Pub. 8 2018 Issue 1

22 www.azbankers.org and the real property securing the loan is a real property used for a non-residential purpose (such as an office building, restau- rant or other business purpose). STEP FIVE Consider the “fair market value” credit limitation of any defi- ciency judgment obtained by the mortgage lender. • Any deficiency following a trustee’s sale or a judicial fore- closure permitted against either a borrower or a guarantor is subject to a “fair market value” credit limitation. In particular, the deficiency amount is calculated as, and limited to, the loan balance due on the date of the foreclosure sale less the greater of the actual foreclosure sale price or the “fair market value” of the property on the date of the sale. • Borrowers and guarantors cannot prospectively waive the “fair market value” credit limitation. • The successful bid at a non-judicial trustee’s sale does not per se, constitute admissible evidence of the “fair market value” of the property foreclosed upon by the lender. The lender must offer affirmative valuation evidence, such as an appraisal report and expert appraiser testimony, to establish the “fair market value” of the property as of the date of the foreclosure sale. • The “fair market value” determination is made by the Court and not a jury. Miscellaneous Matters • There is no statutory right of “redemption” following a trustee’s sale. • Any judgment debtor, or their successor-in-interest, in a judicial foreclosure is granted a statutory right of redemption, which allows them to recover title to the subject property after the date of the Sheriff’s sale of the property. The redemption period is either 30 days or six months after the date of the sher- iff’s sale, as determined by the Court pursuant to the require- ments of the judicial foreclosure statute. • To redeem the property, the judgment debtor must pay the pur - chase price at the Sheriff’s sale, 8% interest accrued thereon, and taxes and assessments. In addition, each judgment debtor is granted the right to apply to the Court for a “fair market value” determination within 30 days after the Sheriff’s sale of the property. Moreover, failure of a judgment debtor to make a timely request for a fair market value determination may result in denial of the request. When any judgment debtor applies for a fair market value determination, the right to redeem the property is extinguished as to all judgment debtors. • An arbitration clause included in a promissory note is enforce - able to compel arbitration of a mortgage deficiency action. The deficiency statute expressly provides that any deficiency judgment obtained subsequent to a non-judicial trustee’s sale may include interest on the amount of the deficiency from the date of sale at the rate provided for in the loan documents. Further, the deficiency statute has been held to authorize an award of attorneys’ fees and costs by the Court. Conclusion The vast majority of residential foreclosures conducted in Arizona concern trustee’s sales related to loans secured by deeds of trust upon single-family residences located on 2.5 acres or less. In such cases, if the mortgage lender completes the trustee’s sale, the lender may not obtain a deficiency judgment against the borrower or a guarantor, unless they have waived the anti-deficiency statute’s protection. Despite the foregoing, as illustrated by the rules above, there are many instances in which a mortgage lender may pursue collection of a deficiency balance from a borrower, or guarantor, subsequent to a trustee’s sale, judicial foreclosure or short sale. In such cases, if the mortgage lender completes a trustee’s sale, the lender must file the deficiency lawsuit against the borrower and any guarantors within 90 days after the date of the foreclosure sale. This limitations period is a strictly enforced, absolute bar date for filing a mortgage deficiency lawsuit following a trustee’s sale. In addition, the borrower and guarantors shall receive a credit against the loan balance due as of the foreclosure sale of either the actual sale price at the foreclosure sale, or the “fair market value” of the property foreclosed upon as of the date of the foreclosure sale, whichever is greater, which is determined by the Court. A useful resource to assist in understanding the scope and appli - cability of the Arizona mortgage deficiency statutes is the Ins and Outs of Foreclosures, Third Edition 2010. w Larry Folks is a partner at Folks Hess Kass, PLLC, which rep- resents banks, credit unions and mortgage servicers in every county of Arizona concerning a broad range of legal services related to consumer and commercial loan workout, bankruptcy, collection, foreclosure, mortgage deficiency and other creditors’ rights litiga- tion cases. If you have any questions about the issues discussed in this publica- tion, or to explore engaging the legal services of Folks Hess Kass, PLLC, please contact: Larry Folks Folks Hess Kass, PLLC 1850 N. Central Ave., Suite 1140 Phoenix, Arizona 85004 602-262-2265 main line 602-256-5906 Larry Folks’ direct line 602-256-9101 fax folks@folkshesskass.com www.AZDefaultLegalServices.com