WHAT DOES THE ARIZONA ANTI-DEFICIENCY STATUTES DO FOR A HOME OWNER IN PHOENIX?
Simply stated, in most cases, it prevents a lender from attempting to collect any deficiency after a foreclosure. In years past, this wasn’t a big deal because most homes were worth more than the mortgage amount. However, today the anti-deficiency statutes are protecting 1000’s of people who otherwise might be sued by lenders. This proves that once upon a time our legislature was quite brilliant.
The statues have certain qualifying rules and stipulations. We’ve provided the statues below so you can read them yourselves. If you have any questions, or even if you don’t, we advise people to seek legal counsel to make sure you know if you are covered or not. Like most things “legal”, there are loopholes that take a legal mind to explore and understand for your particular circumstances.
At the time of this article, attorney’s tell us that the anti-deficiency statutes are being applied to short sales. However, they have not been fully tested in court. Therefore, we HIGHLY recommend anyone selling their home by short sale contact a qualified attorney to insure their short sale agreement includes language that protects them from a deficiency judgment by the lender and potential future liability.
The anti-deficiency statutes in Arizona are found in the Arizona Revised Statutes, A.R.S. 33-729(A) (mortgages) and A.R.S. 33-814(D) (deeds of trust) and say the following:
33-729. Purchase money mortgage; limitation on liability
A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of 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, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.
B. The balance due on a mortgage foreclosure judgment after sale of the mortgaged property shall constitute a lien against other property of the judgment debtor, general execution may be issued thereon, and the judgment may be otherwise satisfied out of other property of the judgment debtor, if the court determines, after sale upon special execution and upon written application and such notice to the judgment debtor as the court may require, that the sale price was less than the amount of the judgment because of diminution in the value of such real property while such property was in the ownership, possession, or control of the judgment debtor because of voluntary waste committed or permitted by the judgment debtor, not to exceed the amount of diminution in value as determined by such court.
33-814. Action to recover balance after sale or foreclosure on property under trust deed
A. Except as provided in subsections F and G of this section, within ninety days after the date of sale of trust property under a trust deed pursuant to section 33-807, an action may be maintained to recover a deficiency judgment against any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security including any guarantor of or surety for the contract and any partner of a trustor or other obligor which is a partnership. In any such action against such a person, the deficiency judgment shall be for an amount equal to the sum of the total amount owed the beneficiary as of the date of the sale, as determined by the court less the fair market value of the trust property on the date of the sale as determined by the court or the sale price at the trustee’s sale, whichever is higher. A written application for determination of the fair market value of the real property may be filed by a judgment debtor with the court in the action for a deficiency judgment or in any other action on the contract which has been maintained. Notice of the filing of an application and the hearing shall be given to all parties to the action. The fair market value shall be determined by the court at a priority hearing upon such evidence as the court may allow. The court shall issue an order crediting the amount due on the judgment with the greater of the sales price or the fair market value of the real property. For the purposes of this subsection, “fair market value” means the most probable price, as of the date of the execution sale, in cash, or in terms equivalent to cash, or in other precisely revealed terms, after deduction of prior liens and encumbrances with interest to the date of sale, for which the real property or interest therein would sell after reasonable exposure in the market under conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under duress. Any deficiency judgment recovered shall include interest on the amount of the deficiency from the date of the sale at the rate provided in the deed of trust or in any of the contracts evidencing the debt, together with any costs and disbursements of the action.
B. If a trustee’s sale is a sale of less than all of the trust property or is a sale pursuant to one of two or more trust deeds securing the same obligation, the ninety day time limitations of subsection A of this section shall begin on either the date of the trustee’s sale of the last of the trust property to be sold or the date of sale under the last trust deed securing the obligation, whichever occurs last.
C. The obligation of a person who is not a trustor to pay, satisfy or purchase all or a part of the balance due on a contract secured by a trust deed may be enforced, if the person has so agreed, in an action regardless of whether a trustee’s sale is held. If, however, a trustee’s sale is held, the liability of a person who is not a trustor for the deficiency is determined pursuant to subsection A of this section and any judgment for the deficiency against the person shall be reduced in accordance with subsection A of this section. If any such action is commenced after a trustee’s sale has been held, it is subject, in addition, to the ninety day time limitations of subsections A and B of this section.
D. If no action is maintained for a deficiency judgment within the time period prescribed in subsections A and B of this section, the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.
E. Except as provided in subsection F of this section, the provisions of this chapter do not preclude a beneficiary from foreclosing a deed of trust in the same manner as a real property mortgage. In an action for the foreclosure of a deed of trust as a real property mortgage the provisions of chapter 6, article 2 of this title are applicable.
F. A deed of trust may, by express language, validly prohibit the recovery of any balance due after trust property is sold pursuant to the trustee’s power of sale, or the trust deed is foreclosed in the manner provided by law for the foreclosure of mortgages on real property.
G. If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee’s power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.
We hope this information is helpful. If you have more questions, need a referral to a good legal person, please know we are here for you… always and without obligation. We’ve provided our contact information and a handy contact form you can use to get a hold of us.
Best to you,
The Urban Team at Realty Executives
7600 N. 16th Street, Suite 100
Phoenix, AZ 85020
602-486-4839 – text
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