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.”
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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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I live in an HOA where the board wants to change the CC&Rs to start requiring homeowners to provide deposits for several things, such as bringing in dumpsters. I reviewed Title 33 and the only place where I see they can require a deposit is for remodeling a main house (33-1817.B) in order to make sure the remodel complies with approved plans. ARS Title 33 is clear that the HOA can assess fines and assessments but, other than this one instance, it does not say they can require deposit. Are they allowed to do this?
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My landlord has known about the rats in the attic many he never does anything about it the pipes in the bathroom make a big noise after flushing the toilet and I’m wondering what rights I have I’m disabled and feel like he thinks no one can do anything to him
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If my HOA CCR's state the monthly assessment fee and how it is going to collected, If that fee is to be increased or decreased, does this change of cost need to be recorded with the county and a change made to the CCR's?
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What can I do when my girlfriend that is on the lease with me has people threaten me to move out at such and such time.
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in my apartment with no air conditioner. It is very hot and humid in my apartment and it makes me feel as if I want to faint I advised my manager serval times of the situation and all she can say is im calling my boss to see about the ac guy . I went in the other day to speak to the manager to see if the maintance man will be in today and she advised me that he wouldnt so i advised her that i would be moving i really dont want to but it is to hot that i have to. she stated that if i do that i will then be breaking my lease and iowe what ever months are reamining.Is there anything else i can do
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I'm renting a room from someone that does not have the right to do so from the management company what legal recourse do I have agianst this person
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My girlfriend and I have a lease on a house until June 2020. Things have broken down with us. She wants to move out and stick me with the lease. We are both signers on the lease and they used both our credit and income to get the house. We have been here since 2016. And re-upped a 2 year lease June of last year. I do not want to move, BUT I do not want to get stuck paying the entire $1700/mo. Please let me know what I can do not to get screwed over by her.
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we have black mold mice roaches bed bugs we also can't use the swimming pool or laudry room because it is nasty there are still renting apartments i can't use my wheel chair on this property so i take a chance of falling everyday i'm also a high risk fall due to my stoke last year i also a d a and disable
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What is the definition of habitable under AZ law. If move into apt. that has new carpet that makes one sick would that be uninhabitable? Thanks
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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!
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