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Court Of Appeals Addresses Deficiency Judgments

Earlier this summer, the Arizona Court of Appeals provided important guidance to banks and property owners with respect to deficiency judgments in MidFirst Bank v. Chase, 1 CA-CV 11-0013. Under Arizona law, most homeowners who lose their foreclosed home after a trustee’s sale are not required to pay the bank back for any deficiency between what they owed and what the home sold for at the trustee’s sale. This is known as Arizona’s “anti-deficiency” law.

However, in those instances in which the property is not subject to the anti-deficiency law, the bank can only obtain a deficiency judgment after a hearing. In determining the amount of the deficiency, A.R.S. § 33-814(A) provides that the debtor receives the benefit of the sale price at the trustee’s sale or the property’s fair market value, whichever is higher.

At the trustee’s sale, it is common for the bank to enter a bid (“credit bid”) for the property to ensure that a certain amount is received. Prior to the MidFirst Bank decision, banks generally went to the deficiency hearing relying solely upon an affidavit or other document that merely showed the bank’s bid price at the trustee’s sale. However, the Court of Appeals recognized that, due to the nature of a trustee’s sale, the credit bid will not necessarily reflect the fair market value.

Thus, the Court of Appeals has indicated that, absent the requisite foundation demonstrating that the sale was made willingly, without coercion, or compulsion, the bank’s bid price of the property at the trustee’s sale is not admissible as evidence of the fair market value of the property.

The Law Office of Shiloh K. Hoggard, P.L.L.C., has experience representing clients in deficiency proceedings. Please call us if you have a deficiency judgment matter that requires legal assistance.