My husband and I recently relocated to NY from AZ. We have a house in AZ worth about approx. $440,000 of which we owe $386,000. We put $50,000 down on the home. The house has been on the market for 6 months and have had no offers. My husband and I both have excellent credit scores. I have a couple of questions:

1) If my husband and I build a house in NY and then let the one in AZ foreclose, if the home in AZ sells for less than what I owe, can the mortgage company come back on my new home in NY and place a lien on that one? From what I read in the AZ legislature they can not but I just need to be sure.

2) or, should I try and rent the home, taking a loss of about $1200 a month, to a friend to ensure it won't get ruined and wait out the marekt

If anyone else has any good suggestions please let me know! I am desperate. Thank you!

Hello dakrtgrl:

Certainly, if your house sells for less than what you owe, it's YOU who takes the bath, not the mortgage company. They'll have to sue you before they put a lien on your new home, or maybe your mortgage allows them to do it without suing you first. I depends on your loan documents.

I don't know what you read, but I'm certain Arizona law doesn't protect you from the banks.

If you have a friend who will rent it, DO THAT.

excon

I would sell it for what you can get out of it now, even if slightly less than what you owe ( and pay the differnece or take out a perosnal loan to cover it) to get out from under it. You should be able to sell it for 399,000 or somewhere in that area, houses are slower, but still selling.

Next if they foreclose on you, there will be legal fees, selling fees, foreclosure fees and late pay fees and more, they will let it go perhaps 4 to 6 months before they actually foreclose to be sure and add every fee they can. Then of course attorney fees. So that 386,000 can easily be well over 400,000 before they actually foreclose, and you can expect it to sell nrmally for a lot less. So you could expect them to get a judgemnet, perhaps garnish someone's pay check, perhaps attach bank accounts all first, since they want money, not another lien. But would do the lien if they can't get nothing else.

A friend renting, normally sounds find, and yours may work out great, but read about 10 out of every 100 posts in the real estate and you will find where that friend turns into a nightmare in a few years.

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Originally Posted by excon

Hello dakrtgrl:

Certainly, if your house sells for less than what you owe, it's YOU who takes the bath, not the mortgage company. They'll have to sue you before they put a lien on your new home, or maybe your mortgage allows them to do it without suing you first. I depends on your loan documents.

I don't know what you read, but I'm certain Arizona law doesn't protect you from the banks.

If you have a friend who will rent it, DO THAT.

excon

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Here is the information that I read from the A legislator's page:
"33-729. Purchase money mortgage; limitation on liability

A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary."

Hello again:

Well, it looks like legalese that says exactly what you think it says. I think it says it too... However, I'm still not so sure, because it doesn't make economic sense.

I promise you, that if Arizona law prevents a lender from getting his money back, no lender in the world would make loans there. Would you??

I don't know why the law talks about a judgment... If the debtor doesn't have to pay, it would seem that the law would grant that person an affirmative defense against a law suit brought by the lender. It doesn't do that. It talks about the judgment, as though a law suit has been brought and WON. It seems to me that if the law does what it appears to do, you couldn't be sued.

Therefore, I think more investigation is in order. Plus, you say that you got the information from the "legislature", not the Arizona Revised Statutes. So, it may not be law.

excon

I think the key here is the definition of property. It could be restricted to real property which would mean cash assets are not protected.

I have a saved letter from an AZ law firm, which explains in some detail, how AZ law is applied to this question. It is in a PDF format, but I don't know how to include an attachment to an answer in this forum. If anyone can show me how to do this, I would be happy to attach the letter. If this is not possible, just send me a private message with your e-mail address, and I will sent the letter to you.

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Originally Posted by Dr D

I have a saved letter from an AZ law firm, which explains in some detail, how AZ law is applied to this question. It is in a PDF format, but I don't know how to include an attachment to an answer in this forum. If anyone can show me how to do this, I would be happy to attach the letter.

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Click the Answer this Question button or use the Go Advanced button undet the Quick Reply. Scroll down to Additional Options then click the Manage Attachments button. Frm there you can select the file you want to attach.

