Foreclosure in Peoria>Question Details

Dannie, Home Seller in Peoria, AZ

If I agree to a deed in lieu of forclosure with my lender here in AZ, can the lender go after me for any deficiency ?

Asked by Dannie, Peoria, AZ Mon Mar 7, 2011

After 7 months of trying short sale and 2 short sale offers were not successful, my lender is now talking deed in lieu of forclosure, I am in the process of personal bankuptcy (lost job etc.). Exactly what is safer for me , foreclosure or deed in lieu ?

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I agree w/Dan on that one Dannie. Please consult with your BK attorney on this one. If you need a good real estate attorney referral, feel free to email me and I'll gladly send you some names/numbers of ones that I've worked with personally here in the Valley.

I would check with your lender and see if they would be willing to send you the died-in-lieu paperwork up-front, or just a 'sample' of their standard DIL forms, if they haven't already. That documentation should outline their terms of the died-in-lieu and how they want to handle the deficiency. You can then have your attorney review it and give you his/her advice.

Also, and I know it sounds simple, but ASK your lender how they handle the deficiency once a died-in-lieu has been executed. See if you can get that answer in writing from the person handling your file.
>Don't forget to ask them about a 1099 as well; they'll likely be sending you that form next year, after the died-in-lieu has been signed and the house delivered back to the bank.

Hope that helps!

Jim Mitchell
Century 21 All Star, REALTORS
jim.mitchell@century21.com
2 votes Thank Flag Link Mon Mar 7, 2011
Basically I agree with the answers so far. Given the bank won't accept your short sale offers, a deed in-lieu of should only be entered into if the language fully releases you from the debt. Have the release language reviewed by a Real Estate lawyer. Most banks try to trick you so don't rely in their verbal promises. Get legal advice-the $250 spent is well worth the pain. Your bankruptcy attorney (who may or may not be skilled in real estate loans) should advise you as to whether a deed in lieu is legal or appropriate if you are this close to bankruptcy. If the bank forecloses this the best protection in Arizona against future collection of this debt if you can't get their cooperation. If you go the bankruptcy route, be sure to list the bank as a creditor, the HOA and anyone who you might remotely owe money to from the past..
1 vote Thank Flag Link Mon Mar 7, 2011
Dannie,
Great question for your BK attorney. They know your entire financial picture and can give you specific advice. Generally speaking a short sale is less damaging to your credit that a deed in lieu or outright foreclosure, but with a BK in process already it may not matter that much.
Your attorney will also be able to discuss including your home in your BK, which may be of some benefit.
1 vote Thank Flag Link Mon Mar 7, 2011
When in doubt confer with an attorney

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
972-699-9111
http://www.lynn911.com
0 votes Thank Flag Link Tue Mar 8, 2011
The answer is 'Possibly'. You would need to consult with a real estate attorney and have them evaluate your situation and any documentation the bank ask you to sign in regards to the 'deed in lieu'.

Best of luck!
Web Reference: http://www.jameswehner.com
0 votes Thank Flag Link Tue Mar 8, 2011
Please talk with an attorney for legal advice, not an agent nor a Realtor. Please keep in mind, things are changing rapidly because of the high amount of foreclosures.

Spirit
0 votes Thank Flag Link Tue Mar 8, 2011
Dannie, sorry to hear about your situation. I'm not surprised that your short sales were not successful. The fallout for short sales are high. The lenders in some cases actually make more $ by letting the property foreclose. I would recommend you speak to an attorney that specializes in this matter. I've provided a link below to BROWN & MEMMOTT who are located in Chandler on Ray & Cooper. Phone: 480-656-8358. They will do an inexpensive initial consultation. Memmott has extensive experience representing the lenders and NOW REPRESENTS homeowners. I know you're on the other side of town, but if you can't contact them, find someone that may be able to assist you. You may also find some valuable information at the following link:
http://www.aaronline.com/documents/ssseller_advisory.pdf

Best of luck to you.
0 votes Thank Flag Link Mon Mar 7, 2011
Dear Dannie:

To answer your question specifically regarding the deficiency on your mortgage that will be created with the short sale of your home or a deed in lieu of foreclosure, many homeowners/borrowers are not aware that Arizona is a "Non-Deficiency" State for short paid mortgages. This means that, unless there are specific issues in your loan agreement, which only your attorney can advise you on, the lender is prohibited by Arizona Statue 33-729 from pursuing a judgment against the borrower if the home has sold for a deficiency, an amount less than the mortgage balance due to a diminished value of the home (or secured property).

Specifically, Lenders are prohibited by Arizona Statute (33-729) from obtaining deficiency judgments in foreclosures where the land size is 2.5 acres or less and where the property was used as either a single one-family or single two-family dwelling. The actual language from the Arizona Statue follows:

Arizona Statute 33-729. Purchase money mortgage; limitation on liability

A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.

B. The balance due on a mortgage foreclosure judgment after sale of the mortgaged property shall
constitute a lien against other property of the judgment debtor, general execution may be issued thereon, and the judgment may be otherwise satisfied out of other property of the judgment debtor, if the court determines, after sale upon special execution and upon written application and such notice to the judgment debtor as the court may require, that the sale price was less than the amount of the judgment because of diminution in the value of such real property while such property was in the ownership, possession, or control of the judgment debtor because of voluntary waste committed or permitted by the judgment debtor, not to exceed the amount of diminution in value as determined by such court.

The lender is prohibited by law from pursuing the shorted debt in normal situations. However, if the borrower signs a separate note to he lender for the deficiency, that new note would govern the deficiency balance owed on the debt. You have the law behind to ask for a full release of the deficiency amount.

Borrowers need to know that Arizona is a "Non Deficiency" State. Again, an attorney's advice should be obtained before you sign anything.

I hope this helps you.

Jeff Masich, Realtor®
Arizona Homes and Land
HomeSmart Real Estate
Web Reference: http://ArizonaHomesLand.com
0 votes Thank Flag Link Mon Mar 7, 2011
I can't understand why your short sale didn't close. Most banks prefer a short sale to a deed in lieu. We are a professional short sale service and would be happy to explain the process to you. Please call us directly to discuss your specific situation. Our services are FREE to homeowners. We look forward to hearing from you.

Eli Givoni, Director
Short Sale Department, LLC
561-361-1909
info@shortsaledept.com
http://www.shortsaledepartment.com
Serving all 50 states

MARS Disclosure for General Commercial Communications
IMPORTANT NOTICE:
Short Sale Department, LLC is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit.
0 votes Thank Flag Link Mon Mar 7, 2011
Hello Dannie,

Great answers with the thumbs up! Regarding the 1099 you can speak to your tax advisor as to whether this will be an issue for your or not. Please do speak with both Attorney's (bankruptcy and Real Estate)
0 votes Thank Flag Link Mon Mar 7, 2011
Dannie

Truly is best answered by your BK attorney.

Arizona Homes for Sale by a Guy from Iowa
Web Reference: http://www.McVinua.com
0 votes Thank Flag Link Mon Mar 7, 2011
Dannie,
Usually yes they can. Deed in lieu, doesn't have the same protection in AZ as a foreclosure.. You need to talk to a Real Estate Attorney.. call a realtor you trust they can refer you.
God Bless,
Brad
0 votes Thank Flag Link Mon Mar 7, 2011
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