What Happens After a Foreclosure in Arizona?

Many foreclosure sales are held in front of a courthouse

Foreclosure allows a lender to sell the property that secures a mortgage after the borrower defaults. Lenders in Arizona have the option to either judicially foreclose or utilize a trustee's sale. Both methods result in a public auction of the foreclosed property. The bank can purchase the property at the sale by making a credit bid based on the unpaid mortgage debt owed to it.

Trustee's Sale

Arizona law recognizes deeds of trust--a loan document that transfers legal title to a third party trustee to secure repayment of the loan for the benefit of the lender. If the homeowner stops making the loan payments, the bank can instruct the trustee to exercise the power of sale. By exercising the power of sale, the bank can sell the house without going to court.

Judicial Foreclosure

Lenders must file a lawsuit against the borrower in order to get a judicial foreclosure. The property cannot be sold until the court issues a judgment in favor of the bank. This remedy causes the lender to incur greater costs both in money and time to complete the foreclosure.

Deficiency Liability

If selling the property through foreclosure does not yield enough proceeds to pay the loan in full, the mortgage lender can pursue the borrower for the remainder of the debt unless Arizona's anti-deficiency laws apply. A judicial foreclosure results in a judgment for the full amount owed. After a trustee's sale, the bank has 90 days to start a lawsuit against the borrower for any deficiency.

Anti-Deficiency Laws

Arizona has two statutes that prohibit lenders from collecting deficiencies from borrowers for certain types of loans. If a bank sells a property at a trustee's sale, it cannot seek a deficiency judgment if the loan was secured by a property of two and one-half acres or less that is limited to and used as a single one-family or single two-family home. In a judicial foreclosure, the lender can can pursue the borrower for the deficiency on the same type of property unless it was also a purchase money loan.

Eviction

When a borrower or a third party leasing the foreclosed property refuses to voluntarily leave after foreclosure, the bank must go to court to evict the occupant. In some situations, federal law permits a third party tenant to keep living in the house for the remainder of the lease term.

References

• Arizona Revised Statutes Section 33-725
• Arizona Revised Statutes Section 33-814
• Arizona Revised Statutes Section 33-729