Scott - I hope this works. You have the thanks of a computer challenged dufus. Dr. D

Worked perfectly. After reading that I have to wonder what lenders do in AZ. I would imagine they would tend to require larger downpayments to protect themselves. Either that or try to fudge it by writing a home equity loan after the fact.

Do you know if a lot of other states have such anti-deficiency laws?

The down payment requirements in AZ are the same as in other parts of the country. Many areas in AZ have been recently classified as "Declining Markets" by FNMA and FHLMC because of the real estate insanity that we experienced over the last few years. As a result the LTVs for conventional loans have been reduced by 5% for many properties. For a lender to do a HELOC after the fact, in order to achieve the desired LTV, would be considered loan fraud. I would think that those states that use the Deed of Trust as a security instrument would have laws similar to those of AZ. The D of T is a much more streamlined instrument, and offers benefits to both the borrower and the lender. If the lender is intent on getting a deficiency, they can always proceed with a judicial foreclosure. In the case of a second on an over-encumbered property, the lender may choose not to recover the property, but just sue the borrower on the basis of the note.

Hello again:

Well, shut my mouth!

When a lender lends, he's taking the risk that he won't be paid back. When a borrower borrows, he's taking the risk that the house will be/is worth what he's paying.

Apparently in Arizona, the bank takes ALL the risk, and the borrower takes none. If the property goes up, the borrowers win. If the property goes down, the borrowers win.

Got any property for sale that I can get that way? I love screwing banks.

excon

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Originally Posted by excon

Apparently in Arizona, the bank takes ALL the risk, and the borrower takes none. If the property goes up, the borrowers win. If the property goes down, the borrowers win.

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Its not quite that bad, if I understand what Dr D and that letter says. Apparently it has to do with HOW the lender forecloses. They still have the option of going through the judicial foreclosure, which I'm assuming costs more and takes longer if they feel they will be losing too much.

The borrower still loses considerably even if the lender lets go the deficiency. They lose all their investment in the home. So it comes down to an expensive rental. There is the affect on their credit and they also now have to find a new place to live. Since they will have no equity to use to to purchase a new home, they will be back to a rental. Losing tax benefits as well as the opportunity to build equity.

Both Scott and excon made valid points. The lenders who made the sub-prime loans should eat the losses and not be bailed out by taxpayers. They gave loans to anyone with bad credit and a pulse. In many cases these were with zero down payment. In all cases they charged much higher rates and fees to maximize profits. The rates had future increases to levels that even a good borrower could not handle. To prevent the borrowers from rolling out of these crummy loans, the lenders attached 2 or 3 year prepayment penalties amounting to 6 months interest. If I were king, there would be mortgage people hanging from every light pole in AZ. I might add that in the last 25 years I have never done a sub-prime loan or one with a prepayment penalty, which reduced my income considerably. Enough ranting from a stupid old weasel.

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Originally Posted by Dr D

Enough ranting from a stupid old weasel.

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Hello again, Dr:

Correction: ranting from an ethical old weasel.

excon

Quote:

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Originally Posted by Dr D

Both Scott and excon made valid points. The lenders who made the sub-prime loans should eat the losses and not be bailed out by taxpayers. They gave loans to anyone with bad credit and a pulse. In many cases these were with zero down payment. In all cases they charged much higher rates and fees to maximize profits. The rates had future increases to levels that even a good borrower could not handle. To prevent the borrowers from rolling out of these crummy loans, the lenders attached 2 or 3 year prepayment penalties amounting to 6 months interest. If I were king, there would be mortgage people hanging from every light pole in AZ. I might add that in the last 25 years I have never done a sub-prime loan or one with a prepayment penalty, which reduced my income considerably. Enough ranting from a stupid old weasel.

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I agree with you. My husband and I have very good credit, about 730's, and we were wrangled into an interest only loan with a prepayment penalty for 3 years. The only good thing is that it's a soft pre-pay and we can still sell but we can't refinance for another 9 months. The other good thing is that I made sure when we did the interest only we did a 5 year and not a 2 so at least we have another 2 1/2 years before it goes up to the full rate. Of course I didn't know any of this until after we signed... I just took my broker's word for it that it was a good loan product. Even with Bush's attempt to stop loans from adjusting I don't think we will be helped because we don't have a "sub-prime" loan... I just hope we can sell it or refi before that time comes.