Mesa / Phoenix Law Firm Announces Recent Amendments in Anti-Deficiency Statute are Repealed

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Mesa / Phoenix law firm of Gibson Ferrin & Riggs, PLC explains that Arizona legislators have changed their minds about the amendments made to the anti-deficiency statute that would have held home investors to a higher standard.

With SB 1271 repealed, the anti-deficiency safe harbor is back in place

Less than two months after signing into law amendments to Arizona's existing anti-deficiency statute, Arizona Governor Jan Brewer signed legislation repealing those changes.

The statute (A.R.S. § 33-814(G)) provides residential property owners security from personal liability for loans on foreclosed property sold in a trustee sale. As long as the property was less than 2.5 acres of land and used as a single one- or two-family unit, lenders have no legal recourse in Arizona to collect a deficiency amount, which is the difference between the balance of the loan and the amount the property was sold for in foreclosure.

The amendments to this statute (SB 1271), which were to become effective September 30, 2009, would have drastically changed protection for investors, says attorney Charlotte Johnson of Gibson Ferrin & Riggs, PLC.

Under these amendments, only borrowers who have lived on the property for at least six months and been issued a certificate of occupancy would be provided anti-deficiency protection should the property be foreclosed, she explains.

"Unless investors could prove they had occupied the completed residence for at least six consecutive months, the statute, in most cases, would not have protected them from collections," says Johnson.

The new requirements were causing widespread panic among Arizona investment property owners, she says.

"Several investors have contacted me over the last month worried that they were going to be sued because they were falling behind in their mortgage loan payments," she says.

Others were also worried about the impending effects of the legislation.

In July, soon after the bill was signed into law, the Arizona Association of Realtors called upon Governor Brewer to amend her call for a special session of the legislature to discuss state budget issues to also address issues pertaining to the passage of SB 1271.

"SB 1271 dramatically alters well settled Arizona law on the relationship between Arizona residential real estate owners and their lenders. Undoubtedly, those who voted in favor of this legislation could not have known about its far reaching legal and practical impacts," stated the letter that was signed by CEO Tom Farley. He listed that effects of the amended statute could include a dramatic increase in foreclosures, litigation, falling real estate prices and a prolonged recession in the state.

Apparently, lawmakers agreed.

Just one week after Mr. Farley asked the legislature and governor to reconsider, Senator Steve Pierce, R-Prescott, once a sponsor of SB 1271, announced his support for the bill to be revoked.

According to a press release from his office, Sen. Pierce indicated that the bill was "intended to protect community banks," but "has some serious flaws." The sparsely-worded legislation left a great deal of confusion and uncertainty, he said.

Lawmakers acted to repeal the legislation and to fix the problem they had created.

"With SB 1271 repealed, the anti-deficiency safe harbor is back in place," says Johnson. "Arizona residential property investors can rest easy, for now."

However, Sen. Pierce indicated that he, the governor and other interested parties still intend to collaborate on a better solution for the problem.

Call attorney Charlotte Johnson at 480-633-8100 with any questions concerning Arizona's anti-deficiency law or to schedule a confidential and comprehensive consultation. For more information, see Arizona HB 2008, 49th Legislature, Third Special Session (2009), or Arizona Revised Statutes § 33-814(G).

The attorneys at Gibson Ferrin & Riggs, PLC concentrate their practice on serving individuals, families and small business owners with business-related issues, family law and estate planning. They can help identify and assess the interests that matter most to their clients and work to preserve, protect and promote them. Visit their website at and their blog at The firm's expertise in commercial litigation and business, family and estate law is recognized throughout the Phoenix / Mesa area.

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