ARIZONA’S ANTI-DEFICIENCY STATUES

Do Arizona’s Anti-Deficiency statutes apply to

short sale transactions?  Well, according to counterpoint opinions in the Maricopa Lawyer, maybe yes, maybe no…it depends.  One attorney states that there is currently no reported Court decisions regarding whether the statutes apply to short sales.  This link will take you to the attorney’s website where you can read the entire statute.

He states “the mere fact that the lender releases the collateral so that the seller can transfer free and clear title to the buyer in a short sale does not necessarily mean that the lender is releasing the debt.  Thus if the seller/borrower wants to avoid the risk that the lender may pursue a deficiency resulting from a short sale, he/she should have the lender sign an agreement that the lender releases the collateral and cancels the debt in exchange for the agreed upon proceeds from the short sale.” (emphasis added) (Kent S. Berk, Berk & Moskowitz, PC)

In addition, the law purports to apply to “purchase money loans” only, i.e., the down payment and not necessarily the seconds that were taken out on the property.  Another lawyer claims that “cautious legal counsel will generally advise a borrower to reject any lender short sale proposal on qualifying property and a purchase money note if the lender conditions approval on the borrower agreeing to remain liable for a deficiency or providing the lender an unsecured note.  Why should a borrower agree to a deficiency where none exists under Arizona law?” (Marc McCain, McCain & Bursh, PLC)

While I am not a lawyer I believe that, for realtors, these are uncharted waters and knowledge is power.  I am in no way advocating that we advise our clients of what to do in these scenarios…..of course, direct them to speak with competent legal counsel.  We should be sources of information for our clients.