Legal Question in Real Estate Law in Arizona

The advice you received about recourse if you walk away from the home and let it go to foreclosure, may be correct or it may not. If you reaffirmed the debt as part of your bankruptcy proceeding, then the debt was not discharged and you would be responsible for the debt. However, AZ has an anti-deficiency statute which provides that upon foreclosure, the lender cannot go after you personally, for any deficiency between what you owed on the loan, and the amount received by the lender at the foreclosure sale, so long as the debt was incurred to purchase the home and it was your principle residence. You stated that you had 2 mortgages, however you did not say if you reaffirmed both the first and the second, or just the first, and you did not say if the second was to incurred to provide funds to improve the property or when it was incurred.

You are correct that you must be careful and get good legal advice before you make any agreement with the lender, as you could indeed create new or additional financial obligation. You cannot sign over the house to the bank without their agreement to accept "a deed in lieu of foreclosure" and, as stated in the previous sentence, this could open the door to additional liability. A "deed in lieu of" may be beneficial, and it would avoid a foreclosure on your credit report, however, you must be careful to achieve the benefit you are seeking in this manner. It is in fact, different than walking away, because you can walk away without the agreement of the lender, and the lender then must look first to the collateral (the house) and then seek a deficiency against you, if that is allowed under the law. Your last question is answered above, yes, it is a new financial agreement, however, it does not necessarily create new liability for you, particularly, if the lender just wants you to leave and is willing to take over the property as is, and without requiring you to do anything else.