Arizona Real Estate Law - insight Arizona's Anti-Deficiency Statutes

Law Offices - Arizona Real Estate Law - insight Arizona's Anti-Deficiency Statutes

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In Arizona, absent some agreement, rule or statute to the contrary, a lender can commonly seek a deficiency judgment after foreclosing on a property securing a loan, if the property does not sell for sufficient money to satisfy the debt in full. Fortunately for most typical Arizona homeowners, the Arizona legislature has adopted anti-deficiency statutes that forestall such recourse in many typical fact scenarios. In addition, the parties to a real estate compact may expressly agree that the lender's only recourse is foreclosure on the property itself.

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In the event of non-recourse loans, the non-recourse provision should be included in the mortgage or deed of trust. In most cases, the lender according to a non-recourse loan will also want assurances in the loan documents that the borrower will not commit acts of waste.

In the absence of express agreement, Arizona law provides safety for borrowers against possible liability stemming from the sale of a property at less than store value in a foreclosure sale. The borrower, however, must act quickly to protect his or her rights. If the property sells for less than the estimate owed to the lender, the borrower is entitled to ask a court to decree the property's fair store value. In the event the court agrees that the far store value is higher than the sales price the buyer gets reputation for the higher amount. This not only protects the borrower from an unfairly low price, but encourages lenders to make a reputation bid for an estimate near fair store value.

There is an even more favorable statute protecting borrowers against deficiency judgments arresting single or dual-family dwellings on 2 1/2 acres or less where the loan is "purchase money," meaning it was used to pay the purchase price of the property. Typically, loans used to refinance purchase money loans are also thought about purchase money loans, although the use of some of the proceeds to pay other debts, procure cash out, or for other uses may expose the borrower to recourse liability.

Significantly, even if the loan is not a purchase money loan, the lender's selection to use non-judicial foreclosure on the deed of trust renders it non-recourse by performance of law. The lender may, however, instead seek judicial foreclosure, which is more expensive and time-consuming, but preserves the ability of the lender to procure a deficiency judgment. This anti-deficiency statute also allows a lender to seek a deficiency judgment against the borrower in the event of waste.

Because interpretation of the Arizona anti-deficiency statutes and connected real estate laws can be very complicated, borrowers and lenders are advised to seek the aid of an experienced real estate attorney with any questions or concerns they may have.

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