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FHA Loans and Foreclosure
FHA, the common acronym for the Federal Housing Administration, is a government agency that insures home loans made by lenders throughout the country. If a borrower defaults on a loan, FHA reimburses the lender for losses on the loan. As a result, FHA has an established loss mitigation policy that instructs lenders on how to handle FHA borrowers that are behind in his or her mortgage payments and face the threat of foreclosure.
FHA outlines five possible options for a home owner facing foreclosure. Three of these options, referred to by FHA as "reinstatement options", are available to borrowers that face temporary causes for the default. Reinstatement options include special forbearance where the lender arranges a special repayment plan, loan modification where the mortgage is refinanced or the term is extended to accommodate a lower payment, and filing a partial claim (an interest free loan from HUD to bring the mortgage current). The other two, referred to as "disposition options", are designed to assist a borrower in the transition to lower cost housing. Disposition options include a pre-foreclosure sale and deed-in-lieu of foreclosure (voluntarily giving the property back to the lender).
Though FHA does not have a litmus test to determine if a delinquent borrower's situation qualifies for a particular option, FHA relies on the lender to determine a borrower's eligibility. These eligibility requirements include the type of hardship, the status of the property, and an evaluation of the borrower's financial situation.
A lender will examine the underlying cause of the default and determine if the financial problem is a temporary or permanent situation. Borrowers that face a permanent financial crisis through death, divorce, or permanent disability and are unlikely to be able to support the monthly mortgage payment will only have disposition options available. Borrowers that are facing a temporary set back but who will be able to continue making the monthly mortgage payments in the future should qualify for reinstatement options.
The FHA loss mitigation policy requires that the borrower must occupy the property as a primary residence in order to be eligible for any reinstatement options. Furthermore, the borrower must not own any other real estate that has a FHA loan against it or had a FHA loan that incurred a loss as a result of a foreclosure or sale of the property. If a property has been abandoned, the borrower is not eligible for any reinstatement options. In most cases of abandonment, foreclosure proceedings are initiated instantly.
Critical to determining a borrower's eligibility is the lender's analysis of the borrower's financial situation. A borrower will be expected to provide detailed financial information to the lender and the lender will be required to independently verify the information. In addition, any borrower who has filed bankruptcy is not eligible for any options except a partial claim.
If the cause of the borrower's default or delinquency is one that poses a temporary setback and if the borrower will have the ability to continue making the regularly scheduled mortgage payment, FHA prefers that the lender considers reinstatement options in the following order: 1) special forbearance, 2) loan modification, and 3) partial claim. If the loan is not curable and/or the borrower is not willing to remain in the home, the lender is to consider disposition options with a preference towards a pre-foreclosure sale and then a deed-in-lieu of foreclosure.
Special Forbearance
Most lenders will focus on a special forbearance option for borrowers eligible for reinstatement options. According to FHA's loss mitigation policy, "A special forbearance is a written repayment agreement between a lender and a mortgagor [borrower] which contains a plan to reinstate a loan that has been delinquent for at least 90 days." Generally a lender will work out a special repayment plan for a borrower through lower payments over a period of time in order to compensate for the unexpected loss of income or increase in living expenses.
In order for a borrower to qualify for a special forbearance, a borrower must meet the following guidelines:
- at no time may the mortgage be behind more than the equivalent of the total of 12 months of mortgage payments (to include principal, interest, taxes and insurance).
- the special forbearance must lead to the reinstatement or resumption of the loan by either gradually increasing the monthly payment in order to cover the money owed or the resumption of normal monthly payments. Furthermore, the loan must be more than 3 months behind but no more than 12 months late.
- the borrower must be an owner occupant and continue to occupy the property as a primary residence during the term of the forbearance.
- a borrower must show that he or she will have sufficient income to reinstate the loan. This may be accomplished through the gradual repayment of the amount owed or through a combination of a partial claim (see below).
- the property must be habitable with no adverse conditions that would prevent the borrower's continued use or the property's marketability.
Loan Modification
A loan modification is a permanent change to the mortgage note that restructures the terms of the loan in order to reinstate the loan and results in a payment the borrower can afford to make. Examples of a loan modification would include lowering the interest rate, extending the due date on the loan, or re-amortizing the remaining balance of the loan. This option is used for home owners that have suffered a loss of income and do not have the means to continue to make the normal monthly mortgage payments or back payments but do have the means to support a lower payment.
In order to modify the mortgage, the borrower must:
- be three or more months behind in payments
- have had the mortgage for at least 12 months
- not be in foreclosure
- prove a loss of income or increase in living expenses
- live in the property as an owner occupant and continue to live in the home as a primary residence
Furthermore, the loan modification must result in a fixed rate loan that reinstates the loan. At the lender's discretion, the interest rate may be set below market or increase the rate if the borrower has the ability to support the payment. The lender is also allowed to include any or all of the back payments owed into the principal amount. Any foreclosure costs, late fees, and other administrative expenses may not be included into the modified loan.
Partial Claim
A partial claim is a no interest loan from the government that covers the amount necessary to reinstate a delinquent loan. The borrower does not have to make payments for this note nor does the note become payable until the borrower either pays off the FHA loan or no longer owns the property.
In order to qualify for a partial claim, a borrower must:
- be at least 4 months behind but no more than 12 months delinquent
- not be in foreclosure
- have overcome the cause of the default
- have sufficient income to resume the monthly mortgage payments
- not have sufficient income to repay the amount necessary to reinstate the loan
- occupy the property as an owner occupant and continue to live in the home as a primary residence
The partial claim must fully reinstate the loan for the borrower. The partial claim may only include the principal, interest, taxes and insurance necessary to reinstate the loan. This does not include any late fees or other administrative costs associated with the delinquency. Though the partial claim is due when the FHA loan is paid off or when the borrower no longer owns the home, the partial claim does not carry a prepayment penalty.
Pre-foreclosure Sale
A pre-foreclosure sale allows a borrower in default to sell the property, pay off the remaining balance of the loan, and collect any remaining equity while avoiding foreclosure. This option is generally used for borrowers who face a financial crisis that requires the sale of the home. Borrowers whose property value has declined to less than the amount owed against the home are eligible for this option.
To qualify for this option, the borrower must make a commitment to actively market their home (with the use of a qualified real estate agent) for a maximum period of 4 to 6 months. During this time frame, the lender must delay any foreclosure action. The loan must be at least 30 days behind in payments and the borrower must be an owner occupant.
The lender is required to obtain a recent FHA appraisal and preliminary title report for the home. The property must not have suffered any severe damage and any repair costs must not exceed 10% of the "as is" value of the home. Furthermore, the home must have a marketable title to the home without any clouds or liens against the home that would prevent the sale of the home.
Should the borrower owe more than the value of the home, the lender may allow the buyer to sell the home for approximately 90% of the appraised value of the home, assuming that the appraised value is at least 63% of the amount owed. All sales contracts must be approved by the lender. Failure to sell the home within 90 days of the expiration of the pre-foreclosure sale time frame, the lender will commence foreclosure proceedings or obtain a deed-in-lieu of foreclosure from the home owner.
