An Arizona Republic reader submitted an interesting question the other day that I thought would be worth discussing here.

The question: I am a real-estate agent in the West Valley trying to help homeowners avoid foreclosures on their homes. Some of the lenders refuse to discuss a "short sale," and notify the homeowner that even after the foreclosure, the homeowner will be liable for any deficiency on the loan amount. If a lender will not agree to a "short sale" by reducing the loan, and the lender forecloses, will the homeowner be liable after the foreclosure? If not, will the homeowner's credit be affected?

Real estate attorney Christopher Combs’ answer: Under the Arizona anti-deficiency laws, a lender generally has no recourse against a homeowner because the homeowner has no personal liability on a loan used to purchase the home. Unfortunately, many out-of-state lenders incorrectly believe that the homeowner has liability for any deficiency on the loan amount after the foreclosure sale. In regard to the homeowner's credit, by the time of the foreclosure, there are already several "dings" on the homeowner's credit report.  Unless the homeowner has damaged the home, the homeowner will not be significantly harmed by the foreclosure sale.

In Arizona, a mortgage is what’s called a “non-recourse” loan, meaning “A type of loan that is secured by collateral, which is usually property. If the borrower defaults, the issuer can seize the collateral, but cannot seek out the borrower for any further compensation, even if the collateral does not cover the full value of the defaulted amount. This is one instance where the borrower does not have personal liability for the loan.”  In some states, mortgages are partial recourse or full recourse loans, meaning that the homeowner can be held liable for the defaulted amount that’s not covered by the foreclosure sale.

Combs didn’t really answer the reader’s question about how a homeowner’s credit might be affected by a foreclosure – and his last sentence is potentially confusing.  The fact is that there’s no way to say for certain how many points a homeowner’s credit score will fall after a foreclosure, but experts agree it could be huge, in the 200-point range.  A foreclosure stays on a person’s credit report for up to 10 years.  So while a homeowner may be in more serious trouble if he’s damaged the home, the adverse effects of a foreclosure on the homeowner’s credit report will be serious.

Because the issues of personal liability and how a foreclosure will affect your credit score are just two of many that a homeowner facing foreclosure will have to deal with, homeowners in trouble should contact a real estate attorney that specializes in foreclosures or a non-profit foreclosure counseling agency.  Last June, former Governor Napolitano created the Arizona foreclosure help line, “a vital link between families facing a housing crisis and access to free foreclosure counseling appointments. The Arizona Department of Housing is contracting with Community Information and Referral Services to staff the call center which will connect homeowners to a local, certified foreclosure counselor.”  To reach the help line, call 1-877-448-1211.

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