BEING SUED BY YOUR LENDER

Some Arizona homeowners who have walked away from their homes have found themselves as defendants in lawsuits filed by one of their lenders.  These unfortunate borrowers wonder how that could have happened since Arizona has Anti-Deficiency Statutes.  Such lawsuits revolve around a type of loan called an 80/20 loan where one or two different lenders would lend the borrower an 80% first loan which would be secured by the residence.  The remaining 20% of purchase price was also financed & secured by the home in a second lien position.  The lenders that made these type of loans to borrowers were basically financing 100% of the purchase price of the home.  

When real estate values declined, homeowners stopped making loan payments and began walking away from their homes.  As one would expect, without payment, the holders of the first mortgage foreclosed on the homes.  Holders of the second loans were left with none or a small fraction of their 20% loan being repaid due to the declining value.  These lenders began filling lawsuits against the borrowers for the full amount of the second loan.  SURPRISE! SURPRISE!

While these homeowners should otherwise be protected from the deficiency lawsuits, their 20% second loans may not be the type that fit within the "Arizona Anti-Deficiency" laws...such as home equity loans that are made for some other purpose than to purchase a home.  Seeking legal advice to determine whether or not the lender has a valid claim against the borrower/homeowner is a MUST as many lenders are unaware of Arizona's "Anti-Deficiency" statutes.