Deed-In-Lieu of Foreclosure
A deed-in-lieu of foreclosure is a voluntary return of the property from the borrower by deeding the home to FHA in exchange for a release from all obligations under the mortgage. A borrower facing eminent foreclosure against the home may voluntarily surrender the home to FHA in order to prevent the foreclosure. Generally this is the preferred option to foreclosure because it avoids the time and expense of a legal foreclosure.
To qualify for this option, the loan must be in default, the borrower must face a situation where he or she continue to support the mortgage payments, and the borrower must occupy the home as a primary residence. Furthermore, the home owner must not own any other properties subject to FHA financing.
It is advisable for a home owner facing this option to first consider the pre-foreclosure sale. By deeding the property over to the lender, the borrower loses all accrued equity in the home. Furthermore, the deed-in-lieu of foreclosure does not release the borrower from any second mortgages or junior liens against the home. The home owner may face additional issues from the other lenders involved. Finally, the borrower may be subject to income tax consequences as a result of the deed-in-lieu action.
However, should a home owner decide to select this option, he or she must complete the deed-in-lieu action within 6 months of the date of default unless an extension was granted by first trying other loss mitigation options or approval from the lender.
Timelines
In order to qualify for one or several of the options listed above, the borrower must exercise his or her option(s) within the first six months of the default. Exceptions to this rule apply if:
- the loan is reinstated
- the borrower agrees to a special forbearance
- the loan is modified
- the loan is reinstated by a partial claim
- the borrower sells the property
- the borrower deeds the property back to FHA
- the lender initiates foreclosure
An additional 90 days may be allotted if the lender has initiated but is unable to complete a special forbearance, loan modification or partial claim within the first six months and no other intervening delays (such as a bankruptcy) impede the process.
Negotiating With Your Lender
As a borrower prepares to speak with his or her lender, there are several key areas to focus on before any interviews begin. As stated before, FHA relies on the lender to determine a borrower's eligibility to include the type of hardship, the status of the property, and an evaluation of the borrower's financial situation. Successful negotiations is determined by preparation and good communication.
When preparing for the interview, ask yourself the following:
- Why did I default on the loan? Is it a result of just not making the payment or have I suffered a verifiable loss of income. Lenders will listen if you have had a verifiable and temporary set back in income. The key is being able to support your reasons for being late. If the reasons are due to temporary layoffs for example, send the lender a letter from your employer stating that you have been laid off. If you don't have a reason, you may limit your options.
- Can I cut back on my expenses anywhere? After looking at your income, the lender will analyze your expenses. Do you really need cable if you face the threat of losing your house?
- Can I sell an asset to compensate for the deficiency or loss of income? Do you have any assets that you are forced to make payments on? Would selling the asset decrease your monthly expenses and/or generate sufficient cash to apply towards the loan? In some cases a borrower may be able to sell a car, for example, to reduce the monthly expenses by eliminating the car loan. Also, any profits from the sale of the asset could be used to bring the loan current.
- Do I know anyone that could loan me the money to get back on my feet? Do I have any family members, relatives, or other sources that could loan me the money. Though most people are ashamed to ask, asking a family member, friend or relative may be the only hope of saving the family home.
- Is it worth the effort to save the home? Would it be easier to sell and start over? In some cases a borrower may not be able to handle the burden and stress of keeping the house.
- Should I file for bankruptcy? When facing a financial crisis, a borrower will often look towards bankruptcy as an option to alleviate the problems. Before making a decision, determine how bankruptcy will affect your ability to keep the home.
- If I were the lender, would I justify the cause based upon the borrower's situation? Though this is one of the most difficult questions to ask, be realistic. If you loaned someone $100,000 dollars, would you believe his or her excuse for being late? If not, you might want to reconsider your excuses. Remember that lenders prefer to hear about temporary setbacks versus permanent situations.
The lender will do a detailed analysis of the borrower's financial situation and scrutinize the reasons for the default A borrower should compile the applicable paperwork including letters from employers showing a decrease income, bills and receipts justifying an increase in expenses, and prepare to answer the questions about the reasons for the default. Knowing your situation allows you to talk effectively with your lender.
The second key to successful negotiations with a lender lies in good communication. Good communication is achieved by quick action, immediate responses, and positive cooperation. If a home owner knows that he or she is going to be late, the borrower should call the lender. Ignoring letters and phone calls from the lender actually increases the likelihood that the home owner will lose the home.
Once the home owner has begun a dialogue with the lender, it is important that the borrower responds to the lender's requests. The home owner should create a diary of events and log every call, letter, and meeting. He or she should include the date, time, who called, the telephone number and extension of that individual, and detail what was spoken. The home owner should keep copies of every letter sent to and received by the lender. Furthermore, the borrower should emphasize his or her desire to work out a solution to the default each and every time the lender calls. If the cause for the default has been resolved or will be resolved, the borrower should assure the lender that his or her problems are behind them and he or she is trying to get back on their feet. The lender will generally be more lenient and willing to work with a home owner if the problem(s) are in the past.
Finally, the borrower should remember to keep a positive attitude. Threats, belligerent dialogue, and an unwillingness to cooperate does not prove to the lender that the borrower is serious about working out a solution. In addition, a borrower shouldn't make promises that he or she cannot keep. Though it may seem like an easy way to stall a foreclosure, a borrower may end up with a higher payment, owe more money than originally delinquent, destroy his or her credit, and may lose the house in the process.
Foreclosure is an expensive process for both the home owner and the lender. However lenders realize that foreclosure is an effective means to demand payment from a home owner. A borrower must be prepared and ready to face the consequences of his or her situation. Knowing his or her options and expectations of the lender are crucial to successfully avoiding foreclosure.
However, there is free help and assistance for home owner facing the possibility of foreclosure.
VA Loans and Foreclosure
The Department of Veteran Affairs, commonly referred to as VA, offers VA borrowers several options to prevent foreclosure on his or her home. If a borrower defaults on a loan by not making a monthly payment, VA has guaranteed up to 25% of the original loan amount in the event that the lender forecloses upon the home and incurs a loss on the transaction.
The decision to foreclose upon a veteran is dictated by VA's loss mitigation policy that sets the standards and process for the determination to foreclose. This policy is built upon a foundation that lender should explore alternatives prior to pursuing foreclosure action. VA offers delinquent home owners five alternatives to foreclosure: 1) forbearance, a repayment arrangement to make up the delinquent payments over a specified period of time, 2) loan modification, the amendment of the loan to lower the interest rate, re-amortize the remaining balance, and/or extending the current term of the loan in order to reduce the monthly payment for the borrower, 3)sale of the home, 4) deed-in-lieu of foreclosure, a process of signing the home over to the lender, and 5) refunding, a process whereby the VA assumes the servicing of the loan from the lender.
