In Arizona, if you fall behind on your home mortgage payments for long enough, your mortgage servicer may begin foreclosure proceedings against you. Losing your home to foreclosure is not inevitable. 

Depending on your circumstances, you may be able to use one of multiple paths to get current on your mortgage, work with your home lender on an alternative payment strategy, or use federal bankruptcy protection to help keep your home.

At Stone Rose Law, we help Arizona homeowners understand their options in debt relief and foreclosure. For help from one of our attorneys, call us at (480) 739-2448.

How Does the Foreclosure Process Work?

Foreclosure is a legal process governed by Arizona law. Home lenders must carefully follow specific requirements to legally foreclose on your home. Here is a general outline of how a foreclosure progresses from start to finish.

Missed Payments

The sole reason for a foreclosure is financial: specifically, the borrower’s inability to keep up with the monthly payment schedule agreed to when contracting with the loan servicer to purchase the home.

As soon as you start missing mortgage payments, your lender will begin monitoring your trust deed or mortgage account. For most federally regulated mortgage loans, federal law generally prohibits servicers from initiating foreclosure until a borrower is more than 120 days delinquent, but Arizona law does not impose this waiting period.

The Notice of Default

For deeds of trust, after 120 days have passed, the trustee records a Notice of Trustee’s Sale with the county recorder. For judicial foreclosure, the lender files a lawsuit in superior court.

Pre-Foreclosure Negotiations

Once you receive the Notice of Default letter, you will usually have some time to catch up with your missed payments or to negotiate with your lender for an alternative payment arrangement.

  • If you are able to catch up with your missed payments, the foreclosure will end and you will continue paying off your house as normal.
  • If you cannot catch up with your payments or work something out with your home lender in the alternative, your foreclosure will proceed.

Types of Foreclosure Actions in Arizona

In Arizona, home lenders have two foreclosure options: non-judicial foreclosure and judicial foreclosure.

Judicial Foreclosure for Mortgage Debts

If you have a mortgage on your home, or in cases with certain kinds of deeds of trust, your mortgage lender will need to resort to judicial foreclosure.

Arizona Revised Statutes (ARS)Section 33-721 is Arizona’s judicial foreclosure law. It provides:

“Mortgages of real property and deeds of trust of a type not included in the definition of deed of trust provided in section 33-801, notwithstanding any other provision in the mortgage or deed, shall be foreclosed by action in a court.” [Emphasis added]

Under the provisions of ARS 33-721, if you have a mortgage, the lender must use the judicial foreclosure process, even if the terms of the mortgage loan provide for non-judicial foreclosure.

Under the judicial foreclosure process, your mortgage lender must file a complaint and serve it on you. You then have a deadline to submit an answer to the complaint.

  • If you do not answer, the lender may obtain a default judgment against you.
  • If you file an answer, the case proceeds like a civil court trial would, including legal discovery and potentially a trial. If the lender prevails at trial, the court will issue a foreclosure judgment against you.

After the court issues a foreclosure judgment, it will order your property to be sold at a public auction. This is usually conducted by your county sheriff’s office. This sale is typically held within a few months after the judgment.

After the sale, under ARS 33-814, if the property has more than 2.5 acres or is not being used as a single-family dwelling, the lender may seek a deficiency judgment against you if the sale proceeds do not cover the outstanding debt.

The judicial foreclosure process gives you certain rights. These include the right to reinstate the loan by paying all past-due amounts plus fees and costs before the foreclosure sale. You also have a statutory right of redemption to reclaim the property by paying the full sale price plus costs within a specified period after the sale.

The entire judicial foreclosure process generally takes nine to 12 months if there is no significant litigation or bankruptcy involved.

Non-Judicial Foreclosure for Deeds of Trust

In Arizona, most home sales do not use mortgages but deeds of trust. The difference between these two financing mechanisms is that a mortgage is a contract directly between you and the lender, while a deed of trust adds a trustee who holds the legal title to the property as security for the home purchase loan.

