Foreclosure Options to “Returning” Investment Property to the Bank

Question: Four years ago during the “boom” I purchased a Scottsdale condominium for investment purposes for $380,000 with 100% financing. Since I purchased this condominium I have had nothing but trouble with tenants, and my annual “negative” has been more than $15,000. The condominium is worth no more than $160,000. What are the Arizona real estate laws if I return this condominium to the bank? Will the bank have any claim against me for losses on the mortgage loan?

Answer: I am not sure what you mean by “return” the home to the bank. Although you can return a shirt to a department store and get your money back if the shirt does not fit, it is not that easy with a home! You can only legally “return” a home if the bank will agree to accept a “Deed in Lieu of Foreclosure.” In other words, you would sign a deed to the bank, and the bank would agree to accept the deed from you. Unfortunately, a bank will rarely accept a Deed in Lieu of Foreclosure.

If by your statement “return the home to the bank” you mean stop making payments on your mortgage loan until the bank forecloses on the home, under Arizona’s anti-deficiency statutes you should have no liability to the bank for any losses suffered by the bank on the mortgage loan. You would have liability to the bank, however, for any unreasonable damage to the home at the time of the foreclosure.

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