Critical to the analysis of a borrower's alternatives to foreclosure is thedetermination of the reason for the default. It is the lender's responsibility to gather enough information to determine if the default was due to a temporary set back or a permanent problem that will hinder the borrower's ability to continue making the mortgage payments in the future. Borrower's involved with a temporary set back will have the greatest selection of alternatives including forbearance, modification and refunding of the loan. Conversely, a home owner that faces a permanent loss of income, a ong term problem, or a situation that hinders the borrower from being able to make the monthly payment may only be able to sell the home, deed the home over, or face foreclosure. In addition, it is the lender's responsibility to carefully search for alternatives, including the determination whether a relative, family member, employer or previous owner may step up and resolve the delinquency.
Before deciding upon a course of action, the lender will complete a detailed financial analysis of the borrower to determine his or her current income and debt status. The financial analysis may include but not limited to verification of employment, credit checks, and requests for personal financial information such as bank statements, paystubs, and tax returns.
Furthermore, if the property has been abandoned by the borrower, the lender will initiate foreclosure action immediately. Abandonment will also relinquish the borrower of many alternatives that he or she may have been eligible for.
The recommendation to foreclose upon a home is only determined after the lender has tried to resolve the delinquency through flexible and adaptive collection techniques. It is the lender's discretion to offer the borrower any of the possible alternatives.
Forbearance
Forbearance is an agreement between the lender and the borrower that reinstates the delinquent loan through the payment of a lump sum or a schedule of payments over a period of time. If a borrower is behind in his or her payment by $2,000, for example, the lender may allow the borrower to pay the money back through installment payments over six months. The lender may decide, on the other hand, to allow the borrower to pay a reduced monthly payment until the borrower has an opportunity to get back on his or her feet and pay any remaining arrearages in one lump sum.
The forbearance may be an oral agreement or written contract between the lender and the borrower. Generally these agreements will not exceed more than 12 months.
Loan Modification
A loan modification is a change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the loan, or other options at the lender's discretion to assist the borrower through a temporary set back.
Generally a lender will consider a loan modification when foreclosure is eminent and the borrower's income has been decreased or unable to make the mortgage payments, but will be able to keep the loan current after the loan modification.
Sale of the Home
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home.
VA will permit a veteran to sell the home when the proceeds from the sale are not sufficient to pay off the VA loan due to a decrease in property value or if the home has not appreciated enough to cover the repayment of the delinquency, sales commissions, and normal closing costs. In this type of situation, VA will consider a "compromise claim" in which it will pay the lender the difference between the net sales proceeds and the mortgage balance. It is important to note that the borrower may be required to sign a promissory note to repay VA for a part or all of the compromise claim.
Deed-in-Lieu of Foreclosure (DIL)
A deed-in-lieu of foreclosure is a voluntary conveyance of title to VA. Generally this is a last ditch effort by the borrower to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to VA, the borrower is often released of any personal responsibility for the mortgage.
In order to qualify for a DIL, there must not be a second mortgage or junior liens on the property. The property must have a value of at least 75% of the original value.
Properties with values in excess of the amount owed against the home (to include normal closing costs) should consider selling the property before voluntarily conveying the home to VA.
Refunding
Refunding is the process where VA agrees to buy a loan in default from a lender and take over the servicing of the mortgage payments. Though it is not the right of the borrower to demand that VA refunds the loan, refunding allows qualifying home buyers to avoid foreclosure when the lender is unwilling or unable to assist the borrower with foreclosure alternatives.
It is important to note that VA considers any loan that is in default for six or more payments to be an insoluble default. An insoluble default will result in foreclosure action against the borrower. The borrower may seek relief through forbearance if he or she can prove that the default was temporary and has been resolved.
Should foreclosure proceeding occur, the borrower may still reinstate the loan by procuring sufficient funds to bring the loan current. In Arizona, this means that the borrower has until the last minute prior to the Trustee's Sale to reinstate the loan.
Timeline
If a borrower is later than 16 days with the mortgage payment from the day it is due, the lender is required to send the borrower a notice in writing. The notice must be mailed by the 20th day and clearly state how much the borrower owes (to include late fees). During this time the lender will try to contact the home owner by phone. If telephone contact is not made within 30 days from the delinquency, the lender is required to send a second letter that should 1) state the loan is in default, 2) emphasize the seriousness of the situation and the importance of paying the delinquency, 3) show the borrower how much is owed (to include late fees), and 4) advise the borrower on how to contact the lender to arrange for payment.
Should the borrower submit a partial payment in lieu of the full amount to reinstate the loan, the partial payment may be returned if:
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the property is investment property and the borrower keeps the rental income instead of turning it over to the lender
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the payment is less than one full monthly payment (including principal, interest, taxes, insurance and any applicable late fees)
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the payment is less than 50% of the total amount due
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the payment is less than agreed to in a written repayment plan
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the payment is in the form of a personal check and the borrower has been advised that payment must be in the form of certified funds
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the delinquency is 6 months or more
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foreclosure has been initiated
It is the responsibility of the lender to return the payment within 10 calendar days and include a letter explaining the reasons for the returned payment.
Conventional Loans and Foreclosure
Conventional loans are mortgages originated by a lender that are bought by the Federal National Mortgage Association (FNMA or Fannie Mae) or the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac). Often referred to as "Fannie Mae loans" or "Freddie Mac loan", these types of loans require a borrower to exhibit good credit, stable and verifiable income, and are originated by institutional mortgage lenders.
When trying to prevent foreclosure on a conventional loan, the borrower is limited only by the options his or her lender offers. It is important to note that not all of the options listed below will be available to a borrower in default. It is at the sole discretion of the lender to offer alternatives to the borrower.
When deciding upon the options available to a borrower, the lender will initially try to determine the cause of the default, the condition of the borrower's financial situation, and how long the borrower will face the financial set back.
Borrowers that face a permanent financial crisis through death, divorce, or permanent disability and are unlikely to be able to support the monthly mortgage payment will have limited options available. These options generally involve the sale of the home or a deed-in-lieu of foreclosure (the transfer of title back to the lender). However, borrowers that are facing a temporary setback but who will be able to continue making the monthly mortgage payments in the future should qualify for additional options that may include forbearance, loan modification, mortgage refinancing, and additional loans against the home to cover the cost of the default.
Forbearance
Forbearance is an agreement between the lender and the borrower that reinstates the delinquent loan through the payment of a lump sum or a schedule of payments over a period of time. If a borrower is behind in his or her payment by $2,000, for example, the lender may allow the borrower to pay the money back through installment payments over six months. The lender may decide, on the other hand, to allow the borrower to pay a reduced monthly payment until the borrower has an opportunity to get back on his or her feet and pay any remaining arrearages in one lump sum.
The forbearance may be an oral agreement or written contract between the lender and the borrower. Generally these agreements will not exceed more than 12 months.
Loan Modification
A loan modification is a change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the loan, or other options at the lender's discretion to assist the borrower through a temporary set back.
