The legislature in Arizona has passed SB 1271 which makes dramatic changes in the Arizona Anti-Deficiency Statue in Arizona.  The new law is scheduled to go into effect on September 30th.

SB1271 originally started out as a bill dealing with Jail Districts and property tax limits.  A strike everything amendment was introduced in June and the whole direction of the bill changed.

The current anti-deficiency statue gives homeowners protection against a judgment if the property is on 2 1/2 acres or less and is used as a single-family or two-family dwelling.   The new law requires the owner to prove a six-month residency in the property to be covered by the changed statute.

The reason behind SB 1271 was to protect small Arizona Community Banks from huge losses from investors and speculators.  However, the unintended effects are:

·         People who have bought a second home as a vacation home.

·         People who have bought a retirement home.

·         Parents who bought a home for their children going to college

In these cases, lenders would be able to go after the purchaser - obtain a judgment and may be able to garnish wages, put liens on bank accounts and the person's primary home.

Experts have stated that if this bill goes into effect that Arizona may lead the nation in bankruptcies in order to protect assets from lenders.  Some lenders may also be encouraged to foreclose on homes versus doing loan modifications.