Arizona real estate law firms are seeing many lawsuits filed by lenders against borrowers after foreclosure. In many of these cases, the borrowers can have the case dismissed and recover their legal fees because the lenders’ claims are barred by Arizona law. Specifically, Arizona Revised Statute Section 33-729(A) precludes many claims by lenders if the money lent was utilized to buy the home that was foreclosed on.
A common situation involves an Arizona homeowner who has lost her home to foreclosure and thinks that, besides the credit hit, that matter is concluded. They are surprised when a process server appears to serve a lawsuit filed by their second mortgage lender to recover amounts the lender alleges it was owed on the second mortgage, and which it was unable to recover when the primary lender foreclosed.
If the funds at issue were used to buy the home, making it a “purchase money mortgage,” the borrower may have an easy defense to the claim. The lawsuit, however, cannot be ignored, as failing to respond will likely result in the entry of a default judgment that will be very difficult to undo.
The important Arizona law at issue is codified at A.R.S. Section 33-729(A), which provides that if a mortgage is given to pay the purchase price of the home, the lender may not pursue any action against a borrower – besides foreclosing on the deed of trust securing the mortgage. Unfortunately for many second (or third or fourth) mortgage lenders, due to current market conditions there are frequently no funds available beyond the amounts owed on the primary mortgage.
Arizona borrowers who find themselves facing possible liability should speak with an experienced Arizona real estate attorney to discuss their possible liability. The above-referenced statute and others like it have a variety of terms that, in many cases, can negate the general protections provided to borrowers. Even in cases where there may be some liability, an experienced lawyer can help negotiate a resolution that can help a borrower avoid some of the liability he or she is facing.