Foreclosure with TWO Loans

[jjarden]

What is the name of your state (only U.S. law)? Arizona

I live in California, but the Rental House I own is in Arizona. Both are "Non-Recourse" states from what I understand. In order to buy the $227,000 Arizona home (it was NOT Sub-Prime) I had to put down $9,000...and then they gave me TWO Interest-Only Loans...a Primary Loan for $184,000...and a HELOC for $34,000. If I foreclose, can the HELOC bank come after me for the $34,000, even though it appears to have been a BOGUS Loan to begin with seeing as how I didn't have that equity in the home, and it was drawn up just to be able to purchase the place? And of they can come after me, do I have any recourse by going to the Attorney General or my own attorney to claim that it was a Bogus loan? Thank You.

[FlyingRon]

California law doesn't matter.

Arizona anti-deficiency law covers purchase loans for single one or two-family dwellings of 2.5 acres or less, provided your actions weren't what caused the value to decline to the point where it didn't satisfy the security.

And a terminology thing. You don't foreclose. You default. The bank forecloses.

There's no requirement for the bank to limit the money they loan you to your perceived equity. Further, there obviously was equity as you paid that much for the property to begin with. What makes you think it was bogus?

ARS 33-729 is the anti-deficiency statute. Provided you didn't borrow anything else on the HELOC other than the purchase funds you're probably alright.

[jjarden]

Thank You FlyingRon,

I got scared because I had been reading some articles saying that HELOC's are almost always RECOURSE. But then I was seeing something referred to as "PURCHASE MONEY LOANS," and in my case, the HELOC was most definitely given to me to purchase the house, and I have not taken any money from the HELOC. I was confused by this and now from what you are saying it sounds like I am OK, because the HELOC in my case would be considered a "PURCHASE MONEY LOAN," even though it's a HELOC?

I erroneously called the HELOC Bogus because I guess I was thinking that you actually had to have your own money (equity) in the house for them to give you a HELOC, and I only had $9,000 of my own money. I see now that is not true.

[FlyingRon]

If the only money your received from the HELOC was at the time of the closing for the purpose of applying towards the aquisition of the property, it's an acquisition loan. The fact that it has the potential to loan you more really doesn't mean much if you didn't actually take any additional funds.