If you default on your home loan payments in Arizona, the servicer (on behalf of the loan owner, called the "lender" in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed.
Arizona law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in Arizona, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms.
The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you'll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called "loss mitigation" options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. (12 C.F.R. § 1024.39).
No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in Arizona have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don't cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most Arizona foreclosures are nonjudicial. Here's how the process works.
In Arizona, the trustee starts the foreclosure process by the recording of a notice of sale in the county recorder's office. The notice must include the date, time, and place of the sale. The sale date can't be sooner than the 91st day after the notice of sale's recording date. (Ariz. Rev. Stat. § 33-808(C)(1)).
The trustee must then mail you (the borrower) a copy of the notice of sale by registered or certified mail within five business days after the recording date. (Ariz. Rev. Stat. § 33-809(C)).
The notice of sale must also be:
The sale is a public auction. The sale will be held at the time and place designated in the notice of sale on a day other than a Saturday or legal holiday between 9:00 a.m. and 5:00 p.m. mountain standard time. (Ariz. Rev. Stat. § 33-808(B)).
"Reinstating" is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. In an Arizona nonjudicial foreclosure, you can reinstate before 5:00 p.m. mountain standard time on the last day, other than a Saturday or legal holiday, before the sale date. (Ariz. Rev. Stat. § 33-813).
Sometimes, a foreclosure sale doesn't bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a "deficiency balance." Many states allow the lender to get a personal judgment, called a "deficiency judgment," for this amount against the borrower.
In Arizona, the lender can generally obtain a deficiency judgment by filing a separate lawsuit within 90 days following a nonjudicial foreclosure sale. But the lender can't get a deficiency judgment after a nonjudicial foreclosure if the property is:
A deficiency judgment, if available, can be limited by the fair market value of the home. (Ariz. Rev. Stat. § 33-814). If the property sells for less than the amount owed to the lender, the borrower may ask a court to determine the property's fair market value. If the court decides that the fair market value is higher than the sale price, the borrower gets credit for the higher amount.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Arizona, however, doesn't have a law permitting you to redeem your home after a nonjudicial foreclosure. (Ariz. Rev. Stat. Ann. § 33-811(E)).
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.