“How does the foreclosure process work in Arizona?”
“If I stop making house payments, how long until the lender forecloses on my home?”
“I’m thinking about buying foreclosures at auction. What is that process?”
Those questions “and some horribly misguided / flat-out wrong answers” come up often in both on and off-line conversations.
Before we dive into the foreclosure process in Arizona, allow me to make one thing perfectly clear:
I am not an attorney, nor do I play one on television or the interwebs. If you are facing foreclosure you would be well advised to seek the counsel of an attorney, as well as a tax professional. Also, foreclosure laws, processes and timelines vary by state. What follows here applies to ARIZONA. It may or may not be accurate for your state.
Here’s the scoop (basically) on how foreclosures work in Arizona. . .
Without getting too esoteric, it’s important to know that Arizona operates as what is called a title theory state ”“ property title remains in trust until your loan is paid off. Legal title is held by your lender, and the borrower/home owner has equitable title (the right to possession and use of the property in the absence of default). In a lien theory state title is held by the borrower and the lender places a lien against the property to secure the debt.
Why is this important? Because how title is held determines the foreclosure process (that, and state law).
In a title theory state, the foreclosure process is governed by the Power of Sale clause in your load documents. The Power of Sale clause gives the lender the right to sell the property if you default (don’t make the payments). This is also known as a “non-judicial foreclosure”, which means the entire foreclosure process can happen with no court involvement or authority. The vast majority of foreclosures in Arizona are non-judicial in nature. As you may have guessed, a lien theory state requires a judicial foreclosure ”“ the courts have to get involved. This of course makes the process slower and more expensive.
So let’s take a look at the steps involved in a non-judicial foreclosure:
1) The home owner goes into default. Technically speaking, a lender could begin the foreclosure process on Day 1 that your mortgage payment is considered late. In reality, that doesn’t happen. Typically it takes several months of missed payments before the lender initiates foreclosure. Why? Basically because they want your money, not your house. So while the harassing phone calls may start early, it’s highly unlikely that a lender will start the foreclosure process on the first missed payment. I know people that have missed payments for a full year before the process gets spooled up. The time can vary wildly by lender, and even the same lender treats borrowers differently.
2) The Notice of Trustee Sale is filed. At some point, the lender will decide to initiate the foreclosure process and they (more accurately, the Trustee) will record a Notice of Trustee Sale (NOS). Some lenders may issue a Notice of Default (or demand) (NOD) prior to a Notice of Trustee Sale as a sort of “final warning” that your home is about to enter the foreclosure process, but NOD’s are not required under state law.
There are several rules that stipulate how the NOS is handled. It must be recorded at the county recorder’s office. It must be advertised once a week for four consecutive weeks in a local newspaper (the last “advertisement” must be published not less than 10 days prior to the date of the sale). The notice must be posted, either at a conspicuous place on the property, at the courthouse, or the trustee’s place of business. Finally, within five days of the recording of the Notice of Trustee Sale, a copy must be mailed via certified mail to the property address (the mailing or the posting on the property is often when tenants find out the home they are renting is going into foreclosure).
The Notice of Trustee Sale will specify where and when the property is to be sold “at auction”. Sometimes the sale takes place “on the courthouse steps”, and sometimes it is at the trustee’s office. By law, the sale must take place at least 90 days after the notice is recorded. (Of note, trustee sales are often postponed, but they can not occur less than 90 days after the NOS is recorded.
Redemption Period. Poke around on the internet and you will see mention of “redemption periods” – a time period where a home owner can catch up on their loan and get their home back. In some states this can happen even after the home is sold at foreclosure. (Alabama has a 12 month redemption period.) In a non-judicial foreclosure (again, this is the vast majority of foreclosures in Arizona) there is no redemption period. A home owner can make their loan current at any time prior to the actual sale and stop the process. But once the gavel drops at the trustee sale, the deal is done and the home owner has no further opportunity to retain their home.
3) The Trustee Sale. At the stated time and location, the home goes up for bid. Often no bids are made, or the minimum bid is not made and the home will revert to the lender. At that point it becomes an “REO property” (Real Estate Owned) aka a “bank owned home” or (technically erroneously) a “foreclosure”. The bank will at some point put the home up for sale on the open market. It can take anywhere from a few days to several months before a bank will place a property on the market.
If a bid above the minimum is made, then the high bidder is required to provide a non-refundable $10,000 cashiers check on the day of the sale and pay the balance by 5:00pm of the next business day. In other words, if you want to bid on “foreclosures” you need a large wallet. Homes are also sold “as is” meaning just what it sounds like ”“ what you see is what you get — and it is often difficult to inspect the interiors of homes before trustee sales.
Buying foreclosures at auction is not for the faint of heart. You need to know what you are doing. You will not get homes at auction for pennies on the dollar. Banks may be evil, but they aren’t stupid.
