Short Sale No No's.
This is just a quick post to let anyone know, who is considering a Short Sale on your home in the state of Arizona.
It has recently come to my attention while doing some checking through some friends of ours that here in Arizona the Anti Deficiency Laws do not help those who are performing a Short Sale. This Law only applies to Foreclosure.
What this means to you is, if you Foreclose on a property the Anti Deficiency Law will protect you from any future law suits by the bank to collect the unpaid balance of the forgiven debt. (That only applies to the original Purchase Money Loan). If you have a Junior Loan in a Foreclosure it is not protected under the Anti Deficiency Laws and the wiped out Junior Lien Holder still has the right to sue for any remaining deficiency.
As for those in a Short Sale Position. If you perform a Short Sale, the Anti Deficiency Law will (NOT) protect you from future law suits to recover any remaining deficiency. That also applies to Junior liens.
OK, here is the tricky part.
1). If you only have one primary Purchase Money Loan and you let it foreclose, the only thing that stings is the hit on your credit and the time it takes to regain the ability to buy another home. (That is info for future post).
2). If you have a primary Purchase Money Loan and a second or (Junior Lien) and you let the home foreclose, you will leave yourself open to a law suit for the Junior Lien Deficiency.
That being said, in many cases it is beneficial to attempt a Short Sale if the details are handled correctly and the conditions of the Short Sale are arranged in such a way that you obtain an agreement from the First Position (Primary Purchase Money Loan), Second Position (Junior Lien Holder) that they will sign off on any remaining deficiency. One example of verbiage you might see from all lenders involved in a Short Sale would go something like this. (lender accepts the short sale proceeds as payment in full for any outstanding obligation). It is CRITICAL in a Short Sale situation that any lien holder that still has a deficiency remaining on the loan that this type of verbiage be included as a condition of the Short Sale.
Remember, the Anti Deficiency Law does NOT protect you in a Short Sale Case, so it doesn't matter whether it is a first or second position, they can still sue for the deficiency.
In closing, if you are able to complete a Short Sale and all lenders involved agree to sign off on any future claims for the deficient amounts, you will end up in a much better position than a Foreclosure.
If you just elect to go straight into Foreclosure and there is a Junior Lien holder, or the First Position Lien Holder is not the original Purchase Money Loan, you are pretty much giving up any chance of getting them to sign off on the deficiency, leaving you open to Law suit. You really have nothing to loose in a Short Sale attempt. If you cannot get the lenders to sign off on the deficiencies it will just revert back to Foreclosure. You don't have to agree with the Short Sale conditions if you don't agree to the terms.
PLEASE NOTE: The Verbiage above is just an example. Not legal advice. If you do decide to perform a Short Sale or Foreclosure, have all documents reviewed by a qualified Real Estate Attorney before signing off on the transaction. There are also certain tax consequences that need to be evaluated by a qualified Tax Attorney.
Please don't be mislead. I always have any Short Sale candidate consult with a Real Estate and Tax Attorney to be certain they know all of the potential obligations they may face in either situation.
Of course there are many different scenarios to consider this is just one example.
Please if you have any questions on this or any other Real Estate related subject, feel free to contact me any time.
Thank you for reading.