Instead of a sheriff’s sale used in judicial foreclosure, the non-judicial foreclosure process uses a trustee’s sale. As we will see below, this is an important difference.

Because deeds of trust are the prevalent way people buy homes in Arizona, non-judicial foreclosure is more common than judicial foreclosure. 

Many lenders prefer non-judicial foreclosure because it does not require court involvement and does not allow a right of redemption after the trustee sale of the property, although it does not allow deficiency judgments on residential properties of 2.5 acres or less that are used as a one- or two-family dwelling.

To begin a non-judicial foreclosure in Arizona, the trustee records a notice of trustee sale in your county’s land records office. Under ARS 33-808(C)(1), the sale date cannot be any sooner than 91 days after the date the trustee records the notice.

The trustee will mail the notice of sale to you by certified mail within five business days after recording it. The trustee will also publish the notice of sale in a newspaper for four consecutive weeks, post it on the property at least 20 days before the sale (if posting can be accomplished without a breach of the peace), and post the notice in the court building.

Before the trustee’s sale, you have a statutory right to reinstate the loan by curing defaults; there is no right of redemption after a trustee’s sale. At the sale, the lender will usually make a credit bid on the property up to the total amount owed. If the lender is the high bidder at the sale but bids less than the total debt amount, it can get a deficiency judgment against you, subject to certain restrictions .

But if a bidder other than the lender is the high bidder and offers more than you owe, you may be entitled to the excess sale proceeds.

Post-Foreclosure Proceedings

As in a judicial foreclosure sale, the lender typically buys back the house if there are no cash bidders or their bids are not high enough to satisfy the lender. 

If a third party does not buy the house at the trustee sale and the mortgage lender or bank now owns the property, the bank or lender will continue trying to resell it.

During this time, if you are still in the house, the new owner can move to have you evicted. 

What Are Your Possible Foreclosure Defenses in Arizona?

Your possible defenses against foreclosure depend on the facts of your situation. These include whether you can make up the missed payments before the sale of the property, how amenable your mortgage lender or trustee is to alternative payment arrangements, whether you are an active-duty member of the United States military, whether the lender or the trustee has properly followed Arizona’s applicable foreclosure requirements, and how willing or able you are to consider bankruptcy.

You may have options to prevent foreclosure short of filing for bankruptcy. We present some of the more common strategies below.

Reinstating Your Loan

If you can come up with funds to pay off your missed payments, your lender may allow you to continue paying your loan without taking any legal action.

Modifying Your Existing Loan

This option is best used before you start falling behind on your payments. If you believe you may be unable to keep up with your payment schedule, you may reach out to your lender to see if it will agree to a loan modification. 

Refinancing Your Loan

In some situations, it may be possible to refinance your loan if you can arrange for lower payments, a lower interest rate, or both.

Negotiate a Repayment Plan

If you are falling behind on your current payment schedule but can still make payments, you might approach your lender to see if it will consider a repayment plan. A repayment plan allows you to make an additional payment on top of your monthly payment so you can gradually get current again.

Negotiate a Forbearance Agreement

If your circumstances are such that you have lost your employment or something else has happened to temporarily disrupt your ability to make your monthly payments, sometimes a lender may be willing to enter into a forbearance agreement with you.

Under a forbearance agreement, if you can show your lender that your current financial difficulty is not your fault and temporary, it may allow you to make lower payments (or even no payments) while you get back on your feet again.

Sell Your Home

If you can do so without still owing money on the loan, selling your home may be a practical choice to avoid foreclosure. In some situations, a short sale (selling your home for less than you currently owe) may be an option. Many lenders know that if they have to foreclose, the home will likely sell for less than its appraised price.

Deed in Lieu of Foreclosure

If none of the options above are available to you, and you do not want to consider bankruptcy, your lender may agree to a deed in lieu of foreclosure. This means that you hand over the deed of your property to the lender in exchange for canceling the remaining debt you may owe on the loan.

Consider Debt Consolidation

If you need to make more money available in your budget to keep up with your home loan payments and are paying off other debts like credit cards or personal loans, then debt consolidation may allow you to combine these other high-interest debts into one lower-interest loan.

