questions & answers

Question: I currently have a 80/20 home mortgage. The first is with one lender and is a 30 year fixed. The second is with a different lender and is a 15 year balloon fixed. Does Arizona's non deficiency stipulation apply to both loans or just the first. I am concerned about foreclosing and then being pursued in collection by the second loan holder.

Answer:

Under the anti-deficiency statues (A.R.S. §. 33-729 for mortgages or A.R.S. §. 33-814(G) for trust deeds), a lender cannot sue a borrower for deficiency after foreclosure, if (1) the loan was to pay for all OR PART of the purchase price for the property; (2) the property financed is a single- or two-family dwelling; AND (3) that dwelling sits on a parcel of two and one-half (2 1/2) acres or less. The statutes clearly apply to each separate lender individually, so that if either one foreclosed, that same foreclosing lender cannot sue for deficiency after foreclosure. Therefore, neither lender could obtain a deficiency against you if that same lender foreclosed.

However, the courts have yet to address whether foreclosure by one lender stops THE OTHER LENDER from just choosing to sue for the loan amount as unsecured debt. The statutes also do not appear to directly address this issue. Since the Courts have never addressed the subject of 80-20 mortgages in this context, it is important to understand that the law here is not well settled. I'm sorry to tell you that this means that there is no definite answer to your question.