Arizona real estate law firms are seeing many lawsuits filed by lenders against borrowers after foreclosure. In many of these cases, borrowers are able to dismiss the case and recover their legal fees because the lenders’ claims are prohibited by Arizona law. Specifically, Section 33-729(A) of the Arizona Revised Statutes excludes many claims from lenders if the borrowed money was used to purchase the home that was foreclosed on.
A common situation involves an Arizona homeowner who has lost their home to foreclosure and thinks that, aside from the credit hit, that matter is done. They are surprised when a process server appears to file a lawsuit filed by their second mortgage lender to recover amounts the lender relieves that they owed on the second mortgage, and that they were unable to recover when the primary lender foreclosed.
If the funds in question were used to purchase the home, making it a “purchase money mortgage,” the borrower may have an easy defense against the claim. However, the lawsuit cannot be ignored, as if it is not answered, it will likely result in a default judgment that will be very difficult to undo.
The important Arizona law in question is codified in ARS Section 33-729(A), which states that if a mortgage is granted to pay the purchase price of the home, the lender cannot take any action against a borrower other than foreclose on the deed of trust that secures the mortgage. Unfortunately for many second (or third or fourth) mortgage lenders, due to current market conditions, funds are often not available beyond the amounts owed on the primary mortgage.
Arizona borrowers facing potential liability should speak with an experienced Arizona real estate attorney to discuss their potential liability. The aforementioned statute and others like it have a variety of terms that, in many cases, can override the general protections provided to borrowers. Even in cases where there may be some liability, an experienced attorney can help negotiate a resolution that helps the borrower avoid some of the liability he faces.
