Arizona Pre-Foreclosure Options

If you are in an Arizona pre foreclosure situation, you are not alone. According to a recent study by Zillow, two-thirds of homeowners in Phoenix owe more on their homes than what they are worth.  More and more homeowners are turning to experienced Phoenix short sale agents to help them avoid the devastating effects of a foreclosure.

In addition, the Mortgage Bankers Association recently released a study, saying that 14% of homeowners nationwide are behind a minimum of one payment on their mortgage. This means that 1 out of every 6 mortgages are currently not being paid.

Folks, these are staggering statistics. The worst part of this scenario is that currently 7 out of 10 homeowners simply “walk away” from their mortgage, allowing the bank to simply foreclose on their home, without ever consulting with a qualified Phoenix short sale agent to learn their options.

Stop Arizona Foreclosure And Stay In Your Home


- Used in cases where the reason for distress was temporary and resolved.
- Can be done up to day of foreclosure auction
- You must be able to pay all the payments and late fees due and your mortgage will remain the same.

Forbearance or Re-Payment Plan

- If reason for distress was temporary and resolved
- Requires lender approval
- You may be allowed to make your back payments over time
- Normally does not fully reinstate mortgage until plan is completed. If a homeowner misses just one payment, they can end up in the same stage of the foreclosure process they were in previously. This is a major problem with this particular option.


- If you have sufficient equity and strong enough credit score. This is rarely a viable solution in today’s market, as home values have dropped significantly, causing lower appraised values.
- Typically a short-term solution, since your payment always goes up.

Mortgage Modification

- Requires lender cooperation
- Modifies loan and often reduces payment
- You will have to qualify with financial information most of the time (full doc loan).
- Government programs are available (visit
- You must have verifiable means of income
- You should be certain you can afford the modified mortgage payment
- You can pursue a mortgage modification and prepare for a short sale simultaneously
- Currently, we are seeing less than 10% of our clients qualify for a loan modification, even under the Making Home Affordable Program.


- Will stall a foreclosure and if payments are lowered to where property can be made affordable, it may save your home.
- Very difficult to sell a home once in the bankruptcy process
- Will only stall a foreclosure- will not eliminate the mortgage

Service Members Civil Relief Act (SCRA)

- Provides temporary relief to military personnel
- Must show mortgage was entered into prior to beginning active duty
- Must still be owned by military member
- Must show that service materially affected the ability to pay the mortgage

Arizona Pre Foreclosure Options- Move Out Of Your Home

Sell Your Home

- If you have equity, you can sell and cure the foreclosure
- In Arizona, approximately one-third of Phoenix homeowners are fortunate enough to have equity in their homes.

Rent Your Home
- Can your property bring enough rental income to cover your mortgage payment? If so, this may be a viable option.
- Unfortunately, in today’s Phoenix market, very few homeowners are in a position that makes this possible.
- You also need to factor in insurance, taxes, maintenance, and the headaches of being a landlord.

Deed-In-Lieu Of Foreclosure
- Also known as a “Friendly Foreclosure”
- Homeowner signs the deed over to the bank rather than go through the foreclosure process.
- This process still may be reported as a foreclosure on your credit report
- This scenario typically only works with one mortgage (2nd mortgages will not participate).

Short Sale
Definition: A homeowner is “short” when he/she owes an amount on his her property that, when combined with closing costs and commissions, is higher than the current market value. A negotiation is entered into with the homeowner’s mortgage company (or companies) to accept less than the full balance owed at the close of escrow. A buyer closes on the property and the property is “sold short”.

Two Major Considerations

1. Income Tax (Phantom Tax) Liability
Most homeowners are currently protected under the Mortgage Forgiveness Debt Act of 2007. Prior to it’s passage on December 20th, 2007, any debt forgiven was “cancelled” and was required to be claimed as 1099 income.

MFDRA Details, Phantom Tax
- January 1, 2007-December 31, 2012
- Eliminates Phantom Tax
- Debt must have been debt incurred to acquire a principal residence
- Cancelled debt up to $2,000,000 is eligible
- Sets forth rules for determining the allowable amount of the exclusion for taxpayers with non-qualifying indebtedness and taxpayers who are insolvent (i.e., in some cases, debt used to substantially improve the home’s value can be considered to be eligible under the Act). Check with your CPA for more details.
- Debt from a second (non-acquisition) mortgage or HELOC is not eligible (unless used to improve the basis of the home).
- Debt from a cash-out refinance is not eligible (unless used to improve the basis of the home).
- Cancelled debt from investment properties and second homes is not eligible.

2. Deficiency Judgement
In some cases, the lender may have the right to pursue a deficiency judgement against you for the amount that is sold “short”. Homeowners in Arizona are fortunate to have the Arizona Anti-Deficiency Statute in place. If your situation falls under the following guidelines, you may be protected by this statute.

Requirements For Protection Under the AZ Anti-Deficiency Statute

- Applies only to purchase money mortgages (mortgages that were used to originally purchase the property) i.e., if you took out a first and second mortgage, and both mortgages were used to purchase the property, you are covered under the statute. If you took out a mortgage after the original purchase of the property (i.e. cash-out refinance or HELOC), these loans will generally not be covered.
- Property securing the loan must be 2.5 acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling.
- Property must be occasionally occupied by either the owner or another party (i.e. investment/rental properties are covered under the statute.

There has been talk in recent months, questioning whether short sales are covered under the current Anti-Deficiency Statute, as only foreclosures are addressed in the language. I recently wrote an article on the topic of the AZ Anti Deficiency Statute as it pertains to short sales. As in all cases, it is always best to check with a qualified Arizona real estate attorney to discuss your individual case.

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