4) Trustee’s Deed. Within seven business days of receipt of payment, a Trustee’s Deed will be issued to the purchaser. The property is not “in limbo” during this time period. The high bidder owns the property once the bid is paid in full. Of note, the home owner is also responsible for the property during the 90 day trustee sale notice period. If you trash out your home, or take the appliances, cabinets, flooring, etc. prior to the trustee sale, you are breaking the law and can be held responsible for damages.
Whew, that’s a lot of words. It’s not a terribly complicated process, but it is often misunderstood by home owners and real estate agents alike. Compounding the confusion is that foreclosure laws and procedures vary from state to sate.
The graphic below represents the basic flow or timeline of a non-judicial foreclosure / trustee’s sale in Arizona. It may be easier to swallow / comprehend that all the above verbiage. You can also download the full-size graphic here (PDF).
Click image for larger view:
Download the full-size graphic here (PDF).
UPDATE: Be sure to scroll down and check out comment #14 from Ricard Keyt, a local real estate attorney. He provides some great insight into the foreclosure process in Arizona and a super link to an article that helps answer the question, “can my lender sue me for a deficiency after I lose my home in a foreclosure?”
Actual Arizona state foreclosure statues:
Arizona Revised Statute Title 33 ”“ Property contains most of the laws regarding foreclosures in Arizona (and a whole bunch of other real estate laws as well).
Non-judicial foreclosure statutes (most common in AZ):
33-807 Sale of trust property; power of trustee; foreclosure of trust deed
33-807.01 Notice of trustee’s sale conditions; exceptions
33-808 Notice of trustee’s sale
33-809 Request for copies of notice of sale; mailing by trustee; disclosure of information regarding trustee sale
33-810 Sale by public auction; postponement of sale
33-811 Payment of bid; trustee’s deed
33-812 Disposition of proceeds of sale
33-813 Default in performance of contract secured; reinstatement; cancellation of recorded notice of sale
Judicial foreclosure statutes (far less common, but possible, in AZ in some cases):
33-721 Foreclosure of mortgage by court action
33-722 Election between action on debt or to foreclose
33-723 Right of junior lien holder upon foreclosure action by senior lien holder
33-724 State as party to foreclosure actions
33-725 Judgment of foreclosure; contents; sale of property; resale
33-726 Redemption of property by payment to officer directed under foreclosure judgment to sell the property
33-727 Sale under execution; deficiency; order of liens; writ of possession
33-728 Recording upon record that mortgage is foreclosed and judgment satisfied; effect
33-729 Purchase money mortgage; limitation on liability
33-730 Limitation on deficiency judgment on mortgage or deed of trust as collateral for consumer goods
I am not an attorney, nor do I play one on television or the interwebs. If you are facing foreclosure you would be well advised to seek the counsel of an attorney, as well as a tax professional. Also, foreclosure laws, processes and timelines vary by state. What follows here applies to ARIZONA. It may or may not be accurate for your state.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
Great post Jay, this one is a little on the dry side but it's good information that people should be aware of. Very similar timelines here in California.
It is a little dry Alex, hard to make the foreclosure process very exciting…
Hi Jay –
I like your chart. What did you use to make it? I'd like to make a similar one for California foreclosure process.
Vicki – I used the Draw component of OpenOffice.org. Free! **LOVE** Open Office — no need for Microsoft Word, Excel, Paint, etc…
Thanks Jay! I'm going to give it a try.
Yes that is a nice chart,
Jay, little surprised there is only 2 comments. Usually you get 2 comments in the 1st couple minutes. I wonder if some of the syndication tools are working. :/
Posts like this, that are informational/factual tend to get less comments than opinion pieces. At least in my experience…
Thanks for giving me something to send people to for two reasons –
a. great information on Arizona foreclosures
b. sweet example of a great online resource (complete with a graph) for those trying to build linkable content
12-month redemption period in Alabama would be a big deal in a normal market, good thing that's no where in sight.
You're welcome Jayson!
You would think non-judicial foreclosure would be a much faster process.
Chris – it's pretty fast, once the Notice of Trustee Sale is recorded — 90 days. I've heard judicial foreclosures can take up to a year, but I have no direct experience with them…
Stumbled onto your article from a web search regarding the foreclosure process in Arizona. Very clear and concise, great information. However, one thing I am interested in and having difficulty finding is the postponement process. You are right in that this should be a speedy process but it appears that the trustee may postpone sale dates at will. I admit I am on the other side, recent divorce plus loss of income has forced me to give up my home. Believe me I don’t want to but unfortunately there is no other options and I am content to let it go. The problem is the sale date has been postponed every month now for 5 months. So in the mean time I and my ex can’t begin to rebuild our credit and are still responsible for paying HOA fees on a home that is vacant. According to the trustee’s office the bank requested postponement, according to the bank they are just the servicers and the investors requested it, although the new one I heard from the bank was that the county housing authority is who I should call.
While I like to think I am above the average intelligence quotient out there I find this very confusing and hard to swallow. Can you possibly shed some light on this part of the process on who is really in control. Agreed most people are trying to save their homes but in this case I just want it over already so I can move on and start over.
