Another post by William Bishop, Arizona Family Law Attorney:
One of the biggest issues that we have been seeing the last few years is situations where the parties' in a divorce are upside down on their home. Sometimes the parties continue to own the home together with the person residing in the home paying at least the rental value of the home for living there, with the remaining sum divided equally or proportionate to income. If you are doing a short sale, make sure that you receive non-recourse provisions in your documents with your lenders. If you have a second mortgage, you may have to pay something to get a waiver of any deficiency sums. Otherwise, the second mortgage lender may still come after you. The same is true with a foreclosure - if the first mortgage lender does a trustee's sale, the second mortgage lender's deed of trust would be no good, but they could still file a suit against you. There are also potential tax consequences. If it is a purchase money note and the foreclosure regards your primary residence, there is no tax consequences. However, if a second mortgage or other loan is not to purchase the residence, there could be potential tax consequences associated with a foreclosure or short sale. We are not experts in this area, and are only providing this information so that you are aware of the issues. We will be happy to refer you to an attorney who we associate with regarding these issues for more information.