Anti-Deficiency Statutes Protection Available for Real Property “Utilized” as Home

Five years ago a small home was purchased Bethany Home Road in Phoenixwith a mortgage loan.  After the closing, they were able to change the zoning of the home to permit the husband, to convert the home into a small office building for his chiropractic practice. However, due to the poor economy the chiropractic practice has suffered, and their income is down considerably. Additionally, they are now “underwater” at least $120,000 on the mortgage loan because of the declining property values in the area. They know that most homeowners are protected from any liability if the mortgage lender on home foreclosures. If the bank forecloses on the office building, will they have any liability for the $120,000 deficiency after the foreclosure?

They probably would in this case. The Arizona anti-deficiency statutes generally protect homeowners from any deficiency after a foreclosure only if the secured real property is “utilized” as a home.  A.R.S. §33-814(G).  Therefore, inasmuch as the mortgage loan is no longer secured by real property that is “utilized” as a home, they probably will have liability for the $120,000deficiency after the foreclosure.

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