Found an issue on this page? Let us know and we will look into it as soon as possible.
Foreclosure on Rental Property?
Anonymous1 views2 answers
I purchased a home in 2005 and used it in my taxes as my primary residence for the first year and then as a second home the next 2 years. I never moved completely to AZ. I rented the property last year and this will be the first time it will be declared as a rental property in my taxes. The house is upside down, I owe 350k and it's value at 200k. The rent does not cover the mortgage payment and I lose $1200 a month on it. I live in CA and have 3 other properties that are not upside down. I want to walk away, but can still afford to continue to pay for it (provided it is rented). If the tenant moves out, I would not be able to make all the payments necessary on all the properties owned. What are the anti deficiency laws in AZ.
You definitely need legal counsel. Dealing with a foreclosure is very complicated.
You might consider selling it under an rental option to purchase. The buyer lives there as a tenant and his first obligation is to pay off your mortage and taxes, If he can later get his own mortgage, he can pay off the purchase balance and take title. If not, when the option expires he can either pay something towards a new option and continue on, or leave. The issue for you is to offer the property at a price between the base value and what is necessary to cover your debt, no profits!
In Arizona it does not matter who occupies the house or whether it was a primary residence or rental property to be covered by the anti-deficiency legislation. The anti-deficiency legislation involves really two questions: (1) Is the real estate a "qualifying" property; and (2) Was the loan "purchase money" or "non-purchase money."
To be a qualifying property, the home must be on land of 2.5 acres or less and be utilized as either a single one family dwelling or single two family dwelling. Condominiums generally qualify as single one family dwellings if you only owned just the one condo unit --- vs. owning say a six condo complex as a single rental investment property. Second, you must look at the nature of your mortgage. If you took out the mortgage at the time you purchased the condo and used the money to purchase the condo, then that mortgage is "purchase money." When there are refinances over the years or HELOCs you really need an in-depth analysis of the facts of your particular situation. Assuming your loan is purchase money and assuming your property is a qualifying property, then you are protected from a deficiency in Arizona in all three default situations: (1) Non-judicial foreclosure via Trustee sale; (2) Judicial Foreclosure; and (3) "Short sale" where Lender agrees to release its lien in exchange for less than the full loan balance (no election of remedies).
For these types of situations, it would be imprudent for you to rely on general advice and I strongly suggest you obtain a legal opinion regarding your particular situation. Many firms charge only a small consultation fee to analyze your closing documents and property and provide you with a formal legal opinion.
Best regards,
Hamid Jabbar
