Question: We purchased a small home with a mortgage loan a small home on Bethany Home road in Phoenix, five years ago. After the closing, we were able to change in the zoning of the home to permit my husband, who is a chiropractor, to convert the home into a small office building for his chiropractic practice. However, due to the poor economy my husband’s chiropractic practice has suffered, and our income is down considerably. In addition, we are now “underwater” at least $120,000 on the mortgage loan because of the declining property values in the area. We know from reading your columns that most homeowners are protected from any liability if the mortgage lender on home foreclosures. If the bank forecloses on my husband’s office building, will we have any liability for the $120,000 deficiency after the foreclosure?
Answer: Probably. The Arizona anti-deficiency statutes generally protect homeowners from any deficiency after a foreclosure only if the secured real property is “utilized” as a home. A.R.S. §33-814(G). Therefore, inasmuch as your mortgage loan is no longer secured by real property that is “utilized” as a home, you probably will have liability for the $120,000 deficiency after the foreclosure.