Arizona’s Homeowner Protection Post-Foreclosure Anti-Deficiency Laws

By Bill Sawkiw

Arizona has several anti-deficiency laws that protect homeowners from a deficiency judgment in the event of a foreclosure.  But there are limitations to the applicability and reach of those laws.

The first is A.R.S. 33-729, which expressly limits a homeowner’s liability in the event of a purchase money foreclosure: “[I]f a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.”  (Emphasis added).

In addition to this statute, another affirms this same limitation on liability for such foreclosures.  It is A.R.S. 33-814(G), which prevents a lender’s possible attempts to collect after a foreclosure of a purchase money mortgage: “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.”  (Emphasis added).

The Arizona Supreme Court has examined the legislative history behind these anti-deficiency laws when ruling on foreclosure-related cases.  For example, in Baker v. Gardner,[1] the court held that a lender is prohibited from waiving its security interest in the property in order to pursue collection of the balance owed.  In reaching its conclusion, the court considered the legislature’s goal when enacting these anti-deficiency laws to protect homeowners from deficiency judgments.  In limiting the lender’s ability to collect, the court specifically held: “In our view, the legislature would not have protected homeowners from deficiency judgments but still permitted the holder of a mortgage or deed of trust to obtain essentially the same result by waiving the security and bringing action on the note.”[2] In other words, under these statutes, a lender cannot issue a purchase money mortgage, foreclose on that purchase money mortgage, then collect any other amount from the borrower.  The lender gets to keep (and eventually sell) the home or it gets the money from the trustee’s sale.  Any attempts to collect any unpaid balance owed beyond the value of the home are expressly forbidden by the anti-deficiency laws.

There are, however, restrictions to the protections of these anti-deficiency laws.  For example, you cannot be the cause in the diminution in value of the property.  And these laws typically do not apply to home equity loans obtained after your purchased the home.  But generally speaking, if you own a single-family or two-family home on less than two and one-half acres, these anti-deficiency laws likely protect you from any post-foreclosure unpaid balance owed on a purchase money mortgage.  If you have any questions about whether these anti-deficiency laws protect you, contact one of the attorneys at BWG.


[1] See Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988).
[2] Id. at 101-02, 770 P.2d at 769-70.

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