Can the bank come after my fully paid house in Arizona?

Asked over 2 years ago - Chandler, AZ

I bought a house in cash last month and I moved into it; I also own a condo with a mortgage on it that I can not afford to make payments for anymore because I now have low paying job and the condo is not going for rent that i want to...so If I start the foreclosure process or short sale(stop making payments) can the bank come after my fully paid new house? (I only have a first mortgage on the condo and no equity or refinance loans)

Attorney answers (4)

  1. Suzanne M. Watts

    Contributor Level 6

    5

    Lawyers agree

    Answered . If the property you are letting go to foreclosure is a single family dwelling on less than 2.5 acres and the outstanding balance owed to the bank was used to purchase the home (purchase money), then the banks only remedy is to foreclose on the property. The bank cannot attach to any other assets, including your new home...if the bank forecloses. Be careful in a short sale not to compromise the anti-deficiency protection available after the trustee sale by agreeing to be responsible for a deficiency.

  2. Douglas Garth Edmunds

    Contributor Level 13

    4

    Lawyers agree

    Answered . I agree with the other answers here. It certainly sounds as though you will be safe from collections in that new home, but short of speaking with you and going over the specific details of the condo it will be impossible to know for sure.

    Personally, I always think a short sale in a situation like this is best so long as you are careful and properly negotiate a release of deficiency. I imagine you have association dues on that condo ... be careful with those, they remain your responsibility until title to the condo transfers.

  3. Morgan Jay Seegmiller

    Contributor Level 13

    4

    Lawyers agree

    Answered . All the information from the previous answers is correct. Here is some general information that may be useful to you:

    1) In Arizona, we have an anti-deficiency statute that protects you personally from having to pay any of the purchase-money loan balance after a foreclosure if the home is used as a single-family residence and the property is less than 2 1/2 acres. However, if there is a second lien that was not incurred to purchase the property, a borrower could still be personally responsible for that loan even after the foreclosure.

    2) In a short-sale arrangement, the borrower could still be liable after the sale, depending in part on what the short-sale paperwork says. The bank may try to have the borrower sign on to a new note for a portion of the deficiency balance after the home is sold.

    3) Offering a Deed-in-lieu of foreclosure (quit claiming the property to the bank) may not provide the borrower with anti-deficiency protection because of the way the anti-deficiency statute is drafted. In this situation, the bank may try to keep the borrower responsible for some portion of the deficiency balance beyond what the home is worth.

    4) The U.S. Tax Code has a provision for "forgiveness of debt income", which basically says that if a lender forgives a portion of debt, the borrower must declare that amount of forgiveness as income for that year and must use it to calculate income tax owed. There are many exceptions to this rule however. In Arizona, a mortgage loan that is protected under the anti-deficiency statute is "non-recourse", so the forgiveness of debt income provision mostly does not apply after a foreclosure of a single family home that is less than 2 1/2 acres. Additionally, debt that is discharged in bankruptcy does not fall under this provision. There are other exceptions.

    5) One thing to also be aware of is potential Home Owners Association debt. If there is an HOA over the property, you may be personally responsible for unpaid HOA assessments and other charges. So, no matter what happens with the house, you could still be sued personally for an HOA debt. I have seen some cases where an HOA will file a lawsuit for a debt as small as $1,200.

    6) Other financial implications of these decisions are the potential effect these transactions will have on your credit score. There is too much to consider for me to provide much information on this here, except that a short sale is a bit less damaging to your credit than a foreclosure.

    IF YOU FOUND THIS ANSWER HELPFUL, PLEASE CLICK TO MARK IT AS A GOOD ANSWER. The information provided... more
  4. Robert H Nagle

    Contributor Level 10

    3

    Lawyers agree

    Answered . If your loan on the Condo has not been refinanced, then the lender may only look to the collateral that is securing the loan, i.e., the Condo. There are other issues to consider as well regardless of whether you short sale or go foreclosure that you will also need to consider in your decision making.

    Accessing this website or receiving an electronic transmission from Nagle Law Group, P.C., or any specific... more

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