A deficiency judgment is a legal and lending term describing the amount owed to a lender following a foreclosure, which is determined by calculating the difference between the total amount of money owed to a lender and the auction sale value of a home. Typically, lenders will use the following amounts when calculating the total amount owed in a deficiency judgment, including interest owed, principal amount, expenses of foreclosure proceedings, and other penalties, fees, or surcharges assessed during the lifetime of a home loan.
Current State of Arizona’s Deficiency Judgment Laws
In the state of Arizona, a prolonged legislative battle over deficiency laws relating to foreclosure has been occurring since 2007. In essence, the approved legislation was eventually overturned, and as of 2010, Arizona SB 1004 reversed the decisions in SB 1271 and reverted Arizona back to the foreclosure and deficiency statutes the state has utilized since 1971. Currently, Arizona foreclosure statutes, found in Arizona Revised Statutes Title 33, Chapter 6 and 6.1, mandate the state as a deed of trust state, which allows certain anti-deficiency protections for homeowners.
Current Anti-Deficiency Protections under Arizona Foreclosure Statutes
Under the current Arizona Revised Statutes concerning foreclosure deficiencies, a lender must commence action to recover deficiency judgments against borrowers within ninety (90) days. The amount a lender may obtain in a deficiency judgment will be determined based on the foreclosure sale price of a home or the fair market value, whichever is higher, when subtracted from the total amount lenders claim a borrower owes. However, homeowners that are exempt from deficiency collection actions, include:
- Trustors, otherwise known as borrowers or homeowners, with a foreclosed property less than two and a half acres, which is used as a single family dwelling
- Trustors with a foreclosed property of less than two and a half acres, which used the property as a single, two-family primary residence
In most cases, this will include the bulk of homeowners and their primary residence.
Getting Legal Help with Deficiency Judgments in Arizona
An attorney with experience in foreclosure prevention actions can advise homeowners on the best method to address a deed of trust agreement in default. This may include options that could create the potential for deficiency judgments, such as short sales or foreclosure. However, with legal counsel, most homeowners will be able to negotiate terms that prevent deficiency judgments from their lender, or they may claim protections under the current anti-deficiency statutes per Arizona law.
