Question: When our last child moved out four years ago, we sold our Glendale home for $260,000. We owned this home free and clear and, after the buyer paid $15,000 down, we gave the buyer seller carryback financing for the balance of $245,000. Under the loan documents the buyer was required to pay for homeowner’s insurance. Last year the buyer stopped making the loan payments to us, and recently moved out. When we inspected the home the home was in terrible condition. The main problem was extensive water damage throughout the home because the buyer had not fixed the roof which had been damaged in a storm. The cost to repair this damage will be $50,000. We have now learned that the homeowner’s insurance was cancelled because the buyer did not make the payments to the insurance company. What should we do?
Answer: You need to immediately begin foreclosure proceedings on the $245,000 loan. If the home is now worth less than $245,000, in Arizona real estate law you normally would not be entitled to sue for this deficiency after foreclosure. If there is damage to the home due to “waste,” however, you would be entitled to sue for this damage. The failure to repair the roof coupled with the failure to pay the homeowner’s insurance payments is probably waste. After you have the roof repaired, you should contact an Arizona real estate attorney to file a lawsuit against the buyer for the $50,000 damage to the home. Unfortunately, however, if a homeowner loses a home to foreclosure, the homeowner rarely has any assets to pay a judgment for any damage to the home.
Note: You as the lender should have been named a “loss payee” under the homeowner’s insurance policy. You would then have been entitled to receive notice from the homeowner’s insurance company when the buyer failed to make the payments, and you could have made the payments to keep the homeowner’s insurance effective. An attorney should be able to help you review the homeowner’s insurance policy to see if you may have coverage for the damage to the home.