Generally a lender will consider a loan modification when foreclosure is eminent and the borrower's income has been decreased or unable to make the mortgage payments, but will be able to keep the loan current after the loan modification.
Mortgage Refinancing
Mortgage refinancing is an option where the lender would allow the borrower to refinance his or her existing mortgage, wrap in any late payments and fees, and cash out part of his or her equity in the home to allow the borrower to regain control of a debilitating financial situation.
Refinances are generally open to borrowers that face a temporary set back in their financial situation, have shown outstanding credit history in the past, and can prove that he or she can support the new mortgage payment.
Second Mortgage
A lender may offer a second loan or junior lien to a borrower in order to make up any back payments, late fees and other charges necessary to reinstate the loan. The borrower, in return, will be required to make an additional mortgage payment to cover the principal and interest payments on the second loan. Interest rates often rival credit cards and should be looked at with caution.
Sale of the Home
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home.
In certain cases, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan. A borrower should check with his or her lender to discuss this option.
Deed-in-Lieu of Foreclosure (DIL)
A deed-in-lieu of foreclosure is a voluntary conveyance of title to the lender. Generally this is a last ditch effort by the borrower to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the borrower is often released of any personal responsibility for the mortgage.
In order to qualify for a DIL, most lenders state that there must not be a second mortgage or junior liens on the property. Properties with values in excess of the amount owed against the home (to include normal closing costs) should consider selling the property before voluntarily conveying the home to the lender.
Private Lenders and Foreclosure
Private lenders come in all shapes, sizes and forms. They range from private corporations, retirement or pension funds, a previous owner that offered seller financing or family members. The policy of allowing alternatives to foreclosure is determined strictly by the private lender. It is the lender's sole discretion to offer workouts, alternatives, or other options, assuming the lender is willing to work with the borrower.
To determine the options available, the borrower should contact the lender immediately and discuss his or her situation. A few options the borrower may want to mention to the lender are as follows:
Forbearance
Forbearance is an agreement between the lender and the borrower that reinstates the delinquent loan through the payment of a lump sum or a schedule of payments over a period of time. If a borrower is behind in his or her payment by $2,000, for example, the lender may allow the borrower to pay the money back through installment payments over six months. The lender may decide, on the other hand, to allow the borrower to pay a reduced monthly payment until the borrower has an opportunity to get back on his or her feet and pay any remaining arrearages in one lump sum.
The forbearance may be an oral agreement or written contract between the lender and the borrower. Generally these agreements will not exceed more than 12 months.
Loan Modification
A loan modification is a change in any of the terms of the original note. This includes decreasing the interest rate, re-amortizing the remaining balance, extending the term of the loan, or other options at the lender's discretion to assist the borrower through a temporary set back.
Generally a lender will consider a loan modification when foreclosure is eminent and the borrower's income has been decreased or unable to make the mortgage payments, but will be able to keep the loan current after the loan modification.
Mortgage Refinancing
Mortgage refinancing is an option where the lender would allow the borrower to refinance his or her existing mortgage, wrap in any late payments and fees, and cash out part of his or her equity in the home to allow the borrower to regain control of a debilitating financial situation.
Refinances are generally open to borrowers that face a temporary set back in their financial situation, have shown outstanding credit history in the past, and can prove that he or she can support the new mortgage payment.
Second Mortgage
A lender may offer a second loan or junior lien to a borrower in order to make up any back payments, late fees and other charges necessary to reinstate the loan. The borrower, in return, will be required to make an additional mortgage payment to cover the principal and interest payments on the second loan. Interest rates often rival credit cards and should be looked at with caution.
Sale of the Home
Selling a home is an alternative for borrowers that are unable to reinstate the loan and face eminent foreclosure. This option allows a home owner to try to salvage his or her credit, pay off the loan, and retain any remaining equity in the home. By informing the lender of this option, the lender may delay the foreclosure proceedings in order to allow sufficient time to sell the home.
In certain cases, the lender may allow the borrower to sell the home when the proceeds from the sale are not sufficient to pay off the existing loan. A borrower should check with his or her lender to discuss this option.
Deed-in-Lieu of Foreclosure (DIL)
A deed-in-lieu of foreclosure is a voluntary conveyance of title to the lender. Generally this is a last ditch effort by the borrower to avoid the negative consequences of foreclosure. In return for the voluntary conveyance to the lender, the borrower is often released of any personal responsibility for the mortgage.
In order to qualify for a DIL, most lenders state that there must not be a second mortgage or junior liens on the property. Properties with values in excess of the amount owed against the home (to include normal closing costs) should consider selling the property before voluntarily conveying the home to the lender.
The Effects of Foreclosure
For any home owner facing the threat of foreclosure, he or she should carefully consider every options before allowing the home to go to the mortgage company. Foreclosure has long lasting effects that can haunt a person for years down the road. Besides the obvious fact that a home owner will lose his or her house, there are other ramifications that will affect someone facing foreclosure including emotional and financial burdens.
The most common effects of foreclosure are:
1) losing the home.
2) losing all saved equity and appreciation in the home. Homes increase in value each year (in most cases). The longer a person lives in a home, the more the home's value increases. In addition, the more payments a person makes on a mortgage, the more he or she decreases the balance owed against the home. In many cases the combination of the equity and appreciation can translate into the home owner losing thousands of dollars.
3) increased taxes. A lender that loses money from the sale of a foreclosed home must report the loss to the IRS. Subsequently, the IRS may require the previous owner to report the lender's loss as income on his or her next tax return and pay taxes on it.
4) inability to borrow money in the future. The most serious consequence facing a home owner is the immediate destruction of his or her credit profile. A foreclosure is a serious derogatory that will label a person as unworthy for credit. This derogatory remains on the credit report for at least 7 years. The result may be declined applications for credit, the inability to rent an apartment, not qualifying for employment, and a host of other implications for the person.
5) lawsuits. Though Arizona has anti-deficiency laws designed to protect home owners from lawsuits from lenders and other lien holders, a company may still be able to file a lawsuit for damages in some situations.
6) loss of employment. Some employers require their employees to maintain good credit histories. Notification of a foreclosure may be grounds for an employer to fire the person from his or her job.
7) loss of self-esteem. Emotionally the stress of foreclosure may have serious effects upon a person. The loss of his or her home may lead to depression, loss of self-esteem, embarrassment around family, friends, and others.
There are options when facing foreclosure. Free help and assistance is available for home owners facing the possibility of foreclosure.
Foreclosure and Bankruptcy
Many lawyers and so-called consumer advocates will preach the gospel of bankruptcy to any home owner facing foreclosure against his or her house. Filing bankruptcy, many explain, will stop foreclosure on the home and "save your credit" in the process.
The reality of this situation is bankruptcy should be considered as a last option. Filing for bankruptcy, whether it is a Chapter 7 or a Chapter 13 bankruptcy, will have only provide temporary solutions with lasting negative consequences.
