Arizona Laws

Important Note:  I am not a foreclosure lawyer; if you are facing foreclosure, you should consult with a Prescott or Prescott Valley real estate and foreclosure attorney. 

You can streamline the process  by familiarizing yourself with the Actual Statutes: Arizona State Revised Statutes Title 33:  Property.

State of Arizona foreclosure law summary

Judicial Foreclosure Available: Yes

Non-Judicial Foreclosure Available: Yes

Primary Security Instruments: Deed of Trust, Mortgage

Timeline: Typically 90 days

Right of Redemption: None

Deficiency Judgments Allowed: Varies

In Arizona, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process.

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder.

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

The trustee must record a notice of sale in the office of the recorder of the county where the property is located. Within five (5) days after the notice is recorded, the trustee must mail, by certified mail, a copy of the notice of sale to each of the people who are parties to the trust deed, except for himself. Additionally, the notice must appear in a newspaper in the county where the property is located once a week for four (4) consecutive weeks, with the last notice being published not less than ten (10) days prior to the date of the sale.

Optionally, if it can be done without a breach of the peace, the trustee can post the notice at least twenty (20) days prior to the date of the sale, in some conspicuous place on the property to be sold and/or he or she can post the notice at the courthouse or at a specified place at the place of business of the trustee in the county in which the property is located.

The trustee or the trustee’s agent must conduct the sale. The sale is for cash to the highest bidder, except that the lender can make a “credit bid,” which means to cancel out some part (or all) of the money the borrower owed the lender on the lean, instead of paying cash. A successful high bidder must pay the bid price by 5 pm of the day after the bid, other than a Saturday or legal holiday. Every bid is an irrevocable offer until the sale is completed, which happens when the bidder pays the bid price to the trustee’s satisfaction. If the high bidder fails to make the payment by 5:00 pm, the day after being notified of the option to buy, then the trustee may postpone the sale.

 The trustee may postpone the sale to another time, or another place, by giving notice of the new date, time and place by public declaration at the last place and time the property was offered for sale. No other notice is required. A trustee may also, by written agreement, extend the time for a buyer to come up with the payment.

Once the sale is complete, the proceeds will go to the payment of the obligations secured by the deed of trust that was foreclosed, then to junior lien holders in order of their priority. The successful bidder gets a trustee’s deed, which provides conclusive evidence that the trustee conducted the foreclosure sale property.

A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a person who lost a property that is 2.5 acres or less at a foreclosure, provided the property was a single one-family or a single two-family dwelling. This is so even if the high bid at foreclosure was less that the balance due on the loan. However, in foreclosures against other types of property, a deficiency suit is allowed, but is limited to the difference between the balance owed and the fair market value of the property, and then only if the suit is brought within ninety (90) days of the power of sale foreclosure.

To Reference the Actual Statutes: Arizona State Revised Statutes Title 33:  Property

Other references from the web:

Foreclosure and The Right of Reinstatement

Information Videos from LegalInfo.com on Foreclosure

Bankruptcy Helpers, Inc., Arizona Law Firm Specializing in Foreclosures and Bankruptcy

Arizona Laws

In Arizona, foreclosure can be a swift and simple procedure by a mortgage company. Foreclosure is the legal process by which a mortgage company can obtain ownership of a property. It relinquishes a homeowner from any all right to the property and evicts the homeowner from the premises.

In most cases, foreclosure can begin a soon as a homeowner is late with the mortgage payment. If the payment is due on or before the first of the month, for example, the lender has every legal right to initiate foreclosure proceedings against the homeowner.

However, most institutional lenders will try to work out alternatives with a homeowner in default before trying to repossess a home. If a homeowner works with his or her lender, the lender typically adds an additional three month window on average before foreclosure is initiated.

If an alternative cannot be worked out between the lender and the homeowner, the lender may begin foreclosure proceedings. Because most homeowners have a deed of trust, not a mortgage, the foreclosure timeline is simple and quick because it does not have to go to court to foreclose upon a home.

A lender must appoint its trustee, the person or entity that has the legal right to sell the home in a trustee sale, to handle the appropriate paperwork. By law, the trustee must record in the county recorder’s office a “Notice of Trustee’s Sale”. This is the legal notice that the home is to be sold no sooner than 90 days from the recording date of the notice. This notice must also be published a minimum of once a week for four consecutive weeks in a “newspaper of general circulation” in that county. The trustee will mail a notice to the homeowner within five days of the recorded notice of trustee sale and will mail a notice to other parties affected by the foreclosure.

Assuming that the homeowner has not reinstated the loan, the trustee will conduct the sale at a previously disclosed location. Every bidder is required to provide a $1,000 deposit to bid on the home. At such time, the home is sold to the highest bidder, which may include the mortgage company. The successful bidder has until 5 p.m. of the following day (assuming that it is not Saturday or a legal holiday) to pay the remaining balance in cash or other acceptable forms of payment as determined by the trustee. In addition to the forfeit of deposit, a highest bidder who fails to pay the amount bid by that bidder is liable to any person who suffers loss or expenses as a result, including attorney fees.

Should the bidder fail to pay by 5 p.m. of the following day, his or her $1,000 deposit is forfeited and the second highest bidder is given until 5 p.m. of the next day.

Proceeds from the sale are used to pay off the primary lien (usually a deed of trust, but what most people call their “mortgage”) against the home. If any proceeds remain, payment is made to junior lien holders in order of priority. In the event that any remaining balance is left over from the sale, the trustee will remit the balance to the ex-homeowner.

Title is conveyed to the winning bidder by a trustee’s deed. This transfer of title extinguishes any right the previous owner has to reinstate the mortgage or redeem the property after foreclosure. In addition, the trustee’s deed clears the title of any liens and encumbrances that are junior to the trust deed.

Arizona Laws

By Richard V. Mack, Esq.

When do the Anti-Deficiency Statutes Apply?

For the anti-deficiency statutes to apply, three requirements must be met.

1. The property at issue must be a duplex or a single family residence;
2. The real property must be two and one-half acres or less; and
3. The loan at issue must be a purchase money mortgage.

A purchase money mortgage is one where the loan proceeds are used to acquire title to the property. A refinance of a purchase money mortgage is also considered a purchase money mortgage for purposes of the statute. A HELOC that is obtained after the close of escrow is generally not considered a purchase money mortgage.

Assuming all three of these requirements are met, the Arizona anti-deficiency statutes apply. What this means is that the lender’s remedy will be limited to regaining possession of the real property at issue through a foreclosure process or otherwise. If the anti-deficiency statutes apply, even if the amount due to the lender exceeds the value of the property, the lender may not pursue the borrower for the difference or deficiency.

What are the Tax Consequences of a Short Sale or a Foreclosure?

Generally, when a lender is unable to collect the full amount due on a note, this forgiveness of debt constitutes a taxable gain for the borrower. The theory is that the borrower is paying less than the full amount originally received when the loan was funded. Thus, where a lender is collecting less than the full amount due on the mortgage, either through a short sale, a deed in lieu of foreclosure or because of the anti-deficiency statutes, there will typically be a taxable gain for the borrower. The taxable gain is the difference between the amount owed to the lender and the amount received by the lender. Many lenders have been and will be issuing a Form 1099 to borrowers for this debt forgiveness. Under certain limited circumstances the Mortgage Forgiveness Debt Relief Act of 2007 may eliminate the consequences of this gain.

The information set forth in this article contains general rules only. It should not be construed as legal or tax advice. If you or your clients have any specific questions based on their specific circumstances, please consult your legal and/or tax advisor.