A deficiency is the opposite of an excess and exists when the proceeds from a Trustee’s Sale are insufficient to cover the amount of the outstanding debt. Of course, lenders have an interest in recovering this deficiency from borrowers, but Arizona law may prevent recovery. Lenders cannot pursue a deficiency judgment on a loan secured by a residential property that is limited to and utilized as a single one-family or single two-family dwelling, and is less than 2.5 acres in size. This is commonly referred to as the Arizona anti-deficiency statute. If a property does not satisfy these requirements, the borrower does not qualify for the anti-deficiency statute’s protections, and may be held personally responsible for an amount up to the amount still owed after the Trustee’s Sale. The statutes provide that any action to claim a deficiency must be brought within 90 days of the date of the Trustee’s Sale or sheriff’s sale.
A deficiency is determined by subtracting the greater of the fair market value of the trust property on the date of the sale or the bid price at the Trustee’s Sale from the total amount owed on the loan as of the date of the sale. As an example: in 2005 a borrower took out a $300,000 loan for a trust property that has dropped in value, and the trust property did not qualify for the anti-deficiency statute’s protection. The borrower has paid the loan down by $25,000, leaving a balance on the loan of $275,000. If the trust property is purchased at sale for $100,000, but a court decided the market value at the date of the sale was $150,000, the deficiency amount would be $125,000, not $175,000, because the deficiency is the difference between the amount outstanding on the loan ($275,000) and the greater of the fair market value ($150,000) or the purchase price ($100,000).
To discuss your deficiency concerns, call Skinner Law Group today at (480) 422-3440 to schedule your real estate consultation.