Foreclosure Article
FORECLOSURE DEFICIENCIES IN ARIZONA: Will I still owe money after a foreclosure?
FORECLOSURE DEFICIENCIES IN ARIZONA
Will I still owe money after a foreclosure?
It is possible for a borrower to still owe money after a foreclosure. One of the most common concerns borrowers have is whether they will still money on their home loan or loans secured by their home, otherwise known as a deficiency. The bad news is that it can be difficult to determine, the good news is that Arizona has broad legal protections that will prevent many borrowers from owing money after the foreclosure due to a deficiency. This article is a guide to deficiency and more specifically anti-deficiency statutes, while it is intended as a helpful resource, it is wise to consult an attorney for advice on a specific case. Additionally, there are other instances where borrowers may owe money following a foreclosure, such as “waste to property” or HOA (Home Owners Association) dues.
What is a deficiency?
A deficiency occurs when a home is sold through foreclosure (judicial or trustee sale), the sale price is less than the amount owed by the borrower/homeowner, and the borrower does not qualify for protection under Arizona’s anti-deficiency statutes.
What are anti-deficiency statutes?
Anti-deficiency statutes protect borrowers from having to pay the balance of their home loan that is secured by the property with a mortgage or deed of trust, provided they meet the requirements of the statutes.
Example: John and Jane Doe take a home loan for $200,000 to purchase a house. After living in the home and paying their mortgage something happens making them unable to pay their mortgage, the house goes into foreclosure (either a judicial foreclosure or trustee sale), and is sold. At the point the house is sold, John and Jane owed $150,000 on their loan and the sale price of the house is $100,000. This would leave a $50,000 gap in the sale price from foreclosure or trustee sale and the amount the owed on the loan, which would normally be considered a deficiency. However, John and Jane meet the requirements of anti-deficiency statute that applies to their specific type of foreclosure (judicial or trustee sale), which means there is in fact no deficiency under the law and John and Jane do not have to pay the $50,000 gap amount.
What are the requirements of the anti-deficiency statutes?
There are two anti-deficiency statutes in Arizona, A.R.S. § 33-729(A) for judicial foreclosures, and A.R.S. § 33-814 (G) for trustee sales. The statutes are almost identical. To be eligible for protection, both statutes require the property to be 2 ½ acres or less and utilized as a one or two family dwelling. (Note: In cases where the home is not yet built but where the loan was obtained to purchase the property and build a house, the law has been interpreted to protect borrowers that intend to utilize the house as a one or two family dwelling). The distinction between the statutes is that for a judicial foreclosure, the anti-deficiency statute will only protect loans that are obtained to pay all or part of the purchase price of the property, sometimes referred to as a “purchase money loan.”
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A.R.S. § 33-729(A): Anti-Deficiency Statute for Judicial Foreclosures
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Property is 2 ½ acres or lessUtilized as a 1 or 2 family dwellingAND the loan was secured to pay all or part of purchase priceA.R.S. § 33-814 (G) Anit-Deficiency Statute for Trustee Sales
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Property is 2 ½ AcresUtilized as a 1 or 2 Family DwellingWhat’s the difference between a judicial foreclosure and a trustee sale, and how do I know which one will be used?In general, a foreclosure itself is the process by which a lender, repossess the house or property that is the security/collateral for the loan. In Arizona, there are two types of foreclosure: Judicial and Non-Judicial/Trustee Sale.A judicial foreclosure, is a foreclosure by court action, similar to other common civil actions where one party sues another (i.e. bank files a lawsuit against the homeowner). (A.R.S. § 33-721). A non-judicial foreclosure is a foreclosure that does not require a court action, in Arizona non-judicial foreclosures are called “Trustee Sales.” (A.R.S. § 33-807). The lender chooses which foreclosure process to use, however trustee sales are the preferred method as it allows the lender to take possession of the property and sell it more quickly. A trustee sale may commence after the 90 day notice period has expired, where a judicial foreclosure can be as lengthy as any other court case and take up to a year or more. One of the reasons Arizona has a broad anti-deficiency statute, is in part as a tradeoff for lenders being able to foreclose more quickly through a trustee sale.What if there are multiple loans secured by the property such as a second mortgage or home equity line of credit (HELOC)?This is where anti-deficiency protections get more complicated, and where borrowers normally find themselves paying a deficiency. These are the types of situations when it is even more helpful to consult with an attorney as it may be difficult to determine if there is a deficiency. An attorney will need to look at the loans and the loan documents (mortgage, deed of trust, or promissory note), the purpose of the loan, and where each lender ranks in priority or position if there are multiple lenders. Priority or position of a lender in relation to other lenders means that one lender has superior rights over another, to receive money from a foreclosure or trustee sale as it provided a loan and received a deed of trust before another lender.The loan documents are important because they will dictate the lender’s legal options, including what foreclosure process may be used, and which if any anti-deficiency statutes apply. A mortgage can only go through the process of a judicial foreclosure, while a deed of trust may go through either a judicial foreclosure or a trustee sale. A mortgage secures the loan by giving collateral in the property; a deed of trust allows the lender to foreclose through a trustee sale. Promissory notes are the typical documentation that secures a debt, such as general loans or lines of credit.The anti-deficiency statutes will protect the borrower from deficiency where the property is 2 ½ acres or less, the home is utilized as a single or two family dwelling, and for the purpose of judicial foreclosures, the loan was secured to pay part or all of the home purchase price (i.e. purchase money). In a less complicated scenario this would mean if the loan instrument was a deed of trust, and the property is foreclosed on through a trustee sale, there would be no deficiency even if the loan was not for the purchase of the home.When multiple loans are secured by the home, it is possible for the borrower to still owe money on a loan where a deed of trust was issued to the lender, and where the home was sold through a trustee sale. This might happen if there are multiple lenders for multiple loans, the lender highest in priority (first or senior position) forecloses on the home, and the deed of trust is legally extinguished for another lender lower in priority (second