What Are Deficiency Judgments And How Are They Obtained?
When an asset is repossessed, or a home foreclosed on, because the debtor is in arrears, the asset or home is generally sold at auction and the monies raised used to pay off the debt. Typically, the money raised does not cover the remaining debt, leaving the creditor with a loss. The creditor can sue for that loss (or deficiency) and, should they win, they will be awarded a deficiency judgment for the outstanding balance. The creditor can then seek wage or bank garnishments.
Do Debtors Have Options?
Debtors do have a few options. They can dispute their ability to pay at the hearing. They can also choose to pay – although for most debtors, this is generally not possible. Their final option is to seek relief through the bankruptcy court.
Deficiencies In Arizona
As explained above, in Arizona, typically lenders can seek a deficiency judgment after foreclosing on a property securing a loan, if the property does not sell for enough money to satisfy the debt in full. However, the Arizona legislature has adopted anti-deficiency statutes that preclude such recourse in many typical fact scenarios. In the absence of an agreement otherwise, Arizona law provides protection for borrowers against potential liability stemming from the sale of a property at less than market value in a foreclosure sale. The borrower, however, must act quickly to protect their rights. If the property sells for less than the amount owed to the lender, the borrower is entitled to ask a court to determine the property’s fair market value. If the court agrees that the fair market value is higher than the sales price, the buyer gets credit for the higher amount. This protects borrowers from unfair pricing and helps keep lenders honest.
Due to the complexity of the Arizona anti-deficiency statutes and related real estate laws, lenders and borrowers are advised to seek the assistance of an experienced real estate attorney with any questions or concerns they may have.