Bankruptcy is a federal court action designed for consumers to assist them in repaying their debts (a reorganization bankruptcy) or eliminating the debts all together (a liquidation bankruptcy).
Reorganization bankruptcies are commonly referred to as Chapter 13 bankruptcies. Filing for a Chapter 13 bankruptcy immediately stops all creditors from taking further action against someone. With the assistance of a court appointed trustee, the court establishes a repayment plan to pay back all or part of the debts owing. This plan is based upon all non-exempt assets owned by the individual(s), the amount of non-exempt income, and the person's overall ability to pay back the debt. The repayment period generally last between three to five years.
Liquidation bankruptcies are commonly referred to as Chapter 7 bankruptcies. Like a Chapter 13, a Chapter 7 bankruptcy immediately stops all actions taken by creditors to collect on debts owed. Unlike Chapter 13 bankruptcy, a Chapter 7 liquidates the debts owed and wipes the slate clean. However, an individual will have to turn over all non-exempt property (or its cash equivalent) over to the court as payment for those debts. This includes real estate, cars, jewelry, furniture, investment accounts, 401K's, and other assets not covered in Arizona law. The entire process generally takes three to six months at most.
When facing foreclosure, an automatic stay goes into effect when bankruptcy is filed. This stay prohibits creditors from attempting to collect the money that is owed. This includes stopping the foreclosure process in its tracks.
Though this may sound like an easy solution to anyone's foreclosure woes, if a person is behind in his or her house payments, he or she will almost certainly lose the house under a Chapter 7 bankruptcy. In this situation, the mortgage company will petition the court to release the automatic stay in order to continue with the foreclosure process. A Chapter 13, on the other hand, may allow an individual to retain the house if the home owner is able to start making the normal house payments and repay any deficiencies through the court ordered repayment plan.
However, the bankruptcy court may order an individual to sell the house in order to use the equity to pay off some of the debt. In addition, filing for bankruptcy may result in the loss of other personal property. As mentioned before, an individual must give the court any non-exempt property in order to pay back the creditors. Non-exempt property may include family heirlooms, boats, cars, stamp or coin collections, expensive musical instruments, stocks, bonds, artwork, and other personal property.
Bankruptcy should not be used to stop foreclosure unless there are other mitigating circumstances that call for the protection of bankruptcy. Very rarely does a situation warrant the need for bankruptcy since there are many options available to a home owner facing foreclosure.
It is important for someone to weigh every alternative available before deciding on a course of action.
Arizona Foreclosure Laws and Statutes
The following section are excerpts from the Arizona Revised Statutes, Title 33, Chapter 6.1 - Deeds of Trusts, which outlines the rules, regulations, and procedures for foreclosure in Arizona.
Use the table of contents below to assist navigating through the laws.
33-807 Sale of trust property; power of trustee; foreclosure of trust deed
33-808 Notice of trustee's sale
33-809 Request for copies of notice of sale; mailing by trustee or beneficiary; 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
33-814 Action to recover balance after sale or foreclosure on property under trust deed
33-807. Sale of trust property; power of trustee; foreclosure of trust deed
A. By virtue of his position, a power of sale is conferred upon the trustee of a trust deed under which the trust property may be sold, in the manner provided in this chapter, after a breach or default in performance of the contract or contracts, for which the trust property is conveyed as security, or a breach or default of the trust deed. At the option of the beneficiary a trust deed may be foreclosed in the manner provided by law for the foreclosure of mortgages on real property in which event the provisions of chapter 6 of this title govern the proceedings. The beneficiary or trustee shall constitute the proper and complete party plaintiff in any action to foreclose a deed of trust. The power of sale may be exercised by the trustee without express provision therefore in the trust deed.
B. The trustee or beneficiary may file and maintain an action to foreclose a deed of trust at any time before the trust property has been sold under the power of sale. A sale of trust property under the power of sale shall not be held after an action to foreclose the deed of trust has been filed unless the foreclosure action has been dismissed.
C. The trustee or beneficiary may file an action for the appointment of a receiver according to sections 12-1241 and 33-702. The right to appointment of a receiver shall be independent of and may precede the exercise of any other right or remedy.
D. The power of sale of trust property conferred upon the trustee shall not be exercised before the expiration of ninety days from the recording of the notice of the sale.
E. The trustee need only be joined as a party in legal actions pertaining to a breach of the trustee's obligation under this chapter or under the deed of trust. Any order of the court entered against the beneficiary is binding upon the trustee with respect to any actions which the trustee is authorized to take by the trust deed or by this chapter. If the trustee is joined as a party in any other action, the trustee is entitled to be immediately dismissed and to recover costs and reasonable attorney fees from the person joining the trustee.
33-808. Notice of trustee's sale
A. The trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods:
1. Recording a notice in the office of the recorder of each county where the trust property is situated.
2. Giving notice as provided in section 33-809 to the extent applicable.
3. Posting a notice, at least twenty days before the date of sale in some conspicuous place on the trust property to be sold, if posting can be accomplished without a breach of the peace. If access to the trust property is denied because a common entrance to the property is restricted by a limited access gate or similar impediment, the property shall be posted by posting notice at that gate or impediment. Notice shall also be posted at one of the places provided for posting public notices at any building that serves as a location of the superior court in the county where the trust property is to be sold. Posting is deemed completed on the date the first notice is posted.
4. Publication of sale notice in a newspaper of general circulation in each county in which trust property to be sold is situated. Sale notice shall be published at least once a week for four consecutive weeks. The last date of publication shall not be less than ten days prior to the date of sale. Publication is deemed completed on the date of the first publication of notice pursuant to this paragraph.
B. The sale shall 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. at a specified place on the trust property, at a specified place at any building that serves as a location of the superior court or at a specified place at a place of business of the trustee, in any county in which part of the trust property to be sold is situated.
C. The notice of sale shall contain:
1. The date, time and place of the sale. This date shall be at least ninety days after the date that the notice of sale was recorded.
2. The street address, if any, or identifiable location as well as the legal description of the trust property.
3. The county assessor's tax parcel number for the trust property or the tax parcel number of a larger parcel of which the trust property is a part.
4. The original principal balance as shown on the deed of trust. If the amount is not shown on the deed of trust, it shall be listed as "unspecified".
5. The names and addresses, as of the date the notice of sale is recorded, of the beneficiary and the trustee, the name and address of the original trustor as stated in the deed of trust, the signature of the trustee and the basis for the trustee's qualification pursuant to section 33-803, subsection A. The address of the beneficiary shall not be in care of the trustee or trustee's agent.