or junior position). The lender in lower priority (with the deed of trust extinguished) could then bring a law suit on the one of the other instruments (mortgage or promissory note). However, the borrower may still be protected from a deficiency.When a lender sues the borrower on a home loan that was originally secured by the property, the anti-deficiency law still applies if the loan qualifies as “purchase money.” This means a borrower with two loans or more loans that were obtained to pay for the property, will have no deficiency if the property is 2 ½ acres or less and utilized as a single or two family dwelling.As a general guide, if each loan secured by the property was used to purchase part or all of the house, and the property is 2 ½ acres or less and utilized as a single or two family dwelling, the borrower will most often not be liable for any deficiency.What if I have a deficiency?If there is a deficiency, after the trustee sale the lender must file a complaint (file a lawsuit) within 90 days of the trustee sale. (A.R.S. § 33-814(A)). Additionally a borrower may find relief in other legal option such as a bankruptcy which may discharge any lingering debt from the foreclosure.What about “waste” and HOA fees?The borrower/home owner is always liable for waste or intentional damage to the property. (A.R.S. § 33-806(B), A.R.S. § 729(B)). Additionally, Home Owners Association (HOA) fees are often overlooked by the home owner, these fees may continue to accrue until the property is legally transferred out of the borrower’s name. This means, that even though the property may be going into foreclosure, the HOA fees will continue to come due, and the borrower/home owner will be responsible for the fees until the foreclosure is completed. HOA fees are not subject to the anti-deficiency statutes, they may however be discharged in a bankruptcy.Where can I find legal help?AZLawHelp has legal resources that may help, they are listed in the “Legal Assistance” section and on the right column of the AZLawHelp. There is also a link to an online application for legal services under the LegalLEARN section.
Comments:QUESTIONS
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We received a tro from district court on our foreclosure it was mysteriously remanded to state court then dismissed by state court we are under appeal to 9th circuit. It turns out opposing counsel clerked for judge at the AZ supreme court and US court of appeals for the ninth circuit. Neither the judge or opposing counsel disclosed there past relationship! Is this not a conflict of interest? Is the judge not required to disclose there past relationship? Is the lawyer not required to disclose there past relationship? Is it of any use in a dismissal?
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what assistance is available to me I was 12 months behind caught up on six in September and they started foreclosure this month sell date is Feb of 2015 I thought they were working with me and no notice foreclosure.? my husband was on unemployment for over 4 years and recently is now working and we are able to catch up and stay on track.
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I am currently in a Ch 13 bankruptcy. My home was in my bk plan. Currently my pre and post petition payments are current. However my mortgage servicer continues to place the payments made in a reserve account for several days before applying the monthly payment. My loan servicer also adds additional fees to my monthly statement such as property preserv fee? My home was in foreclosure but since it is current on pre and post petition payments, my servicer still has not canceled the trustee sale, they just continue to move the date forward. I filed pro se and everything else has been fine.
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My father passed away 1/16/2015. His is the only name on his home's deed. There is a reverse mortgage on the house and what is currently owed on the mortgage is more than the house is worth. My name is not on the deed and I don't plan on going to probate to get control of the house. The mortgage company is starting foreclosure. My question: is the estate, and me personally as the executor of the will, legally obligated maintain the homeowners insurance policy until the house is sold at the foreclosure auction which could take 1 to 2 years?
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We hired a lawyer to file court papers to stop foreclosure. He did not file in time but He said he called bank and they said they would wait 1 more week to foreclose because our lawyer needed more time. The bank did not wait and foreclosed anyways (of course) our lawyer did not file proper paper work for that he just called the bank and they said ok Now we are losing our house and don't know who to get help from. We have paid thousands to these lawyers and are waiting to see if appeals court will take our case. We did what were suppose to do they did not Have lived here 31yrs. who can help
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I recieved a Notice of Substition of Trustee. The recorded date that shows on this notice when my mortgage lender appointed the as a successor trustee shows a recording date of September 15, 2008. Which today is September 2 , 2008, so how can something have been recorded on a date that has not even happened yet? The sale is scheduled for September 5, 2008. What are my legal rights as to getting this sale postponed?
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How can I legally kick out family members? I own home they have been staying with more for over a year. Some occasionally contribute to rent but mostly don't. I have asked severe times in past 6 months to love out now I have given a 2 month telling them by September 1st but doesn't look like ahyones making plans and just freeloading and being lazy and I can't take it anymore Mom brother, sister . How do I legally get them to leave ?
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As a renter in a property that is going up for sale on 4-22-08, how long do I have to move and find a place to live? The owner will not return my phone calls or my money?
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I have recently reviewed our finances and determined that we can no longer afford our home. We are not late and have not missed any payments. I have come in contact with a law office based in CA that offers loan modification, short sale, and deed in lieu services. If we opt to pay someone to negotiate for a loan modification with our lender am I less likely to fall victim to scam with a law office?
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I own a property, not my main residence, that was part of a 2010 C7 bankruptcy. We reaffirmed and kept the property. We have made all of the payments since, but in the past year our finances have declined. We have tried to rent the property without much success and we have paid over $6000 above the properties income to maintain it. It is empty again and we simply cannot continue to pay the mortgage and HOA any more. It is worth about what I owe. Can I allow the property to go to foreclosure or short sale after being part of a bankruptcy?
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