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Is loan for down payment on home considered a non-recourse purchase money loan?

Phoenix, AZ |

In 2005, boyfriend loaned me the 20% down payment on my home. I thought it was a gift, but right before closing he had me sign an "Equity Contribution Agreement". The Agreement states the money was specifically for the down payment of my home. In 2009, I broke up with him. He then recorded the Agreement. I was not informed that he recorded the Agreement and found out by accident.

Currently, I am $100k upside down on my home (not including my ex-boyfriend's lien). The Agreement states that I am to repay the loan upon title transfer, whether it be by sale, foreclosure, deed-in-lieu of foreclosure, etc. Will his lien be subject to AZ's anti-deficiency laws and eliminated if I foreclose on my home?

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Attorney answers 3


I would need to see what the ECA says, and I would need to see your closing/settlement statement from when you purchased the home (plus confirm that your home qualifies for anti-deficiency protection), but, based solely on the facts as you've presented them, there is a very strong likelihood that your ex's "loan" to you will be deemed be a purchase money loan.

In essence, the 20% from your ex is no different than had you obtained an 80/20 loan to purchase the home. With an 80/20 set of loans, both loans are deemed to be purchase money loans, which are limited in recourse to just the house. Let me know if I can be of further assistance to you.

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I agree with Mr. Nagle's assessment. The remaining issue is that of priority. Most likely, the bank lender will have first priority. (assumed because they likely would not have given the loan if they were did not). If that is the case, in a foreclosure, the bank will get the proceeds and your ex's lien will be wiped out. If somehow your ex has priority and the bank lender forecloses, the house will be sold subject to his lien. If you want definite answers, you would need to have an attorney review the documents and other facts.

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I am going to agree with the answers of the others here. I do worry about this ex and his understanding of the law. My concern is that whether this truly is protected under the anti-deficiency law or not, there is certainly risk that a fight may ensue. You should be prepared to defend yourself against collection efforts regardless. It may take a strongly drafted letter from your attorney, or at least level headed advice from his attorney in order to have this end without incident.

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