6. The telephone number of the trustee.
D. The notice of sale shall be sufficient if made in substantially the following form:
Notice of Trustee's Sale
The following legally described trust property will be sold, pursuant to the power of sale under that certain trust deed recorded in docket or book _______________________ at page __________ records of ______________ county, Arizona, at public auction to the highest bidder at (specific place of sale as permitted by law) _______________, in _______________ county, in or near _______________, Arizona, on ________, ____, at ___________ o'clock ___m. of said day:
(street address if any, or identifiable location of trust property)
(legal description of trust property)
Tax parcel number _______________
Original principal balance $________________________
Name and address of beneficiary_______________________________
______________________________
______________________________
Name and address of original trustor__________________________
_________________________
_________________________
Name and address of trustee___________________________________
__________________________________
__________________________________
Signature of trustee _____________________________
Manner of trustee qualification ___________________________
Dated this _____________ day of ______________, ____.
(Acknowledgement)
E. Any error or omission in the information required by subsection C or D of this section, other than an error in the legal description of the trust property or an error in the date, time or place of sale, shall not invalidate a trustee's sale. Any error in the legal description of the trust property shall not invalidate a trustee's sale if considered as a whole the information provided is sufficient to identify the trust property being sold. The trustee or any person furnishing information to the trustee shall not be subject to liability for any error or omission in the information required by subsection C of this section except for the willful and intentional failure to provide such information. This subsection does not apply to claims made by an insured under any policy of title insurance.
33-809. Request for copies of notice of sale; mailing by trustee or beneficiary; disclosure of information regarding trustee sale
A. A person desiring a copy of a notice of sale under a trust deed, at any time subsequent to the recording of the trust deed and prior to the recording of a notice of sale pursuant thereto, shall record in the office of the county recorder in any county in which part of the trust property is situated a duly acknowledged request for a copy of any such notice of sale. The request shall set forth the name and address of the person or persons requesting a copy of such notice and shall identify the trust deed by setting forth the county, docket or book and page of the recording data thereof and by stating the names of the original parties to such deed, the date the deed was recorded and the legal description of the entire trust property and shall be in substantially the following form:
Request for Notice
Request is hereby made that a copy of any notice of sale under the trust deed recorded in docket or book ___________ at page ________, records of ______________ county, Arizona, ___________, ____,
(legal description of trust property)
Executed by _____________________ as trustor, in which ________________ is named as beneficiary and ___________________ as trustee, be mailed to _________________ at ___________________.
Dated this _______________ day of ___________, ____.
___________________
Signature
(Acknowledgement)
B. Not later than thirty days after recording the notice of sale, the trustee or beneficiary shall mail by certified or registered mail, with postage prepaid, a copy of the sale notice which reflects the recording date together with any notice required to be given by subsection C of this section, addressed as follows:
1. To each person whose name and address are set forth in a request for notice, which has been recorded prior to the recording of the notice of sale, directed to the address designated in such request.
2. To each person who, at the time of recording of the notice of sale, appears on the records of the county recorder in the county in which any part of the trust property is situated to have an interest in any of the trust property. The copy of the notice sent pursuant to this paragraph shall be addressed to the person whose interest appears of record at the address set forth in the document. If no address for the person is set forth in the document, the copy of the notice may be addressed in care of the person to whom the recorded document evidencing such interest was directed to be mailed at the time of its recording or to any other address of the person known or ascertained by the trustee. If the interest which appears on the records of the county recorder is a deed of trust, a copy of the notice only needs to be mailed to the beneficiary under the deed of trust. If any person having an interest of record or the trustor, or any person who has recorded a request for notice, desires to change the address to which notice shall be mailed, the change shall be accomplished by a request as provided under this section.
C. The trustee or beneficiary, within five business days after the recordation of a notice of sale, shall mail by certified or registered mail, with postage prepaid, a copy of any notice of sale to each of the persons who were parties to the trust deed except the trustee. The copy of the notice mailed to the parties need not show the recording date of the notice. The notice sent pursuant to this subsection shall be addressed to the mailing address specified in the trust deed. In addition, notice to each party shall contain a statement that a breach or nonperformance of the trust deed or the contract or contracts secured by the trust deed, or both, has occurred, and setting forth the nature of such breach or nonperformance and of the beneficiary's election to sell or cause to be sold the trust property under the trust deed and the additional notice shall be signed by the beneficiary or the beneficiary's agent. A copy of the additional notice shall also be sent with the notice provided for in subsection B, paragraph 2 of this section to all persons whose interest in the trust property is subordinate in priority to that of the deed of trust along with a written statement that the interest may be subject to being terminated by the trustee's sale. The written statement may be contained in the statement of breach or nonperformance.
D. No request for a copy of a notice recorded pursuant to this section, nor any statement or allegation in any request, nor any record of request, shall affect the title to the trust property or be deemed notice to any person that a person requesting a copy of notice of sale has or claims any interest in, or claim upon the trust property.
E. At any time that the trust deed is subject to reinstatement pursuant to section 33-813, but not sooner than thirty days after recordation of the notice of trustee's sale, the trustee shall upon receipt of a written request, provide, if actually known to the trustee, the following information relating to the trustee's sale and the trust property:
1. The unpaid principal balance of the note or other obligation which is secured by the deed of trust.
2. The name and address of record of the owner of the trust property as of the date of recordation of the notice of trustee's sale.
3. A list of the liens and encumbrances upon the trust property as of the date of recordation of the notice of trustee's sale, excluding those matters set forth in section 33-438, subsection A.
If the trustee elects to charge a fee for providing the information requested, the fee shall not exceed one-twentieth of the amount the trustee may charge pursuant to section 33-813, subsection B, paragraph 4, except that the trustee shall not be required to accept a fee less than twenty dollars but may accept a lesser fee at the trustee's discretion. The trustee, or any other person furnishing information pursuant to this subsection to the trustee, shall not be subject to liability for any error or omission in providing the information requested, except for the willful and intentional failure to provide information in the trustee's actual possession.
F. Beginning at 9:00 a.m. and continuing until 5:00 p.m. on the last business day preceding the day of sale and beginning at 9:00 a.m. and continuing until the time of sale on the day of the sale, the trustee shall provide to any person who requests it the actual bid or credit bid the beneficiary is entitled to make at the sale. If the trustee is unable to provide the credit bid during the prescribed time period, the trustee shall postpone the sale until the trustee is able to comply with this subsection.
G. In providing information pursuant to subsections E and F of this section, the trustee may, without obligation or liability for the accuracy or completeness of the information, respond to oral requests, respond orally or in writing or provide additional information not required by such subsections. With respect to property which is the subject of a trustee's sale, the beneficiary of such deed of trust or the holder of any prior lien may, but shall not be required to, provide information concerning such deed of trust or any prior lien which is not required by subsection E or F of this section and may charge a reasonable fee for providing the information. The providing of such information by any beneficiary or holder of a prior lien shall be without obligation or liability for the accuracy or completeness of the information.
