In a short sale, the property will be sold for less than the amount owed on the mortgage, and the deficiency will be the difference between the amount of the outstanding mortgage balance and the net amount the bank received from the sale.
Let’s say the mortgage balance is $200,000, and the house sells for $120,000. All the fees, taxes and closing costs are $20,000. So, the net to the bank is $100,000—the deficiency will be $100,000.
Arizona Anti Deficiency Law: Arizona is one of 12 states having an Anti Deficiency Statute, which prevents a lender from suing a homeowner for the deficiency, as long as the loan was purchase money, the property is located on 2.5 acres or less, and is a single-family residence or duplex. However, many homeowners took out a second mortgage when the house prices skyrocketed, and they had equity in their home. This is a Home Equity Line of Credit (HELOC), and is not covered by this law.
HELOCS: The Home Equity Line of Credit is a second or third mortgage where the funds were not used to purchase the home. The Anti Deficiency Statute does not apply. If a house is foreclosed on, the homeowner will still owe on the second mortgage. The lender can and will pursue the homeowner for the full deficiency of the HELOC.
When doing a short sale, we negotiate directly with the bank to get the deficiency of the HELOC waived. Because you cannot negotiate in a foreclosure, most homeowners with a HELOC will always choose a short sale over foreclosure. Once the sale is complete, they can move on without any deficiency hanging over them.
Short Sales: The Anti Deficiency Law was written for foreclosures. However, the majority of attorneys agree that if the law was ever challenged, the courts would uphold the Anti Deficiency Statue, and it would apply to short sales, as well.
No lender has tried to sue a homeowner on a short sale deficiency where the statue would apply if the home were foreclosed on. However, when we negotiate a short sale, we go one step further, and ensure the Approval Letter states, in writing, that the lender agrees to waive any rights to pursue the deficiency once the short sale is complete.
There is no cost to the homeowner to do a short sale. The bank pays all REALTOR® fees and closing costs.
Contact me today at Coldwell Banker Trails and Paths Premier Properties for more information on foreclosures and short sales or a free confidential consultation, or visit my Web site at www.ArizonaShortSaleToday.com. You also can call my cell at (602) 571-6799, or send an e-mail to Lorraine@ArizonaShortSaleToday.com. All information should be independently verified.