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


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

  1. 1. Arizona Real Estate Law - Understanding Arizonas Anti-DeficiencyStatutesIn Arizona, absent some agreement, rule or statute to the contrary, a lender can generally seek adeficiency judgment after foreclosing on a property securing a loan, if the property does not sell forenough money to satisfy the debt in full. Fortunately for most typical Arizona homeowners, theArizona legislature has adopted anti-deficiency statutes that preclude such recourse in many typicalfact scenarios. In addition, the parties to a real estate contract may expressly agree that the lendersonly recourse is foreclosure on the property itself.In the event of non-recourse loans, the non-recourse provision should be included in the mortgage ordeed of trust. In most cases, the lender agreeing to a non-recourse loan will also want assurances inthe loan documents that the borrower will not commit acts of waste.In the absence of express agreement, Arizona law provides protection for borrowers against potentialliability stemming from the sale of a property at less than market value in a foreclosure sale. Theborrower, however, must act quickly to protect his or her rights. If the property sells for less than theamount owed to the lender, the borrower is entitled to ask a court to determine the propertys fairmarket value. In the event the court agrees that the far market value is higher than the sales price thebuyer gets credit for the higher amount. This not only protects the borrower from an unfairly low price,but encourages lenders to make a credit bid for an amount near fair market value.There is an even more favorable statute protecting borrowers against deficiency judgments involvingsingle or dual-family dwellings on 2 1/2 acres or less where the loan is "purchase money," meaning itwas used to pay the purchase price of the property. Typically, loans used to refinance purchasemoney loans are also considered purchase money loans, although the use of some of the proceedsto pay other debts, obtain 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 lenders election to utilize non-judicialforeclosure on the deed of trust renders it non-recourse by operation of law. The lender may,however, instead seek judicial foreclosure, which is more expensive and time-consuming, butpreserves the ability of the lender to obtain a deficiency judgment. This anti-deficiency statute alsoallows a lender to seek a deficiency judgment against the borrower in the event of waste.Because interpretation of the Arizona anti-deficiency statutes and related real estate laws can be verycomplicated, borrowers and lenders are advised to seek the assistance of an experienced real estateattorney with any questions or concerns they may have.Sherman oaks real estate