Love it. Would like to print it out to have, but printer-friendly url is 404ing.
Adam – sorry about that. Fixed!
http://www.phoenixrealestateguy.com/the-foreclosu…
Thorough information. Now you have motivated me to get something together for my buyers. And openoffice.org, eh? I'm checking that out now. By the way, great stuff on FOREM.
Excellent article. Love your chart. In Arizona, the foreclosure process and the rights of the lender and borrower are determined by the type of document used to secure payment of the promissory note.
There are three types of consensual real property liens recognized and provided for under Arizona law:
1. The Deed of Trust – the most common lien used by lenders because it provides for the quickest and cheapest foreclosure method without the right of the borrower to redeem.
2. The Mortgage (ARS Section 33-701 et seq.) – rarely used in Arizona because foreclosure requires that the lender file a lawsuit and sue the borrower in superior court for a judgment that orders the sheriff to sell the property at an auction. Foreclosing a mortgage is more expensive for the lender than a trustees sale under a deed of trust, requires that the lender hire a lawyer and can take a lot longer than a trustees sale under a deed of trust. Deeds of trust can be foreclosed as a mortgage at the lender's option. One of the reasons a lender would go the judicial foreclosure route instead of the trustees sale route is because foreclosing under Arizona's mortgage statutes allows the lender to accelerate the balance due on the debt and the borrower does not have the option to bring the debt current (as opposed to paying the entire amount owed) to stop the foreclose unlike during a trustees sale foreclosure. During a judicial foreclosure the borrower has the right to redeem and stop the foreclose at any time before the sheriff's auction by paying the debt in full, including the costs of the judicial foreclosure.
3. Contract for Conveyance of Real Property (aka land sale contract or installment sale contract) (ARS Section 33-741 et seq.) – Also rarely used in Arizona primarily because the time to foreclose can be very lengthy. ARS Section 33-742.D states:
Forfeiture of the interest of a purchaser in the property for failure to pay monies due under the contract may be enforced only after expiration of the following periods after the date such monies were due:
1. If there has been paid less than twenty per cent of the purchase price, thirty days.
2. If there has been paid twenty per cent, or more, but less than thirty per cent of the purchase price, sixty days.
3. If there has been paid thirty per cent, or more, but less than fifty per cent of the purchase price, one hundred and twenty days.
4. If there has been paid fifty per cent, or more, of the purchase price, nine months.
Many people mistakenly believe that they can avoid the due on sale clause problem by using an installment land sales contract because the buyer does not get title to the property until the debt is paid in full.
A common question we Arizona real estate attorneys get is "can my lender sue me for a deficiency after I lose my home in a foreclosure?" The answer to that question is found in an article by Arizona real estate lawyer Jeana Morrissey called "Arizona Foreclosure Law aka Arizona Anti-Deficiency Law," which is found at:
http://www.keytlaw.com/azrealestate/foreclosurela…
Richard – Thanks so much for stopping by and providing some great insight from the legal perspective! Long time fan of your site and the info it provides. If you ever want to provide a "guest post" here on Phoenix Real Estate Guy, let me know!
Each state is different in law and this is very informative so I thank you for the facts. Does this apply to private mortgages as well? If so please take the opportunity to look at my web site as it may be of help to private investors looking for an option rather than the expense involved. I have access to a large network of certified buyers that will give top dollar quotes, and possibly avoid the foreclosure. You'll find an article on my site devoted to helping the process.
Great information Richard!
It can take anywhere from a few days to several months before a bank will place a property on the market.
It's a little different here in Florida because it is a lien theory state rather than a title theory state. The initial step is a Lis Pendens (notice of pending legal action) and the overall procedure is different due to the difference between title theory and lien theory.
An interesting aside, a couple years ago I was told by a closing agent at a local title company who was handling a short sale of mine that one of the big law firms in the state that represent a lot of the big banks on foreclosures was also making money off the homes they foreclosed on for the bank when they went on the market. Seemed like a pretty bad conflict of interest at the time. Now I'm seeing news about this firm and 2 others that are know as 'foreclosure mills' in Florida being investigated by the attorney general. I was hoping when I first heard about this that it would eventually be found out and maybe that is starting to happen.
Jay,
Great, informative post. I find myself explaining this process like a broken record these days.
Anyway, good work.
It's refreshing to see someone just explain the process from A to B. This is a fairly standard process and timeline comparative to other states, but it's funny to see how fast it can happen spelled out in a chart.
This is the most informative detail oriented post I've seen in a while very impressive. Not something I would venture to pull off but thats why your the PhxReGUY
My recent post GYRO – Chicago Style Restaurant for Sale S Oneida St Green Bay WI
Good job, New Jersey is slightly different but it is close enough. I like to see however the credit bureau's change the way the look at foreclosesures for the next couple of years.
My recent post New Townhome sold and closed at East Crescent Estates
Very scary thing, especially for those who invest in real estate. We offer services for this. Phoenix Corporate Lawyers