Bankruptcy Chapter 7 & 13

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Home Foreclosure

In many states, including Arizona, the lender on a home loan secured by a Deed of Trust may hold a sale of that home 90 days after recording a Notice of Sale and giving proper notice. The sale can be stopped only by paying all back payments, late charges and foreclosure fees before the sale date.

The filing of a Chapter 13 can stop the sale. The lender will be required to accept payments through your plan to catch up any you are behind.

Possible changes:  There is movement in Congress to allow bankruptcy judges to do much more to help borrowers.  See Cramming Down Mortgages.

What stops foreclosure?  See Protection from Creditors.

What if you had a prior bankruptcy within the last year?  See the Caution on the Protection from Creditors page.

What if you had a prior bankruptcy within the last 8 years?  See Who is Eligible.


Some Details About Home Foreclosure under Deeds of Trust in Arizona

Most homes and other real property in Arizona are financed under "Deeds of Trust" or "Trust Deeds," which provide a quick and inexpensive method for lenders to take possession of the financed property when a borrower defaults on loan payments.  The foreclosure process under those deeds is governed by Chapter 6.1 of Title G of the Arizona Revised Statutes (ARS), ARS 33-801 et seq.

Noticing the sale.  When a loan secured by Deed of Trust is in default, the lender may have the Trustee under a Deed of Trust sell that property. ARS 33-807  The Trustee will pick a date for the sale and give notice of the sale by:

  • Filing a notice of sale with the County Recorder at least 90 days before the sale date. ARS 33-808.A.1.
  • Within 30 days of the filing of the notice of sale, mailing a copy of the notice by certified or registered mail to each person having an interest in the property, and to each person who has recorded a request for notice. ARS 33-809.B.
  • Posting a notice of sale on the property at least 20 days before the date of sale.  This notice is not required if it would result in a breach of peace or if access to the property is denied. ARS 33-808.A.3.
  • Publishing a notice of sale in a newspaper in the county where the property is located once a week for 4 consecutive weeks, with the last publication at least 10 days prior to the date of sale.  ARS 33-808.A.4.

Stopping the sale.  The borrower, or a subordinate lien holder, may stop the foreclosure sale by paying the full amount in default and all expenses relating to the foreclosure before 5:00 p.m. on the day before the sale.  If the day before the sale is a weekend or a legal holiday, the payment must be made before the weekend or holiday. ARS 33-813.

Bankruptcy stops the sale.  If the sale is contrary to or in violation of any federal statute in effect because of an unknown or undisclosed bankruptcy, the sale will be continued for 28 days, or if that day is a weekend or holiday, to the day after that weekend or holiday.  ARS 33-810.C.

Deficiency after sale.  If the amount recovered in the sale is not sufficient to pay the full balance of the loan, the lender may file suit against the borrower for the deficiency within 90 days of the date of sale. ARS 33-814.

Limit on deficiency for homes.  If the property sold under the Deed of Trust is one or two family dwelling on two and one-half acres or less, the lender may not sue for the deficiency.  ARS 33-814.G  This limitation does not apply to a subordinate lender who did not sell the property.

Removal of persons from the property. If the borrower fails to surrender possession of the property to the lender after the completion of the Trustee's Sale, the lender may remove whomever is on the property in a total of about 3 weeks by filing a "forcible detainer."  The steps required to remove someone from property under a forcible detainer are:

  • The lender must make a written demand for possession at least five days prior to filing the forcible detainer.  ARS 12-1173.01.A.1, 12-1173.
  • The forcible detainer summons will be issued by the court within a day after it is requested, and it must be served on the person in possession two days before the trial.  ARS 12-1175.
  • At trial, the court will issue a "writ of restitution" five calendar days after the judgment.  ARS 12-1178.  It is this writ which gives the lender the ability to physically remove the party in possession of the property.
  • The borrower may request a jury trial of the forcible detainer action which is likely to delay the court in ordering the surrender of the property.  ARS 12-1176.

Tax effect.  If the lender does not recover the full balance of the loan from the foreclosure sale, and the deficiency is forgiven, the amount forgiven is taxable as income to the borrower.  If the deficiency is instead discharged in bankruptcy, it is not taxable as income.

Links to Arizona Revised Statutes (ARS) are to the web site of Arizona Legislative Computer Service of the Arizona State Legislature, ALIS Online.


This page was last revised: 02/18/09