When can deficiency judgments occur in Arizona?

Deficiency judgments allow lenders an opportunity to recover deficits that result when a foreclosed property is sold for less than the original mortgage. These judgments are not allowed in all states, but in Arizona they are... under certain circumstances. 

Deficiency Judgments: Arizona Law

Although deficiency judgments are allowed in Arizona, they are subject to certain rules. To begin with, such judgments may only be sought if the foreclosed property is sold judicially. If the foreclosed home that is under consideration rests on 2.5 acres or less of land and it was used as a one or two family dwelling, deficiency judgments cannot be sought, no matter how the home is sold or the deficit that results.

When circumstances apply that allow for deficiency judgments, the previous owners are still may not be responsible for the full deficit in some cases. According to Arizona law, the fair market value must be deducted from the outstanding balance, and individuals may be sued for the difference.

To clarify this, consider that a person has a home with a mortgage of $60,000. The lender receives $40,000 for the property at a public sale, leaving a $20,000 deficit. If the value of the house is only $50,000, despite the $20,000 outstanding balance, the lender can only sue the previous owner for $10,000.

Legal Assistance

If you are facing a deficiency judgment, you should consult with a real estate attorney. This is the best way to ensure that the lender is acting in accordance with the law and that you are not subjected to a lawsuit in excessive of your legal liability.