By Jones Osborn II

Arizona law limits the amount of the deficiency judgment that can be obtained after foreclosure and provides a number of other unusual protections for debtors.

Main Features of New Law. The main features of Arizona's laws on deficiency judgments are as follows:

• Deficiency Judgments. The debtor's obligation is reduced by the greater of (a) the fair market value of the foreclosed property or (b) the actual sales price paid for the property at the foreclosure sale, at least if the debtor properly exercises his rights.
  

• Other Property. Debtors can also get credit for the fair market value of any other real property executed on to satisfy a deficiency.
  

• Guarantors and Partners. The new law applies to guarantors, partners, and anyone else liable for the mortgage debt. However, creditors may, if they choose, proceed directly against guarantors by a separate lawsuit. In this case, the guarantor does not receive credit for the fair market value of the mortgaged real estate unless and until the creditor chooses to foreclose on it. However, it appears that a guarantor does receive credit for the fair market value of the guarantor's property which is executed upon by the creditor.
  

• Principal Residence. A creditor cannot execute upon the debtor's principal residence until all other known real property is taken. The debtor may file a certified list of his other real property to insure that the creditor proceeds first against such property. This means that a troubled borrower has the chance to save his house if his other assets are sufficient to satisfy the borrower, and prevents the creditor from putting pressure on the debtor by threatening to take his house first.
  

• Procedure. To receive credit for the fair market value of his other property taken to satisfy a deficiency, the debtor must file an application with the court within 30 days of the execution sale. If this deadline is missed, the new law does not apply to that property.
  

• Suit on the Note. The creditor can always release his security and proceed directly on the note, free of the provisions of the new law. However, this is rarely done unless the collateral is worthless.
  

Exceptions. The new law doesn't apply to debt secured by single family homes or, obviously, to non-recourse indebtedness.