When a mortgage company-Lender- forecloses upon a house, more than likely, it will turn around and sell the house to recover any money owed by the previous homeowner. This amount includes the prior mortgage balance, lawyer’s fees, late payment fees and administrative expense acquired during the foreclosure process. In many cases, in today’s real estate market situation, a lender is able to sell the property at a portion of the cost. The consequence is that the lender losses money on the transaction.
For example, a lender loans a borrower $300,000 to buy a house. 1 year later, the homeowner fails to make the payments and the lender is forced to foreclose. When lender sells the property, it is only able to sell it for $250,00. This results in a $50,000 loss to the lender plus all the fees mentioned above.
In some states, the lender may be entitled to receive the deficiency judgment in court for the remaining balance owed. This means that the lender could sue the home owner for $50,000 loss, that lender incurred. Not in Arizona though. There are some limitations written in State laws: "anti-deficiency" statutes prevent a lender from suing a person for any losses on a home after foreclosure.
Arizona Anti-Deficiency Law says if home is secured with Deed of Trust and sold at Trustee’s Sale no action may be maintain to recover deficiency if:
- The property is 2.5 acres or less
- Used for single family or two family dwelling
- Sold pursuant to the Trustee's power of sale.
The only exceptions to Arizona’s anti-deficiency statutes are VA loans.
If a lender seeks a deficiency judgment, it has 90 days after the sale of the property to begin judicial proceedings to recover.