Arizona Non-Recourse Lending Status to Change
On July 1st, 2009 Arizona Governor Brewer signed into law SB 1271 (a revision to ARS 33-814(g), affecting a lender’s ability to pursue a deficiency judgment post Trustee Sale, i.e. foreclosure). The exemption from deficiency resulting from sale under Trustee Sale is now clarified to be for Trustors (owners) that have occupied the home for at least 6 months, the property has received its Certificate of Occupancy, and the burden of proof is now on the owner to prove that they lived in the home for 6 months.
The result is that any investors of non-owner occupied Arizona real estate with a loan on it that is sold at auction after September 30th, 2009 will be liable for any shortfall in the total debt owed vs. the net amount paid to the lender after auction.
Up until now, the lender had no recourse to pursue this shortfall, but was allowed to write down the amount, take a loss against profits, and then 1099 the owner, forcing them to claim this difference between amount owed and amount collected as “income” (imputed income), and pay ordinary taxes on it.
While still an insult added to injury, at least this amount reflected a percentage of the amount, vs. owing the entire difference.
If your Arizona investment property is in foreclosure, it appears there may be a strong reason to avoid any delay in it’s Trustee Sale date. At least prior to Sept. 30th. I would strongly recommend that you consult with a credible real estate and/or bankruptcy attorney, at the very least.