Homeowners facing serious financial difficulties often wind up losing their homes to foreclosure. Thanks to a 40 year-old anti-deficiency statute, lenders are prohibited from going after most homeowners who go through an Arizona foreclosure. Now the Arizona State Legislature is poised to expand these much-needed protections to underwater homeowners who choose to sell their homes through a short sale. If you’re upside down on your mortgage or facing serious financial challenges – and you’re thinking about a short sale – this is music to your ears, right?
Not so fast.
Before you leap with joy about the possibility that lawmakers will give homeowners added protections on Phoenix short sales, I need to:
- More fully explain the legislation
- Tell you about Senator Jack Harper’s anti-homeowner, pro-lender bill that would change the Arizona mortgage landscape for homeowners facing foreclosure
- Explain how you can get involved today by contacting your Representative and demanding that your needs be met by your elected officials
First, an important point that needs to be mentioned: Since 1971, Arizonans facing foreclosure have enjoyed an important legal protection – anti-deficiency statutes. This means lenders can’t foreclose on your mortgage, dispose of the property at fire sale prices, and then demand that you pay them the difference between the amount the property sold for and the amount you owed them. In most cases, when the lender forecloses, they get the property and you leave the property behind – owing nothing.
This seems fair to me. Nobody wants to go through foreclosure. It’s embarrassing for homeowners to admit to friends, family and neighbors that they’ve suffered a financial setback. Foreclosure hurts FICO scores, which makes it next to impossible to gain credit approval for 5-7 years after the foreclosure; the resulting credit damage can also make it difficult to land a job, get an apartment or restructure other debt. In short, homeowners who go through foreclosure lose — a lot! Now let’s dive into the specifics of HB2584 and how it applies to short sales.
HB2584: Doing Away With Short Sale Deficiency Judgments
If you own a home in Arizona, you’re painfully aware that real estate values have dropped like a rock. This is important to anyone facing foreclosure or who is navigating through the choppy waters of financial difficulty. The reason is simple: Short sale transactions are helpful tools that can help homeowners avoid foreclosure.
If you know that your current financial circumstances make it impossible to honor your financial commitment to your lender – no matter the reason – your first option is typically to sell your home. If you owe more on your home than it’s worth, simply selling the property gets swept off the table as a viable option. Fortunately, many lenders will accept less than what is owed on the property, in order to eliminate a mortgage loan, which isn’t paying for itself (from the lender’s perspective). This is what a short sale is.
Remember how I said that foreclosure wipes out the borrower’s financial responsibility to the lender? Short sales don’t do that – at least, not yet. HB2584 would change mortgage law in Arizona to match that of foreclosure.
Reasons That Anti-Deficiency in Short Sales Makes Sense
Expanding the anti-deficiency statute to short sales makes sense for homeowners facing financial trouble and the lenders that approve these transactions. Without diving into all the reasons lenders consider short sales in the first place, the most important reason is because lenders benefit in the long run. It allows them to take bad loans off their books and pursue new loans with consumers in a better position to pay their mortgages on time. It also saves them the time, the hassle and expense of foreclosing on a homeowner – and then having to pay for upkeep on a property that sits empty.
Anti-Deficiency in Short Sales Already Exists… Kind of
As a Phoenix short sale agent, I can tell you that anti-deficiency already exists in Arizona short sale transactions… kind of. I’m able to go to bat for homeowners going through a short sale, negotiating with the lender to include language in the transaction to keep homeowners from being on the hook for deficiencies. HB2584 would make this practice automatic and would apply uniformly to all short sales. The days of begging lenders for this courtesy would be over.
Arizona Mortgage Laws at a Tipping Point
This crucial anti-deficiency short sale legislation may never see the light of day, thanks to the anti-borrower maneuvering of a single elected official: Senator Jack
Harper. It’s important that I point out that Senator Harper isn’t just opposing HB2584. It’s not that simple. He ALSO wants to roll back 40 years of anti-deficiency protections for foreclosures.
He has a soft spot in his heart for lenders. That’s right – lenders – the very folks who worked with government, speculators and other misfits to all but destroy the national housing market. Before you pass judgment on Senator Jack Harper, it imperative that you gain a better understanding of what he does for a living when he’s not legislating.
You’re not going to believe this, but Senator Jack Harper is a mortgage loan officer. He has a very good understanding of the financial issues Arizonans are going through. He serves the Surprise region, an area that has seen its share of homeowners in distress.
How bad is it in Surprise, Arizona?
In 2011, about 1,500 bank-owned homes were sold. In addition, about 1,100 short sales were completed. All this in a community of only 117,000. There’s a whole lot of mortgage pain being spread around the Surprise area. Rather than taking a pro-homeowner position and supporting homeowners’ ability to avoid being on the hook for short sale deficiencies, his heart bleeds for… the poor, defenseless lenders. Rather than saving his constituents, Senator Harper wants to throw even more red meat to the lenders, so they can devour even more Arizona homeowner cash.
What would cause Senator Jack Harper to advocate throwing his constituents to the wolves in favor of lenders? Does he really have that much contempt for his own constituents or is he just in love with the raw power that comes from climbing into bed with powerful banking interests?
What Senator Harper chooses to do with bankers behind closed doors is his business. When those activities wind up hurting Senator Harper’s constituents – and the rest of Arizona’s mortgage market – it’s time for decent people to stand up and demand that Senator Harper defend his actions.
This is where you come in.
Demand Legislators Do the Right Thing for Arizona’s Housing Market
Don’t let Senator Jack Harper roll back 40 years of foreclosure anti-deficiency laws while simultaneously preventing Arizona short sale anti-deficiency laws from seeing the light of day. If you’re facing foreclosure, owe more on your house than it is worth, or you have a friend, a neighbor or a relative going through one of these situations, it’s time for you to stand up today and let your voice be heard.
Politicians often ram through legislation when nobody’s looking. And that’s what’s happening now. Don’t let it happen. Call Senator Jack Harper’s office now at (602) 926-4178, or email him today at Jharper@azleg.gov. Tell him how outraged you are that he wants to end anti-deficiency laws. While you have a staffer on the phone, let them know that it’s time Senator Harper get behind anti-deficiency laws for short sales.
Don’t stop there, though.
It’s not enough that you make a simple phone call. Are you on Facebook? Twitter? If you are, share this post with everyone you know. Find Senator Harper on the web and get the word out about what he’s trying to do. Write letters to the editor of your local newspaper. Contact your representative and demand that they support HB2584.
Don’t think that wayward politicians can’t be scared straight by angry constituents? Politicians have the uncanny ability to sense political winds blowing. They don’t like the smell of angry, pitchfork-wielding voters. The reason? They clearly understand that angry voters can force politicians to do the right thing -- voluntarily or as a result of voters collectively yanking the lever for that politician's opponent in an election.
It can happen here. It can happen now. Only if you act now.
HB2584 could be passed. Anti-deficiency statutes for Phoenix short sales could become the law in Arizona, doing untold good for thousands of homeowners facing the possibility of a short sale in the coming months and years.
I’ve said several times in this piece that Arizona’s housing market is at a critical tipping point. Will the balance of power tip a little further in favor of homeowners considering short sales? Or will the banks regain control of Arizona’s housing market and put borrowers back in their collective place – worshiping at the altar of lenders, bailing them out when lenders get into trouble, then paying the banks for the privilege of being taken advantage of in financial transactions?
Only you can answer these questions.
What do you have to say about it?
More importantly, what will you do about it today?