Question: In 2002, we purchased our Glendale home with a $60,000 mortgage loan. In 2004, we refinanced with a $125,000 mortgage loan and used the approximately $65,000 extra to buy a summer cabin in Prescott. In 2005, we refinanced again for $200,000, and used the extra $75,000 for improvements to our Glendale home, including an additional bedroom and a swimming pool. My husband has lost his job as a city employee, and I have been too ill to work. We are now six months behind on our mortgage payments, and even if my husband goes back to work, we will still lose our home to foreclosure. After the foreclosure, will we owe any money now to any of the banks that made loans to us in the last 10 years?
Answer: First, although you refinanced twice, the only bank that you would owe any money to now is the bank that did the second refinancing for the $200,000 loan in 2005. The bank that made the original loan and the bank that did the first refinancing have been paid. Second, if the bank that did this second refinancing does a trustee’s sale foreclosure of your home, you will owe no money to that bank. The reason is that under Arizona law, there is no debt owed after a trustee’s sale foreclosure of any mortgage secured by a home (whether the trustee’s sale foreclosure is of a first mortgage, second mortgage, swimming pool loan, or a home equity line of credit). Finally, under a recent Arizona court decision, the $200,000 mortgage lender can waive the right to do a trustee’s sale foreclosure on your home and can simply file a collection lawsuit against you for the $75,000 “cash out” you took when you did the $200,000 refinancing.