If a lender sells a home in a foreclosure sale for less than what the borrower owed, there is a deficiency. And in Arizona, lenders can sometimes come after borrowers for that deficiency. Fortunately, in many cases, Arizona’s anti-deficiency law prohibits a lender from obtaining a deficiency judgment — or, in cases when a judgment is allowed, state law limits the amount of the judgment.
Arizona is one of the few states that allows for both judicial and non-judicial foreclosures. Most Arizona foreclosures are non-judicial, which means that the lender does not have to go through the courts to obtain a deficiency judgment. Instead, lenders have up to 90 days in which to file a separate lawsuit to obtain a deficiency judgment.
However, under Arizona law, a lender is prohibited from obtaining a deficiency judgment following a non-judicial foreclosure if the property meets these requirements:
- Property is 2.5 acres or less, and
- Property is a single one- or two-family dwelling.
If a deficiency judgment is available, it is limited to the lesser of:
- The total amount owed to the bank as of the date of the sale minus the fair market value of the property on the date of the sale, or
- The total amount owed to the bank as of the date of the sale minus the foreclosure sale price.
Deficiency judgments are not permitted in a judicial foreclosure — unless the mortgage loan is relatively recent or the property includes a dwelling that is incomplete or never used as a residence — if:
- Property is 2.5 acres or less,
- Property is a single one- or two-family dwelling, and
- The Mortgage or Deed of Trust being foreclosed was used to pay the purchase price of the property.
Deed in Lieu of Foreclosure
If you find that your particular situation is not protected by Arizona’s anti-deficiency laws, you can avoid foreclosure and protect against a deficiency judgment if your lender agrees to use a deed in lieu of foreclosure. This is where you would assign the deed to your property directly to the lender. This typically takes some experienced negotiation, so you will want to have a qualified real estate attorney involved in the process.
If you are a lender or a borrower facing issues involving judicial or non-judicial foreclosure, deficiency judgments, home improvement, or construction loans, the attorneys at Provident Law® are here to help. We are experienced in all aspects of financing and real estate transactions, from purchase contracts, mortgages, deeds of trust, to non-judicial and judicial foreclosures. Contact us for more details.