Loan Workout Options

With all the talk and confusion surrounding loan modifications, short sales and foreclosures, we have prepared a quick reference cheat sheet to breakdown and explain the major components and what they mean to you. As always, we are here to answer any questions and help you with all your real estate needs (480-675-0112).

1. Sell the property (Releases the Deed-of-Trust and satisfies the loan) Called a Short Sale if amount due exceeds value of the property.

2. Refinance to take out existing loan If equity exists

3. Loan Modification (whether or not delinquent in payments or a trustee's sale has been started) Repayment plan: temporarily lowers payments, unpaid amounts added to the balance of the loan. Restructuring: permanently lowers the payments or sets a fixed interest rate.

4. Deed in Lieu of Foreclosure Rarely available in Arizona.

5. Reinstatement (pursuant to statutory right) Pay all delinquent payments and costs of sale to stop trustee sale - to permit sale or refinance.

1. Purchase Money Qualifying Property Residential Loans. In Arizona, lenders have no recourse against a borrower following the foreclosure of purchase money loans (proceeds of the loan(s) were used to acquire the property) on a single one family or single two family dwellings (a "qualifying property"). See A.R.S. §33 814. Therefore, the Arizona legislature intended that a homeowner who is unable to make payments on a purchase money loan should lose no more than their home. The Supreme Court of Arizona, in interpreting this intent, has held that a purchase moneylender may not waive its security (the deed of trust) and sue directly on the note. Finally, the Court of Appeals has held that the anti deficiency statutes protect a homeowner who has renewed, extended, or refinanced the original purchase money loan.

The Supreme Court has held that there is no distinction between a homeowner and an investor/developer seeking protection under the anti deficiency statutes if: 1. The residential property fits within the statutory definition of "two and one half acres or less" and, 2. It is utilized for either a single one family or a single two family dwelling.

The definition of "utilized" in the qualification regarding use as "either a single one family or a single two family dwelling" is unclear. If the home is not complete (still under construction), it probably does not qualify. In addition, we do not know whether even if complete, but never occupied, has it been "utilized" as a "dwelling" if a Certificate of Occupancy was issued.

2. Non-Purchase Money, Qualifying Property Residential loans If the loan is not purchase money (the proceeds were not used to purchase the property, such as a home equity or improvement loan) if the lender conducts a trustee's sale, there can be no deficiency. However when the non-pm loan is a second, the second lender will rarely foreclose, especially where a first lender forecloses on its loan. The foreclosure then will erase the second lien, but not the obligation created by note, and the lender can sue the borrower for the amount owed. Similarly, the second lender could "waive the security" and sue directly on the note.

3. Commercial loans/trustee sales. In the event a trustee's sale is utilized, litigation requesting a deficiency judgment must be brought within 90 days of the trustee's sale. A.R.S. §33 814 (A). If the action is not brought in a timely fashion, the debt is deemed satisfied. Typically, the deficiency is established as of the date of sale by the lender bidding in an amount equal to the fair market value of the property, which should be established by an appraisal. The amount of the deficiency judgment is the amount of the debt at the time of the trustee's sale, less the fair market value at the time of the sale, or the trustee's sale price, whichever is higher.