How are trust deeds or mortgage liens treated in Arizona?

Arizona primarily operates as a title theory state where the property title remains in trust until payment in full occurs for the underlying loan. Foreclosure is a non-judicial remedy under this theory. The document that secures the title is usually called a deed of trust, but in Arizona, this is also referred to as a trust deed. Arizona law also permits mortgages to serve as liens upon real property and for judicial foreclosures to occur through the courts. Because the power of sale provisions in trust deeds is a faster mechanism to effectuate foreclosure, this is the primary vehicle to foreclose.


How are Arizona mortgages foreclosed?

The primary method of foreclosure in Arizona involves what is known as non-judicial foreclosure. This type of foreclosure does not involve court action but requires notice commonly called foreclosure by advertisement. When the trust deed is initially signed it will usually contain a provision called a power of sale clause, which upon default allows a trustee to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale which typically occurs in the form of an auction. Because this is a non-judicial remedy there are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.

Power of Sale Notice Requirements:

  1. Prior to initiating a foreclosure the lender must publish a notice of sale date at least once a week for 4 consecutive weeks in a newspaper of general circulation in the county in which the property is located. Within 20 days of the proposed sale a notice must be posted at the property to be foreclosed. A notice of the proposed sale must also be recorded with the recorder where the trust property is located.
  2. Notice of foreclosure sale as described above must contain certain information, including the date, time and place of sale, the street address and legal description of the trust property, the county tax assessors parcel number, the original principal balance as referenced on the trust deed, the name of the beneficiary (lender) and trustee – to include the trustees qualifications and telephone number.
  3. Foreclosure sales must take place between 9AM and 5PM on a day other than a Saturday or legal holiday at the time, place and date designated in the notice of sale as part of a public auction. The trustee will auction the property to the highest bidder, including the lender, which is the only party who can make a credit bid. The foreclosure sale may be postponed by the party conducting the sale be providing a declaration of the changed date, time and location, which shall be within 90 days of the original sale. A sale that occurs during a pending undisclosed bankruptcy (which would have been a violation of the automatic stay) will typically be postponed 28 days. A sale cannot occur sooner than 90 days from the date of the filing of the Notice of foreclosure sale and not less than 10 days from the date of last publication. A trustee's deed is issued after the foreclosure sale is completed.

In Arizona, the lenders can also go to court in what is known as a judicial foreclosure proceeding where the court must issue a final judgment of foreclosure. If the deed of trust does not contain the power of sale language, the lender must seek judicial foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in court along with what is known a lis pendens. A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.


What are the legal instruments that establish an Arizona mortgage?

The documents are known as the trust deed or deed of trust, and in a commercial transaction, a security agreement. Sometimes the mortgage document is combined with the security agreement. Alternatively, a mortgage is filed to evidence the underlying debt and terms of repayment, which is set forth in the note.


How long does it take to foreclose a property in Arizona?

Depending on the timing of the various required notices, it usually takes approximately 120 days to effectuate an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and postponements of sales, or files for bankruptcy.


Is there a right of redemption in Arizona?

Arizona has no post-sale statutory right of redemption, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs.


Are deficiency judgments permitted in Arizona?

Yes, a deficiency judgment may be obtained when a property in foreclosure is sold at a public sale for less than the loan amount that the underlying mortgage secures. Lenders are prohibited by statute (33-729) from obtaining deficiency judgments in foreclosures where the land size is 2.5 acres or less and where the property was used as either a single one-family or single two-family dwelling. Deficiency actions must be brought within 90 days of a power of sale foreclosure. Any judgment is limited to the difference of the balanced owed and the fair market value of the property.


What statutes govern Arizona foreclosures?

The laws that govern Arizona foreclosures are found in Article 33, Chapters 6, 6.1 of Arizona Revised Statutes.