After a lender forecloses on a property, they will attempt to recover the money lent on the home by selling it. Lenders are often unable to recover the entire amount because they are generally attempting to sell the home quickly. If the property was worth more than what was owed, it would have generally been sold before the lender needed to foreclose on it.
The lender will seek to obtain a deficiency judgment to recover the difference in amount they sold the foreclosed home for and the amount owed to them by the previous owner. If you recently lost your home or property to foreclosure in Arizona, there are laws that may protect you against a deficiency judgment.
Understanding a Deed of Trust in Arizona
Lenders in Arizona generally require a Deed of Trust, rather than a mortgage, to secure a loan on a home. As a potential borrower, you should be aware that this allows the lender to foreclose on the home through the non-judicial process of a trustee’s sale. This process is less expensive and quicker for the lender. The lender can sell the property as soon as the process is completed versus the six month redemption period for judicial foreclosures.
However, there are some advantages for the borrower. Once a borrower is notified of a pending trustee’s sale, they have the right to cancel the trustee’s sale by paying only the delinquent amount and any fees for late payment and the cost of the trustee’s sale. A Deed of Trust also protects a borrower from a deficiency judgment in Arizona.
Arizona Anti-Deficiency Laws
Arizona Revised Statute 33-814 expressly protects borrowers that use a Deed of Trust to secure a home loan. The statute applies if the property is two and one-half acres or less, used as a single one-family or single two-family residence, and it is sold through the Trustee’s power of sale. In this situation, the lender cannot recover any difference between the sale price of the home and the amount owed on the loan. The Arizona statute does not require the home to be your primary residence.
You will generally receive the protection of these anti-deficiency laws in Arizona if you use a purchase money security device, like a Deed of Trust, to purchase a property. This includes those individuals that refinance a loan on a home, if the loan is secured in the proper way. Loans not used to purchase real estate or secured by assets other than the home may place you outside the protection of Arizona’s anti-deficiency laws. It is a topic to discuss with your mortgage provider if you are refinancing your home. Home improvement loans can leave you at risk of deficiency judgments because the home improvement loan was not taken out to specifically purchase real estate. This is a factor to carefully consider if you are considering a home improvement loan to remodel or expand your home.
Deficiency Judgments Can Happen in Arizona
Similar protections from deficiency judgments can apply to a mortgage under Arizona Revised Statute 33-729 if the loss of value in the property was not caused by the homeowner. If the homeowner damaged the home or simply stopped caring for it, they might be at risk of a deficiency judgment. The anti-deficiency laws in Arizona do not apply to commercial properties and unimproved land. FHA and VA loans also might not be protected by state laws because they are controlled by federal law.
Deed-in-Lieu of Foreclosure
One of the last ways you may avoid a foreclosure and deficiency judgment if you have fallen behind on a loan with a property that does not meet the requirements of the anti-deficiency laws in Arizona is to deed the property directly to the lender. This can save both parties the expense of the foreclosure process and the lender waives their right to a deficiency judgment if the lender accepts the deed.
Find an Experienced Real Estate Attorney in Arizona
MacQueen & Gottlieb have significant experience with the foreclosure process and deficiency judgments in Arizona. We can help you figure out if you are at risk for a deficiency judgment and pursue the best available options for resolving the debt with the lender. Contact us today at
602-533-2840 to schedule an initial consultation or make an appointment online.