When a Lender Can Pursue a Deficiency
A trustee sale does not always wipe the slate clean. If the sale price falls short of what the borrower owes, the lender may have the right to sue for the difference. Arizona gives lenders ninety days after the sale to file a deficiency action. The deficiency amount equals the total owed minus the greater of the sale price or the fair market value on the sale date.
Within ninety days after the date of sale of trust property under a trust deed pursuant to section 33-807, an action may be maintained to recover a deficiency judgment against any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security.
A.R.S. § 33-814(A)If no deficiency action is filed within ninety days, the sale proceeds are considered full satisfaction of the debt. No further collection is allowed. This deadline is strict and applies regardless of the amount.
The Anti-Deficiency Protection for Homeowners
Arizona provides significant protection for residential borrowers. If the real estate is two and a half acres or less and is used as a single one-family or single two-family dwelling, the lender cannot pursue a deficiency judgment after a trustee sale. The sale price, no matter how low, is treated as full payment.
If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.
A.R.S. § 33-814(G)There are exceptions for properties originated after December 31, 2014. These include construction loans on homes built for sale to others, dwellings that were never substantially completed, and dwellings never actually used as a residence. These carve-outs prevent developers and speculators from claiming the same protections intended for homeowners.
Many families going through foreclosure worry about owing money after losing their home. For those with a qualifying residence, the anti-deficiency rule provides a clean break. The lender takes the property, and no further balance can be collected from the borrower.