33-810. Sale by public auction; postponement of sale
A. On the date and at the time and place designated in the notice of sale, the trustee shall offer to sell the trust property at public auction for cash to the highest bidder. The attorney or agent for the trustee may conduct the sale and act at such sale as the auctioneer for the trustee. Any person, including the trustee or beneficiary, may bid at the sale. Only the beneficiary may make a credit bid in lieu of cash at sale. The trustee shall require every bidder except the beneficiary to provide a one thousand dollar deposit in cash or in any other form that is satisfactory to the trustee as a condition of entering a bid. The trustee shall not refuse cash as a form of payment of the bidder's deposit. Every bid shall be deemed an irrevocable offer until the sale is completed, except that a subsequent bid by the same bidder for a higher amount shall cancel that bidder's lower bid. To determine the highest price bid, the trustor or beneficiary present at the sale may recommend the manner in which the known lots, parcels or divisions of the trust property be sold. The trustee shall conditionally sell the trust property under each recommendation, and, in addition, shall conditionally sell the trust property as a whole. The trustee shall determine which conditional sale or sales result in the highest total price bid for all of the trust property. The trustee shall return deposits to all but the bidder or bidders whose bid or bids result in the highest bid price. The sale shall be completed on payment by the purchaser of the price bid in a form satisfactory to the trustee. The subsequent execution, delivery and recordation of the trustee's deed as prescribed by section 33-811 are ministerial acts. If the trustee's deed is recorded in the county in which the trust property is located within fifteen business days after the date of the sale, the trustee's sale is deemed perfected at the appointed date and time of the trustee's sale.
B. The person conducting the sale may, for any cause deemed in the interest of the beneficiary or trustor, or both, postpone or continue the sale from time to time or change the place of the sale to any other location authorized pursuant to this chapter by giving notice of the new date, time and place by public declaration at the time and place last appointed for the sale. Any new sale date shall be a fixed date within ninety calendar days of the date of the declaration. No other notice of the postponed, continued or relocated sale is required except as provided in subsection C of this section.
C. A sale shall not be complete if the sale as held is contrary to or in violation of any federal statute in effect because of an unknown or undisclosed bankruptcy. A sale so held shall be deemed to be continued to a date, time and place announced by the trustee at the sale and shall comply with subsection B of this section or, if not announced, shall be continued to the same place and at the same time twenty-eight days later, unless the twenty-eighth day falls on a Saturday or legal holiday, in which event it shall be continued to the first business day thereafter. In the event a sale is continued because of an unknown or undisclosed bankruptcy, the trustee shall notify by registered or certified mail, with postage prepaid, all bidders who provide their names, addresses and telephone numbers in writing to the party conducting the sale of the continuation of the sale.
33-811. Payment of bid; trustee's deed
A. The highest bidder at the sale, other than the beneficiary to the extent of the credit bid, shall pay the price bid by no later than 5:00 p.m. of the following day, other than a Saturday or legal holiday. If the highest bidder fails to pay the amount bid for the property struck off to the bidder at the sale, the trustee, in the trustee's sole discretion, shall either continue the sale to reopen bidding or immediately offer the trust property to the second highest bidder who may purchase the trust property at that bidder's bid price. The deposit of the highest bidder who fails to pay the amount bid shall be forfeited and shall be treated as additional sale proceeds to be applied in accordance with section 33-812, subsection A. If the second highest bidder does not pay that bidder's bid price by 5:00 p.m. of the next day excluding Saturdays and legal holidays after the property has been offered to that bidder by the trustee, the trustee shall either continue the sale to reopen bidding or offer the trust property to each of the prior bidders on successive days excluding Saturdays and legal holidays in order of their highest bid, until a bid price is paid, or if there is no other bidder, the sale shall be deemed to be continued to a time and place designated by the trustee, or if not designated, the sale shall be continued to the same place and at the same time twenty-eight days after the last scheduled sale date. If the twenty-eighth day is a Saturday or legal holiday, the sale shall be continued to the next business day. If the sale is continued, the trustee shall provide notice of the continuation of the sale by registered or certified mail, with postage prepaid, to all bidders who provide their names, addresses and telephone numbers in writing to the party conducting the sale. In addition to the forfeit of deposit, a highest bidder who fails to pay the amount bid by that bidder is liable to any person who suffers loss or expenses as a result, including attorney fees. In any subsequent sale of trust property, the trustee may reject any bid of that person. In any sale that is continued pursuant to this subsection, the trustee shall reject the bid from any previous bidder who elected not to pay that bidder's bid price.
B. The price bid shall be paid at the office of the trustee or the trustee's agent, or any other reasonable place designated by the trustee. The payment of the bid price may be made at a later time if agreed upon in writing by the trustee. The trustee shall execute and deliver the trustee's deed to the purchaser within seven business days after receipt of payment by the trustee or the trustee's agent made in a form that is satisfactory to the trustee. The trustee's deed shall raise the presumption of compliance with the requirements of the deed of trust and this chapter relating to the exercise of the power of sale and the sale of the trust property, including recording, mailing, publishing and posting of notice of sale and the conduct of the sale. A trustee's deed shall constitute conclusive evidence of the meeting of those requirements in favor of purchasers or encumbrancers for value and without actual notice. Knowledge of the trustee shall not be imputed to the beneficiary.
C. The trustee's deed shall operate to convey to the purchaser the title, interest and claim of the trustee, the trustor, the beneficiary, their respective successors in interest and all persons claiming the trust property sold by or through them, including all interest or claim in the trust property acquired subsequent to the recording of the deed of trust and prior to delivery of the trustee's deed. That conveyance shall be absolute without right of redemption and clear of all liens, claims or interests that have a priority subordinate to the deed of trust and shall be subject to all liens, claims or interests that have a priority senior to the deed of trust.
33-812. Disposition of proceeds of sale
A. The trustee shall apply the proceeds of the trustee's sale in the following order of priority:
1. To the costs and expenses of exercising the power of sale and the sale, including the payment of the trustee's fees and reasonable attorney's fees actually incurred.
2. To the payment of the contract or contracts secured by the trust deed.
3. To the payment of all other obligations provided in or secured by the trust deed.
4. To the junior lienholders or encumbrancers in order of their priority as they existed at the time of the sale. After payment in full to all junior lienholders and encumbrancers payment shall be made to the trustor.
B. The trustee may, in his discretion, instead of any one or more of the applications specified in subsection A of this section, elect to deposit the balance of such proceeds with the county treasurer in the county in which the sale took place pending an order of the superior court of the county. Upon deposit of the balance of such monies and after giving notice of the deposit as prescribed by subsection C of this section, the trustee shall be discharged from all responsibility for acts performed in good faith according to the provisions of this chapter.
C. If the trustee elects to deposit the balance of the sale proceeds as prescribed by subsection B of this section, the trustee shall mail by certified or registered mail, with postage prepaid, written notice of the deposit to all parties other than the beneficiary who are entitled to notice pursuant to section 33-809 and any other party with an interest of record in the property at the time of the sale. The notice shall include a list of the liens and encumbrances on the trust property that are known to the trustee and a list of the parties and the addresses to which the notice was mailed. The trustee may withhold from the proceeds of the sale the costs of depositing the proceeds and mailing the notices and a reasonable fee.
