Second Lienholders and Short Sales – the Missing Piece of the Puzzle

Like most real estate agents, I never fully understood the reluctance of second lien holders to accept whatever they can get when a homeowner is trying to sell their property via a short sale. After all, if a home goes to the Trustee’s Sale, the second lien holder won’t receive a cent, right?

Well, not exactly.

Arizona is an anti-deficiency state which means that in many circumstances lenders cannot come back to the homeowner after a trustee’s sale to try and collect the balance of what they’re owed. (There also are several circumstances where anti-deficiency statutes don’t apply – consult with a real estate attorney to determine where your particular situation may fall.)

As part of the trustee’s sale process, the primary lien holder waives its right to attempt to collect on the deficiency. But this waiver has no impact on the second lien holder; because they didn’t file a Notice of Default and had no part in the trustee’s sale, the second lien holder still can pursue the deficiency if they so choose. Now there’s something to be said here about blood and turnips, but the point remains.

This is one more reason why buyers ought to be cautious when attempting to purchase a short sale. It’s not impossible to purchase a short sale where there are multiple lien holders but the odds are more steep than they otherwise would be.

Jonathan Dalton

Jonathan Dalton is a 40-plus-year resident of the Valley and has been helping folks buy and sell homes since 2004. He can be reached at 602-502-9693 or info at