Alternatively, you may be able to negotiate a debt settlement with your other creditors for less than the full amounts you owe.

Are You an Active-Duty Service Member?

The federal Servicemembers Civil Relief Act (the SCRA) provides legal protections to active-duty military personnel who are subject to foreclosure.

Arizona has its own equivalent to the SCRA to ensure that members of the Arizona National Guard and U.S. Armed Forces Reserves ordered to perform active duty or training can receive protections similar to those under the SCRA.

Consult With a HUD-Approved Housing Counselor

Housing counseling agencies and the U.S. Department of Housing and Urban Development (HUD) can give you guidance on how to stop a foreclosure in Arizona, and may be able to help you take advantage of federal and Arizona programs to help prevent foreclosure.

  • Federal foreclosure-prevention assistance is now primarily available through servicer-specific modification programs and HUD-approved housing counseling.
  • Arizona has previously offered foreclosure-assistance programs such as Save Our Home AZ, although availability depends on current funding and program status.

Consult With a Non-Profit Organization

Some non-profit organizations help homeowners who are having trouble paying their mortgage or trust deed by providing free services and resources such as housing counseling, education workshops, and financial aid. 

An example is the Neighborhood Assistance Corporation of America.

Can Bankruptcy Stop Foreclosure?

Another option to stop foreclosure in Arizona, especially when alternatives like those we discussed above are not practical, and foreclosure is imminent, is to use federal bankruptcy laws under Chapter 7 or Chapter 13.

Once you file for bankruptcy, the bankruptcy automatic stay will at least temporarily keep your lender from foreclosing on your home or trying to collect on what you owe. The question is whether bankruptcy can enable you to keep your home.

Chapter 7 Bankruptcy and Foreclosure

A Chapter 7 bankruptcy can delay the foreclosure process, but will not stop it entirely. This kind of bankruptcy will discharge most of your debts, but you may have to give up your home. Chapter 7 bankruptcy temporarily stops foreclosure through the automatic stay, but lenders often seek relief from the stay, and the duration varies by case.

But unlike a Chapter 13 bankruptcy, it does not provide for a debt repayment plan, and if your home is not protected by an exemption under federal or Arizona law, then it may still be subject to a forced sale.

Chapter 13 Bankruptcy and Foreclosure

Chapter 13 bankruptcy is also known as “reorganization” bankruptcy because it lets you reorganize your debt and use a debt repayment plan to pay off your debts over three to five years. Chapter 13 bankruptcy may allow you to keep your home by repaying your missed mortgage payments through the Chapter 13 plan and resuming regular mortgage payments after the plan is filed. Both the missed payments and future payments are paid through the Chapter 13 plan.

The main issue with Chapter 13 is whether you can afford the monthly payment if you must pay the missed payments and continue making the regular mortgage payments through the plan.

Are You Facing Foreclosure in Arizona?

If you are like most Americans, your home is the biggest investment you will make in your life. The prospect of losing this investment through foreclosure, especially if you have already invested considerable sums in payments, can be distressing.

Fortunately, many foreclosure prevention strategies and techniques exist to help homeowners with financial problems stay in their homes. Which of these is best for you depends greatly on your particular financial situation.

A Stone Rose Law debt relief attorney can help you understand how the foreclosure process works and guide you through the foreclosure prevention methods that may best suit you.

If your home lender is threatening foreclosure, do not ignore its communications. Instead, let the lender know what your situation is and see if it is willing to work with you to avoid foreclosure. Most lenders understand that keeping you in your home and making payments is preferable to them than resorting to foreclosure.

But if cooperative methods still cannot bring you current on your mortgage or trust deed payments, or if your lender is unwilling to be flexible, federal bankruptcy protection may be your best bet. A Stone Rose bankruptcy attorney can help you know when this may be the best choice for you, and help you file for bankruptcy under federal and Arizona law.

To speak with one of our debt relief lawyers, call us at (480) 739-2448 to set up a free consultation. You can also use our online contact form.

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