If you don’t pay your mortgage, an experienced Arizona real estate lawyer and bankruptcy lawyer will remind you that you will lose the house to foreclosure, with or without filing bankruptcy. How long does it take for a bank to foreclose on a home? It depends on how aggressive the lender decides to be.
In Arizona, real estate lenders commonly secure their loans by recording a deed of trust on the property. A deed of trust allows a lender to conduct an out-of-court “trustee sale” of the property if the borrower defaults on the promissory note. Common examples of such defaults include when a borrower stops making payments, fails to insure the property or causes waste or intentional damage to the property. A trustee sale is akin to a foreclosure without court action and is the prevalent method for a bank to repossess real estate due to a borrower’s default. Because most people use the word “foreclosure” when referring to a home repossession, I will use that term for purposes of this article when I am referring to a trustee sale.
Under Arizona law, a lender must file a trustee sale notice with the county recorder’s office and mail a copy to the borrower prior to commencing any foreclosure. The trustee sale notice will list the date of the foreclosure, which cannot be earlier than 90 days from the date the trustee sale notice is filed. The borrower has until the day before the foreclosure to come current with all overdue amounts (which would include missed payments, interest and late fees set forth in the promissory note, the lender’s attorney fees, the lender’s cost of preparing the property for foreclosure, etc.). If the borrower becomes current within the 90 days, the foreclosure is cancelled. If not, the foreclosure will take place on the steps of the county courthouse or in the office of the lawyer or company that acts as the trustee for the foreclosure. At the sale, the bank will either repossess the property by making a “credit bid” or a third-party may purchase the property for its fair market value. After the foreclosure, a trust deed is recorded that provides clear title to the bank or the new purchaser of the property.
For example, say you stop making mortgage payments for three months and the bank files a trustee notice shortly thereafter. The bank still has to wait 90 days after filing the trustee sale notice before it can foreclose. Conceivably, when you take into account the three months of missed payments plus the three months the bank must wait to foreclosure, the homeowner can remain in the house for a minimum of six months before having to vacate the property due to a foreclosure. Some banks will wait longer than three months of missed payments before filing the trustee sale notice. Other banks may wait only one month after a missed payment before filing the trustee notice. The 90-day time clock does not start ticking until the trustee notice is filed and mailed to the borrower.
If the house is worth less than what is owed at the time of foreclosure, the borrower may be liable to a lender for any deficiency amount. It depends on the nature of the loan and whether the foreclosure occurs via a trustee sale or a judicial foreclosure. For more information on deficiency liability and the Arizona anti-deficiency statute, click here.