D. Any party who has an interest in the proceeds that are deposited pursuant to subsection B of this section may apply for the release of the proceeds by filing a civil action in the superior court in the county in which the proceeds are deposited. The action shall name the applicable county treasurer as the defendant. An applicant shall mail copies of the application to all parties who were mailed a notice of deposit. Any party who claims a right to the proceeds shall file a response to the application within twenty days of the mailing of the application and shall mail copies of the response to all parties. The applicant may file and mail a reply to the response within ten calendar days of the mailing of the response. After the expiration of the time for filing a reply, the court may hold a hearing and shall issue an order directing the county treasurer to release the proceeds to the person who is entitled to receive them.
E. The trustee shall dispose of the proceeds of the sale pursuant to this section within ninety days after completion of the sale.
33-813. Default in performance of contract secured; reinstatement; cancellation of recorded notice of sale
A. If, prior to the maturity date fixed by the contract or contracts, all or a portion of a principal sum or interest of the contract or contracts secured by a trust deed becomes due or is declared due by reason of a breach or default in the performance of the contract or contracts or of the trust deed, the trustor or the trustor's successor in interest, any person having a subordinate lien or encumbrance of record thereon or any beneficiary under a subordinate trust deed may, before 5:00 p.m. on the last day other than a Saturday or legal holiday before the date of sale or the filing of an action to foreclose the trust deed, reinstate by paying to the beneficiary, the trustee or the trustee's agent in a form acceptable to the beneficiary or the trustee the entire amount then due under the terms of the contract or contracts or trust deed, other than the portion of the principal as would not then be due had no default occurred, by curing all other defaults and by paying the amounts due under subsection B of this section.
B. The beneficiary shall notify the trustee in writing of the performance and the name of the person who performed the conditions. The proceedings shall be cancelled and the contract or contracts and trust deed shall be deemed reinstated and in force as if no breach or default had occurred upon performance of those of the following which may be applicable:
1. Payment of the entire amount then due.
2. Payment of costs and expenses incurred in enforcing the terms of such contract or trust deed.
3. Payment of the recording fee for a cancellation of notice of sale.
4. Payment of the trustee's fees, in an amount not to exceed six hundred dollars or one-half of one per cent of the entire unpaid principal sum secured, whichever is greater.
5. Payment of expenses and reasonable attorney fees that are not otherwise provided for in this section and that are incurred in protecting and preserving the beneficiary's interest in the trust property.
C. Upon request, the trustee shall provide to the trustor, or any person entitled to notice pursuant to section 33-809, subsection B, at any time that the trust deed is subject to reinstatement, a good faith estimate of the sums which appear necessary to reinstate the trust deed, separately specifying costs, fees, accrued interest, unpaid principal balance and any other amounts which are required to be paid as a condition to reinstatement of the trust deed.
D. If the trust deed is reinstated as provided in subsection B of this section, the trustee shall have a cancellation of the notice of sale recorded in the same county recorder's office where the notice of sale was recorded. A trustee who, for thirty days after reinstatement, fails to have proper notice of the cancellation of the notice of sale recorded is liable to the person who performed the conditions resulting in reinstatement for all actual damages resulting from such failure.
E. If the trust deed is paid in full or if the sale is not held or is not properly postponed pursuant to this chapter, the trustee shall record a cancellation of the notice of sale. The cancellation of the notice of sale shall be recorded in the office of the county recorder in which the notice of sale was recorded.
F. An acknowledged recorded cancellation of a recorded notice of sale under a trust deed shall be sufficient if it is in substantially the following form:
Cancellation of Notice of Sale
The undersigned hereby cancels the notice of sale recorded _______________, ____, on trust property legally described as:
(legal description of trust property)
which notice of sale refers to a trust deed executed by ________________ as trustor, in which ____________ is named as beneficiary and ____________ as trustee, and recorded ___________, ____, in docket or book ________, at page __________, records of ______________ county, Arizona.
Dated this _____________ day of __________, ____.
_____________________________
Signature of trustee
(Acknowledgement)
33-814. Action to recover balance after sale or foreclosure on property under trust deed
A. Except as provided in subsections F and G of this section, within ninety days after the date of sale of trust property under a trust deed pursuant to section 33-807, an action may be maintained to recover a deficiency judgment against any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security including any guarantor of or surety for the contract and any partner of a trustor or other obligor which is a partnership. In any such action against such a person, the deficiency judgment shall be for an amount equal to the sum of the total amount owed the beneficiary as of the date of the sale, as determined by the court less the fair market value of the trust property on the date of the sale as determined by the court or the sale price at the trustee's sale, whichever is higher. A written application for determination of the fair market value of the real property may be filed by a judgment debtor with the court in the action for a deficiency judgment or in any other action on the contract which has been maintained. Notice of the filing of an application and the hearing shall be given to all parties to the action. The fair market value shall be determined by the court at a priority hearing upon such evidence as the court may allow. The court shall issue an order crediting the amount due on the judgment with the greater of the sales price or the fair market value of the real property. "Fair market value" shall mean the most probable price, as of the date of the execution sale, in cash, or in terms equivalent to cash, or in other precisely revealed terms, after deduction of prior liens and encumbrances with interest to the date of sale, for which the real property or interest therein would sell after reasonable exposure in the market under conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under duress. Any deficiency judgment recovered shall include interest on the amount of the deficiency from the date of the sale at the rate provided in the deed of trust or in any of the contracts evidencing the debt, together with any costs and disbursements of the action.
B. If a trustee's sale is a sale of less than all of the trust property or is a sale pursuant to one of two or more trust deeds securing the same obligation, the ninety day time limitations of subsection A of this section shall begin on either the date of the trustee's sale of the last of the trust property to be sold or the date of sale under the last trust deed securing the obligation, whichever occurs last.
C. The obligation of a person who is not a trustor to pay, satisfy or purchase all or a part of the balance due on a contract secured by a trust deed may be enforced, if the person has so agreed, in an action regardless of whether a trustee's sale is held. If, however, a trustee's sale is held, the liability of a person who is not a trustor for the deficiency is determined pursuant to subsection A of this section and any judgment for the deficiency against the person shall be reduced in accordance with subsection A of this section. If any such action is commenced after a trustee's sale has been held, it is subject, in addition, to the ninety day time limitations of subsections A and B of this section.
D. If no action is maintained for a deficiency judgment within the time period prescribed in subsections A and B of this section, the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist.
E. Except as provided in subsection F of this section, the provisions of this chapter do not preclude a beneficiary from foreclosing a deed of trust in the same manner as a real property mortgage. In an action for the foreclosure of a deed of trust as a real property mortgage the provisions of chapter 6, article 2 of this title are applicable.
F. A deed of trust may, by express language, validly prohibit the recovery of any balance due after trust property is sold pursuant to the trustee's power of sale, or the trust deed is foreclosed in the manner provided by law for the foreclosure of mortgages on real property.
G. 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. |
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