General Housing Information 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.”
-
A.R.S. § 33-729(A): Anti-Deficiency Statute for Judicial Foreclosures
-
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
-
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
-
My boyfriend & I moved in together. Well he left 10 days ago & yesterday he came & got some stuff, I messaged him to see if he was coming back for anything else well I got no response then This morning he semt a text to the landlord & told him he had moved out & actually he had been gone for awhile!! So if he comes back can I tell him to go & the stuff is mine since he told the landlord he moved out?
-
I live in a townhouse with neighbors that are renters and the landlord resides in Rhode Island. I have issues with the tenants and have addressed with the landlord who does not address and has left a strained relations between both of us. I have asked the HOA for assistance but not sure if they will or can. What are my options to resolve?
-
Can a son sign over his house to his father if he can no longer afford to make the payments?
-
It is time to renew my lease and a Bed Bug Addendum was added. It has harsh provisions for tenent payment of treatment expenses, even being responsible for adjacent units, even if you did not cause the infestation. The AZ law states you can be charged only if you fail to report. Is this Addendum legal. If I refuse to sign it can I legally be denyed the right to renew my lease? If I do sign it to renew the lease, will it hold up in court? Can you point me toward a lawyer in the Phoenix area who has experience with this? Thank you!
-
I retired from the army this past november and decided to move. even though i have orders my property manager is saying that i have pay a partial rent and a buyout of the lease.
-
Does Arizona have any laws about the landlord calling/texting days before rent is due and EARLY morning of the day it is due according to the lease they have been doing this since moving in any info is appreciated thank u
-
I purchased a home about a year ago with my domestic partner. I am the only person financially responsible for the home. I added my domestic partners name to the title as a joint ownership. In case in the future my domestic partner and I part ways, would we have to sell the home? Does she have any legal rights over the home?
-
If I pay off my house how does it affect the other two people on the deed?
-
I just rented a new apartment and there has roaches infested in the unit. I notified the manager via text and he already spray the unit but there are still lots of live roaches roaming around the unit after 10 days. Especially at night that they are crawling all over my bed. Can I terminate the lease agreement without holding my rent. And what should I do so in order to break because of habitability issue. thanks
-
What are HUD's rules regarding mold in an apartment and that I am not the one who cause the mold. I am not being told the truth by anyone. I need to know how to properly handle this.
STORIES
LegalLEARN
-
Free & Reduced Fees Legal Aid Resources
Click Here to apply online, or call
866-637-5341.
FIND LEGAL HELP
- Please select your county of residence below.
OTHER LEGAL RESOURCES
-
State Bar of Arizona
www.azbar.org -
Maricopa County Bar
www.maricopabar.org
Referral number 602-257-4434 -
Pima County Bar
www.pimacountybar.org
Referral number 520-623-4625 -
National Domestic Violence Hotline
800-799-7233 -
Bankruptcy Court Self Help Center
866-553-0893 -
Certified Legal Document Preparer Program
Link
ORGANIZATIONS
- Southwest Community Services - The Division of Disabled Persons
View full description - William E. Morris Institute for Justice
View full description - Community Legal Services - Statewide Farmworker Program
View full description - Southern Arizona Legal Aid, Inc. - Nogales - Santa Cruz County
View full description - DNA - People's Legal Services - Chinle
View full description
Documents
-
