Arizona is one of the few states that have anti-deficiency laws.
These laws prohibit lenders from collecting on a mortgage after the home is foreclosed, when that mortgage was purchase money for the property.
The laws only apply to purchase money mortgages. This means that you are only protected if your mortgage was issued at the time you purchased your property for the financing of the property. Purchase money mortgages can include 1st and 2nd loans, but not HELOC loans (home equity lines of credit) obtained after you own the home.
Any other types of 2nd loans where the mortgage money was not used to purchase the property are not protected by the anti-deficiency laws. This includes re-financed mortgages- if money was taken out of the home, Home Equity Lines of Credit and second mortgages taken out after the purchase of the home.
If you have a 2nd loan on the property and you are letting the home foreclose, I would suggest contacting a bankruptcy attorney or a certified public accountant regarding the consequences and your options to protect yourself from the deficiency balance.
If you have a 2nd loan- a HELOC for example- you used this line of credit to pay off debt, make repairs to the home or for any other reason, you should seriously consider negotiating with your Lender. This can be done through a short sale. Through a short sale your Lender can agree to forgive the debt of this 2nd loan. In my opinion, it is best to have the debt forgiven, so you can have a fresh financial start with no debt of a home you no longer own.
See the Anti- Deficiency Laws:
A.R.S. §§ 33-729(A)
http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/33/00729.htm&Title=33&DocType=ARS
A.R.S. §§ 33-814(G)
http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/33/00814.htm&Title=33&DocType=ARS
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