The foreclosure process in Arizona is a quick and relatively (and I mean relatively) painless process. Although, it’s certainly not painless for the owner as it badly tarnishes credit ratings and can take years to clear up. Foreclosure is the legal process by which a mortgage lender can take posession and ownership of a property. The owner of the property is evicted, and no longer has a right to any part of the property.
A lender has the right to begin foreclosure proceedings as soon as the homeowner is late on their mortgage payment. Most lenders will work with the homeowner to resolve the delinquency before foreclosing. In many cases the lender will allow a three month window in which the homeowner can make good on their defaulted payments, bringing the loan current and stopping the foreclosure process.
If the homeowner is not willing to work with the lender and/or vice versa, the lender may begin the foreclosure process. In Arizona, most homeowners have a trust deed or Deed of Trust which means the courts will not be involved in the process. This can make the process much faster than other states where it may take up to 18 months to foreclose.
In Arizona, a lender must appoint its trustee (a person or entity that has the legal right to sell the home in a trustee sale) to handle the paperwork.
The trustee, by law, must record a “Notice of Trustee’s Sale” at the county recorder’s office. This notice is a legal notice, available to the public, that lets everyone know that the home will be sold no sooner than 90 days from the date of recording. There is also a requirement to publish this notice once per week for four consecutive weeks in a “newspaper of general circulation” in the county in which the home exists. Anyone who is affected by the foreclosure, such as the owner or tenant, will receive a notice within 5 days of the “Notice of Trustee’s Sale.”
The home is now considered to be in pre-foreclosure status and the clock is quickly ticking. During the 90 day period, the owner of the home has the opportunity to reinstate the loan. If this does not happen, the property will go to auction on the date of the Trustee’s Sale.
At the sale, many times the lender will end up taking the property because the starting bid price will be too high. Once this happens, the bank owns the property and now must consider their bottom line. They will then dump the property at or below market value. These repossessed properties are referred to as “Bank Owned” or “Real Estate Owned (REO)” properties. Banks do not want them. Banks are concerned about lending their assets to other banks to make money. If their money is tied up in Real Property it cannot be lent to other banks for a profit.
If the lender doesn’t win the auction it will go to the next highest bidder, who will have been required to place a $1000.00 deposit simply to participate in the auction. The winner will then be required to pay the remaining balance in cash or other acceptable consideration determined by the Trustee on the next business day by 5:00PM. If the winner defaults on their winning bid, they will lose their deposit and will also be liable for any other costs associated with the sale of the property, including attorney fees. The second highest bidder is then given the same opportunity.
The proceeds from the auction will be used to first pay down the primary lien on the property, then any junior liens, and then if there’s anything left over, the ex-home owner will receive the balance. This is usually not likely in a declining market as the value of the home has fallen below what the home owner owes.
Title is conveyed to the winning bidder by a trustee’s deed. This transfer of title relinquishes any right the previous owner has from reinstating the mortgage or redeeming the property after foreclosure. In addition, the trustee’s deed clears the title of any liens and encumbrances that are junior to the trust deed.
In certain situations, junior lien holders may pursue a deficiency judgment against the previous owner to recover the balances owed. However, an Arizona home owner may be protected by such lawsuits under the law.