There is still another scenario where Arizona’s anti-deficiency statute may afford some benefit to a property owner which is not a residential dwelling or is more than 2.5 acres. If the first lien holder forecloses on such property and the bid at the trustee’s foreclosure sale is less than the amount loaned, there is a deficiency owed by the property owner to the lending institution. For example:

Property originally purchased                $300,000

Amount of loan                                     $250,000

Amount bid at trustee’s sale                  $200,000

Therefore there is a $50,000 deficiency for which the lending institution may initiate a claim against the homeowner.

Importantly, under these circumstances if a lender forecloses on the property, the lender has only a 90 day period of time under Ariz. Rev. Stat. Ann. § 33-814 to maintain a suit for the $50,000 deficiency. This 90 day period of time is in effect the statute of limitations. Any failure by the lien holder/mortgage holder to initiate a deficiency action after 90 days after the trustee’s sale extinguishes the lender’s right to pursue that claim.

A strong argument can be made even if the homeowner/borrower purportedly waived any anti-deficiency rights in the original contract documents at the time of the initial loan that after the 90 day period of limitations there is a bar against further claims by the bank. Courts have held that provisions such as those found in Ariz. Rev. Stat. Ann. §33-814(A) are in effect a statute of limitations and a declaration of Arizona’s public policy and cannot be wiped out by a private attempt to repeal the statute in advance. See Ross v. Ross, 96 Ariz. 249, 252 (1964). Lenders who force borrowers to waive the statute of limitations protection under Arizona’s anti-deficiency statute are in violation of the public policy as expressed by the Arizona legislature in Ariz. Rev. Stat. Ann. § 33-814. Therefore, even after a trustee’s sale a property owner may have some protections.

Lat J. Celmins