By Stuart Pack, Esq.
The increasing acceptance of Strategic Default appears to be resulting in the
employment of new methods by both governmental and private parties to chip away at its
use by homeowners.
As most people know by now, Strategic Default is simply the voluntary default by
underwater homeowners of their mortgage payment obligations. Even though such
homeowners can afford to make their mortgage payments, they have decided that it’s in
their economic self‐interest to take advantage of Arizona’s favorable “anti‐deficiency laws”
to avoid personal liability on their mortgage loan.
The federal government has taken steps to curb the use of Strategic Default.
Recently, Fannie Mae (who, along with Freddie Mac insure a majority of all mortgages
issued in the United States) has announced that it will bar those homeowners who walk
away from their mortgage from getting an FHA insured loan for 7 years. Furthermore,
although its application may vary from state to state, both VA and FHA regulations permit
these agencies to collect deficiencies on loans guaranteed by them and as federal law
preempts state law, it is possible that with respect to such loans, Arizona’s anti‐deficiency
laws may not protect the homeowner from personal liability.
Another recent development is the use by mortgage lenders in new loans of a
“waiver” of the anti‐deficiency laws. Although, the legality of such a waiver is dubious (as
yet there is no relevant court decision on this subject in Arizona but the courts in other
states that have decided this issue have ruled that such a waiver is unenforceable), clearly
lenders are searching for ways to curb the use of Strategic Default.
What the future holds for Strategic Default is unclear. For example, legislation to
change Arizona’s anti‐deficiency laws is possible and was even enacted about a year ago
(but the changes were subsequently repealed). It is vital, therefore, that any homeowner
contemplating Strategic Default be aware of all current developments in this ever changing
economic environment.
Stuart Pack is a partner with Nagle Law Group, P.C., focusing on residential transactional and debt
management matters, and can be reached at 602‐595‐3156 or stuart.pack@naglelaw.com
