Homeowners who fall behind on their mortgage payments can be subject to a trustee’s sale – i.e., the non-judicial forced sale of a home intended to satisfy the outstanding debt owed by the homeowner borrower to the lender under loan agreement. In Arizona, by statute, a lender must provide 90 days notice of a trustee’s sale to the borrower and must record the notice.
A short sale is when the home is voluntarily sold to a third party buyer for less than the total debt owed. When a short sale is accompanied with an agreement by the lender to waive its right to file a deficiency lawsuit, the seller-borrower is protected from a deficiency judgement, which is the difference between what is owed on the loan and what the home sells for at a trustee’s sale or in a short sale.
Homeowners in financial distress might also find it worth exploring executing a deed-in-lieu of foreclosure. This is a deed executed in favor of the bank with respect to ownership of the property and avoids the foreclosure process. Here’s what you need to know about the deed-in-lieu of foreclosure law in Arizona.
What Is a Deed-in-Lieu of Foreclosure in Arizona?
A deed-in-lieu of foreclosure, often simply referred to as a deed-in-lieu, is self-explanatory. The bank agrees to accept the deed to the property in lieu of a foreclosure sale. This exchange allows homeowners to save on the expenses of a foreclosure sale and expedite the process of transferring ownership of the home.
One key reason to consider a deed-in-lieu is avoidance of the time and expense associated with a deficiency lawsuit. When a home is sold via a trustee’s sale or through a short sale, the difference between the outstanding loan amount and the sale price is called the deficiency. If the borrower owes more on his or her home than the value of the home, under Arizona law, lenders may be able to pursue a deficiency judgment for the difference. A deed-in-lieu agreement can include a statement that the bank waives its right to pursue any deficiency judgment. This protects borrowers from liability after relinquishing ownership of the home back to the lender.
Why Banks Offer & Reject Deeds-in-Lieu
Sometimes a deed-in-lieu favors the lender more than the borrower. The agreement allows all parties to avoid litigation, and it is a faster and less expensive option. Nonetheless, a lender may reject a deed-in-lieu proposal by the borrower if the lender is concerned that the terms are unacceptable or if the lender will inherit encumbrances, judgments, or tax liens filed against the property.
How to Request a Deed-in-Lieu
Homeowners can submit an application to their lender with documentation of their financial situation if the lender agrees that a deed-in-lieu is an option. Depending on the bank, the homeowners may have to list the home for sale and also submit a copy of the listing agreement along with the application.
Impact on Borrower’s Credit Rating
A deed-in-lieu is less damaging to one’s credit report than a foreclosure sale, and those who agree to a deed-in-lieu can generally purchase another home in two to four years. A foreclosure sale will cause a much more negative impact on one’s credit.
Find an Experienced Arizona Foreclosure Law Attorney
If you have received notice of a default on your mortgage or have a pending foreclosure, the property will be sold at auction if you do not take immediate steps to resolve the matter with your lender. Our firm can help you consider all your legal options and pursue an agreement or settlement with the lender that avoids any additional lawsuits or recovery efforts. There may even be options to renegotiate some terms of your loan so you can stay in your home or pursue adequate foreclosure defense. Contact us today at 602-562-7218 to schedule an initial consultation or make an appointment online.