Deed of Trust

• Arizona law allows the use of a deed of trust to secure real estate loans. Under a deed of trust, the borrower conveys legal title to a third party --- the trustee --- for the benefit of the lender. The trustee is usually a local title company or attorney. The authority granted to the trustee includes a power of sale. If the borrower defaults on the loan, the bank can instruct the trustee to sell the property at a public auction to the highest bidder.
  
  

Judicial Foreclosure

• Judicial foreclosure requires a lawsuit. A creditor files a complaint in court and must pursue the litigation to a final judgment before it can force a real estate sale. The judgment obtained is for the total unpaid debt. If the foreclosure sale proceeds don't satisfy the debt, the creditor can collect the balance of the judgment from other assets of the borrower. However, Arizona's anti-deficiency statute prohibits lenders from collecting in any manner other than a foreclosure for certain types of residential mortgages.
  
  

Trustee's Sale

• After a borrower defaults, the bank initiates a nonjudicial foreclosure by recording a notice of trustee's sale in the county recorder's office. Notice of a trustee's sale must include the location, time and date of the sale, which cannot be sooner than 91 days after recording the notice. The trustee mails a copy of the notice and a statement of breach describing the default that resulted in foreclosure. At the trustee's sale, all bidders other than the lender must provide a $10,000 deposit. The winning bidder must pay the rest of the bid amount by the end of the next business day. A trustee's deed from the trustee to the winning bidder conveys title.
  
  

Anti-Deficiency Laws

• Any portion of a mortgage debt not satisfied from foreclosure sale proceeds is called a deficiency. After a nonjudicial foreclosure in Arizona, the lender has 90 days to file a lawsuit against the borrower for any deficiency. Anti-deficiency laws don't allow deficiency actions for certain types of loans. The anti-deficiency rules in Arizona are different for judicial and nonjudicial foreclosures. In the case of a nonjudicial foreclosure, A.R.S. Section 33-814 prohibits a deficiency claim for a loan secured by a one- or two-family home located on 2 1/2 acres or less that's limited to and used as a residence.