlike the property size requirement, which isn't open for much interpretation, the property utilization requirement does not always lend itself to easy interpretation. The Arizona Supreme Court has interpreted the statutes to require that the property have a completed dwelling that is at least least occupied to qualify. It has also been determined that the property will qualify whether occupied by the owners or if rented to someone else.
Because the rules regarding anti-deficiency protection are complex, and because the potential liability to a lender after foreclosure can be significant, it is wise to consult with an experienced Arizona property lawyer regarding the specific facts of your situation.