Election of Remedies

[azuw67]

I have a question related to a loan in AZ that IS a recourse loan.

From another thread, I have the following:

A.R.S. section 33-814(G) provides:
If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.

A.R.S. section 33-722 reads:
If separate actions are brought on the debt and to foreclose the mortgage given to secure it, the plaintiff shall elect which to prosecute and the other shall be dismissed.

My house is presently on the market as a short sale, and has received an offer that is now being reviewed by the banks. My realtor has closed many short sales in the past year, and tells me that it is common in such cases for the parties to arrive at an agreement in which the 2nd lender agrees to accept a small payment from the short sale proceeds ($3k or less) in order to agree to the short sale and "go away". My question is this: If the 2nd lender receives some money from the proceeds of a short sale, can that lender still seek a deficiency judgment or sue me on the note or anything? Or would their acceptance of money from the short sale eliminate their right to do so?

This kind of "threw me for a loop", because I had in mind scenarios in which the 1st lender gets every dollar, the 2nd gets nothing, and the second can come after me by "waiving the security and suing directly on the note".

[knownick]

I believe it's dependent on the language in the short sale contract. There was an article posted to the foreclosure news section today that deals with this:

Article: Short Sales may be no better than Foreclosure

Apparently lenders are sneaking in language to the short sale contract that allows them the option of pursuing a deficiency judgment at some point in the future.

Short sales are negotiations between you and the bank. You would probably want to negotiate for "payment in full" and have a lawyer review the contract to make sure that's what you're actually getting.

Good luck.