New Law Limiting the Protection of Arizona Anti-Deficiency Statutes

By: Aaron M. Green and Christopher A. Combs

On July 10, 2009, the Governor of Arizona signed into law (effective September 30, 2009) a significant amendment to Arizona's anti-deficiency statutes. This new law decreases the protection to Arizona homeowners after they lose their home to foreclosure. The anti-deficiency statutes had not been amended since 1990.

The Arizona anti-deficiency statutes (primarily A.R.S. §33-814(G)) generally protect most homeowners from being sued after foreclosure by their lender for any unpaid balance of the loan, i.e., deficiency, if the home was "utilized" as a "dwelling." The Arizona courts have ruled that even vacation homes rented out by investors for only a few weeks of the year were being "utilized" as a "dwelling."

The new law states that homes must be utilized as a dwelling "by the trustor [borrower] under the deed of trust for at least six consecutive months...." (Emphasis added.) Therefore, occupancy of the home for at least six consecutive months prior to the foreclosure is now required.

Does the six-month occupancy requirement only protect owner-occupied homes, or do investors with tenants who meet the six-month occupancy requirement have the same protection? Our opinion at Combs Law Group is that investment homes will continue to have the same protection as owner-occupied homes under the anti-deficiency statutes.

Does the six-month occupancy requirement apply only to foreclosure of loans entered into after September 30, 2009, or to all foreclosures that occur after that date? Our opinion at Combs Law Group is that the six-month occupancy requirement applies to all foreclosures after September 30, 2009, and that the borrower will have to prove at that time the six-month occupancy requirement even though the loan documents may have been executed years earlier.

A copy of the new law can be found at www.combslawgroup.com.

If you would like more information regarding landlord/tenant, short sales, loan modifications, bankruptcy or other real estate related issues, please call our office at 602.957.9810 and arrange for an initial consultation with one of our attorneys.


Chris Combs

Certified Real Estate Specialist
Combs Law Group, P.C.