If you want to learn about foreclosures under Arizona’s Anti-Deficiency Statutes, watch our YouTube video or read the article below.
Efforts to amend Arizona’s anti-deficiency statutes have been unsuccessful. The most recent proposed amendments were repealed and never went into force. Therefore, the long-standing statutes are still in effect.
Despite the substantial number of foreclosures, many people still misunderstand the applicability and effect of Arizona’s anti-deficiency statutes. If applicable, the statutes prevent lenders from recovering the difference between the debt owed and the value of the property. In other words, the lender is limited to solely receiving the value of the property in satisfaction of the debt. To make it easier to understand, we have broken down the statutes into five simple questions.
QUESTION #1: Is the lender a Beneficiary under a Deed of Trust?
A lender only has the option to foreclose on real property by trustee sale or judicial foreclosure if the lender is a beneficiary under a deed of trust executed in conformity with Arizona Revised Statute (“A.R.S.”) § 33-801 et seq. Otherwise, a standard mortgage can only be foreclosed upon by judicial foreclosure in accordance with A.R.S. § 33-721 et seq.
QUESTION #2: Assuming the lender is a Beneficiary under a Deed of Trust, does the instrument secure real property of two and half acres or less which is limited to and utilized for either a single one-family or single two family dwelling?
The anti-deficiency statutes in Arizona only apply to real property of two and one half acres or less which is limited to and utilized for either a single one-family or single two family dwelling. A.R.S. §§ 33-729(A) (judicial foreclosure), 33-814(G) (trustee sale).
QUESTION #3: Assuming the lender is a Beneficiary under a Deed of Trust, and the instrument secures qualifying real property, can the Beneficiary seek a deficiency on a loan that is NOT a purchase money loan?
A lender that forecloses on qualifying real property via a trustee sale cannot then seek a deficiency judgment against the borrower even if the loan is NOT a purchase money loan. A.R.S. § 33-814(G). However, a lender that forecloses on qualifying real property via a judicial foreclosure may seek a deficiency judgment against the borrower if the loan is NOT a purchase money loan. A purchase money loan is one “given to secure the payment of the balance of the purchase price, or . . . to pay all or part of the purchase price . . . .” A.R.S. § 33-729(A).
QUESTION #4: Is the claim against the borrower or guarantor?
Lenders often have the right to assert claims against third-party non-borrowers, such as appraisers, title companies and others. (Our firm handles those and many other types of claims.) The anti-deficiency statutes generally only apply to claims against the borrower (trustor) or guarantor, but not to claims against those that were not parties to the actual loan (e.g. appraisers, title companies and others).
QUESTION #5: If the anti-deficiency statute(s) otherwise apply, are there any exceptions?
Even if otherwise applicable, there are certain exceptions to the anti-deficiency statutes. For example, the statutes do allow a claim against the borrower and any third-party for waste (i.e. failing to maintain or damaging the trust property, thereby reducing its value) and other misconduct. A.R.S. § 33-806(B).