In Arizona, the Trustee Sale is a foreclosure of the property whereby the lender/beneficiary obtains title to the property. Arizona law is clear that personal property of the homeowner is abolished where the lender forecloses on a first Deed of Trust on a single one-family or two-family dwelling on two and one-half acres or less. In effect, the first Deed of Trust is a non-recourse obligation and the lender can only take back the property and no more without any further liability to the homeowner. This protection is not afforded for commercial property, multi-unit property or raw land and the lender may pursue the full amount of the loan obligation against the borrower. This circumstance arises if the property is sold at a trustee’s sale for less than the amount of the full obligation owed to the bank. In other words, if the property is under water, in those instances, the lender may seek to be made whole by pursuing the full loan amount with the borrower receiving a credit in the amount of the fair market value of the property or the amount bid at the trustee’s sale whichever is greater. The difference between the amount owed to the lender and the fair market value of the property is the loss which the lender sustained or is referred to as a deficiency.

Therefore, after the trustee’s sale, the lender has the right to bring a lawsuit in court to recover the deficiency being the amount of the loss which it suffered. This deficiency lawsuit seeks to determine the fair market value of the property on the date of the trustee’s sale. Both the borrower and the lender can bring in expert real estate appraisers to help the court decide the market value of the property. These actions generally proceed rather quickly and are determined by a court rather than by a jury.

If a lender seeks to file this lawsuit, it only has 90 days from the date of the trustee’s sale to do so. This 90 day period is generally construed by the court to be a statute of limitations barring claims against the borrower after that time. Indeed, Arizona courts have held that the 90 day statute of limitations period is a matter of public policy and lenders cannot require the borrower to waive his or her rights in advance. Lender’s attempted efforts to have the borrower waive the 90 day anti-deficiency statute is a violation of the state’s public policy and has been rejected by the courts.

Therefore, if you are a prior owner of unimproved land, commercial property or multi-unit property, the lender must bring a lawsuit within 90 days of the trustee’s sale otherwise the lender’s rights are barred and the lender cannot further pursue any claim for loss or deficiency on that property.

Lat J. Celmins