Arizona's Foreclosure Process 

Foreclosure is the legal process by which a mortgage company can obtain legal ownership of a property.  It relinquishes a home owner from any all right to the property and evicts the homeowner from the premises.

In most cases, foreclosure can begin a soon as a homeowner is late with the mortgage payment.  If the payment is due on or before the first of the month, for example, the lender has every legal right to initiate foreclosure proceedings against the homeowner.  

However, most institutional lenders will try to work out alternatives with a homeowner in default before trying to repossess a home.  If a homeowner works with his or her lender, the lender may grant additional time before foreclosure is initiated.  Alternatives provided by the lender may include a restructuring of the home debt if the homeowner qualifies. 

If an alternative cannot be worked out between the lender and the homeowner, the lender may begin foreclosure proceedings.  Because most homeowners have a trust deed, the foreclosure timeline is simple and quick because it does not have to go to court to foreclose upon a home.

In Arizona, a lender must appoint its trustee, the person or entity that has the legal right to sell the home in a trustee sale, to handle the appropriate paperwork.  By law, the trustee must record in the county recorder's office a "Notice of Trustee's Sale".  This is the legal notice that the home is to be sold no sooner than 90 days from the recording date of the notice.  This notice must also be published a minimum of once a week for four consecutive weeks in a "newspaper of general circulation" in that county.  The trustee will mail a notice within five days of the recorded notice of trustee sale to the homeowner and other parties affected by the foreclosure.

Assuming that the homeowner has not reinstated the loan, the trustee will conduct the sale at a previously disclosed location.  Every bidder is required to provide a $1,000 deposit to bid on the home.  At such time, the home is sold to the highest bidder, which may include the mortgage company.  If the bidder successfully wins, he or she has until 5:00 p.m. of the following day (assuming that it is not Saturday or a legal holiday) to pay the remaining balance in cash or other acceptable forms of payment as determined by the trustee.  In addition to the forfeit of deposit, a highest bidder who fails to pay the amount bid by that bidder is liable to any person who suffers loss or expenses as a result, including attorney fees. 

Should the bidder fail to pay by 5:00 p.m. of the following day, his or her $1,000 deposit is forfeited and the second highest bidder is given until 5:00 p.m. of the next day.

Proceeds from the sale are used to pay off the primary lien (trust deed) against the home (as noted on the trust deed).  If any proceeds remain, payment is made to junior lien holders in order of priority.  In the event that any remaining balance is left over from the sale, the trustee will remit the balance to the ex-homeowner.

Title is conveyed to the winning bidder by a trustee's deed.  This transfer of title relinquishes any right the previous owner has from reinstating the mortgage or redeeming the property after foreclosure.  In addition, the trustee's deed clears the title of any liens and encumbrances that are junior to the trust deed. 

In certain situations, junior lien holders may pursue a deficiency judgment against the previous owner to recover the balances owed.  However, an Arizona homeowner may be protected by such lawsuits under the law. 

Foreclosure Scams 

Facing the threat of losing a home, a homeowner will be plagued by individuals and companies offering to help the person out of his or her difficult financial situation.  In most cases, these people are out for one thing--making money from someone's problems.  These scams will come in many shapes and varieties ranging from direct mail offering to "negotiate" on behalf of the home owner for a nominal fee to people knocking on the door offering to help out by reinstating the loan, taking title and leasing the home back to the individual.  People facing foreclosure are vulnerable to con-artists and scams.  However, using a little common sense any homeowner can avoid being taken advantage of and find a viable and ethical solution for his or her dilemma.

In Arizona, a lender initiates the foreclosure process by filing a Notice of Trustee Sale with the county recorder.  This notice is the equivalent of posting a large 50 foot neon sign above someone's house saying, "Here I am, take advantage of me!" because shrewd individuals and companies know that the homeowner is in trouble and will often times do anything to resolve the problem.

The following lists several ploys implemented by these individuals:

Unethical Realtors Trying to Take Your Equity.  Real estate agents (many claiming to be "pre-foreclosure" specialists) offer reinstate a person's loan and sell the house with the idea of salvaging any accrued equity and appreciation in the home. The catch is that the home owner must split the earnings with the agent instead of paying a commission. The reality is that the home owner could have hired a competent agent and accomplished the same end result with less money out of pocket.

Investors Trying to Take Your Equity.  Many Investors (i.e. I/We Buy Houses people) approach home owners facing foreclosure and try to take their home and equity without offering any other assistance. An ethical person would not simply just take your equity without trying to exhaust every effort to help you save your home and equity. These unethical people have no other answers for you other than taking your home and are just trying to make money off of your problems.

Foreclosure Consulting Agencies.  Many investors set up mask companies to make themselves look like a foreclosure assistance company. These investors and companies only have their own interest in mind and are trying to make profits off of homeowners. They are either after homeowners equity, deed or to get them to sign a purchase agreement that they can assign to someone else for a profit. These guys are easy to identify by simply asking them if doing business with them is going to involve you having to sign a purchase agreement with them or deed them your home.

Debt Negotiating.  Companies, reputable and not-so-reputable, offer to negotiate or consolidate the debt for the homeowner. The catch is that the homeowner must prepay for these services. These individuals do not offer anything that other non-profit agencies will provide free of charge.

“Financial Services” Companies.  There has been a proliferation of individuals, often posing as a financial services company, that offer to assist homeowners facing foreclosure with everything from tax advising, debt management, real estate sales and pre-foreclosure sales. The reality of these individuals is that they do not run legitimate corporations (according the Arizona Corporations Commission) and are not legally licensed as required by the Arizona State Banking Department for debt or credit counseling. 

Visitors.  Expect many people, including investors and real estate agents, to visit your home. They will paper your house with flyers, knock on your door at all hours, and stalk you and your family until they have an opportunity to speak with you. The worse perpetrators are individuals posing as government employees dispatched to your home to assist you. The lender, the County, and the Federal government will not send out personal representatives to assist you unless you have initiated the call to the right agency.

Bankruptcy.  No matter what an attorney may tell you, bankruptcy does not stop foreclosure.  It is true that bankruptcy does suspend the foreclosure process.