Sometimes a home or other form of real property is foreclosed on, and its resale does not make enough money from the perspective of the lender. In this case, Arizona allows for a post-foreclosure deficiency to be claimed in some circumstances. Such a claim is filed by lenders as an attempt to recover the balance that remains following the sale or foreclosure—the difference between the sale price and the amount remaining on the foreclosed-upon owner’s mortgage—also known as a “deficiency.” And sometimes they will be granted.
These deficiency judgments are not all that common in Arizona—and there are limits on the amount the bank may be granted—but they do occur. And if a bank does succeed in this effort, then the amount may be collected from the debtor via standard methods of collection, such as levying of their bank account or garnishing of their wages.
Following a nonjudicial foreclosure, which is the type of foreclosure most common in Arizona, a bank can request a deficiency judgment via a lawsuit filed within 90 days of the trustee’s sale. But state law does place limits on the scenarios in which such a judgment may be granted. If the property is 2.5 acres or fewer and contains a single one-family dwelling or duplex, then a deficiency judgment will not fly under ARS Section 33-814. Where these criteria do not apply, and a deficiency judgment may be granted, the amount payable to the bank will be limited to either the amount owed the bank at the date of sale minus the foreclosure price, OR the amount owed the bank at the date of sale minus the fair market value of the property on that date—whichever amount is lower. This prevents a situation in which an owner who has been foreclosed on will owe an amount exceeding the amount a property is worth after a market correction sends housing prices lower.
In the case of judicial foreclosures, the same rules for whether it may occur apply except that a deficiency judgment also may not be granted if the mortgage or deed of trust that has been foreclosed on was provided to pay the purchase price of the property, under ARS Section 33-729.
If you’re facing foreclosure in Mesa or anywhere else in the state of Arizona, call us to consult with an experienced attorney with strong scruples. At Provident Law, our real estate attorneys represent parties on either side of real estate and financing transactions, including landlords, tenants, buyers, sellers, lenders, borrowers, trustees, guarantors, shareholders, partners, and others. We structure, negotiate and document a variety of real estate and financing transactions, such as leases, purchase and sale agreements, loans and development agreements for a variety of commercial and residential projects. We also help to settle all forms of boundary disputes. Contact us for more details.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.
Christopher is a licensed Real Estate Instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at Chris@ProvidentLawyers.comor at 480-388-3343.