I’m hoping to buy an affordable second home in Arizona and just heard that there's one being foreclosed in the exact area where I want to buy. I'm interested, but also worried, since I keep hearing about risks when it comes to buying foreclosure homes. The issue that concerns me most is that the owners might be able to get the house back after the foreclosure. Could this really happen after I’ve bought the property?
Yes, it is possible, although really unlikely, for Arizona homeowners to get the home back after the foreclosure. They would do so by paying you the purchase price you paid at the foreclosure sale, plus various other charges. This is called redeeming the property. However, foreclosed homeowners in Arizona get the right to redeem the property only if the foreclosure was judicial. Even if that happens (which is not likely since most home foreclosures in the state are nonjudicial), they would have a limited period of time in which to redeem.
We’ll describe below what the different types of foreclosures are and how Arizona’s redemption laws might affect your ability to settle into your new home without fearing that you’ll eventually lose it.
The vast majority of residential foreclosures in Arizona are nonjudicial, which means the lender does not have to go through state court to foreclose. Judicial foreclosures, in which the lender files a lawsuit in court, are also possible.
Does the distinction between a nonjudicial and a judicial foreclosure matter to you as a prospective buyer at a foreclosure sale? Not much, except to the extent that it affects the redemption period. Also, as you’ll see below, if the foreclosure is nonjudicial, the former homeowner doesn’t have the right to redeem the property, which is good news for you.
How to find out whether the foreclosure is nonjudicial or judicial. One way to find out which type of foreclosure process the lender is using is to go to www.zillow.com. You’ll first need to sign up for a free account and log in, otherwise you won’t be able to view all of the foreclosure information.
Find the home by entering the address in the search box. This pulls up a map of the neighborhood. Then click on the home’s address, which is a link to its web page. Scroll approximately one-third of the way down and click on “More foreclosure information.” This will tell you if the foreclosure is nonjudical or judicial. (If you want to call someone to get information about the foreclosure, you can typically find the name and phone number of the foreclosure trustee or attorney on this screen as well.)
You can also check the foreclosure sale notice in your local newspaper. If a “trustee” (a third party that administers nonjudicial foreclosures) is selling the home at a trustee’s sale, this means the foreclosure is nonjudicial. (Sometimes foreclosure notices are also available online at the newspaper’s website.)
In Arizona, the foreclosed homeowners can't redeem the property after a nonjudicial foreclosure (Ariz. Rev. Stat. Ann. § 33-811(E)).
If the foreclosure is judicial, the homeowners may redeem the property either within:
If the homeowners don’t redeem within this time frame, called a redemption period, they forever lose the chance to get the home back this way.
In order to redeem the property, the foreclosed homeowners would have to pay you the amount you paid at the foreclosure sale, plus 8%, along with the cost of any assessments or taxes you paid after the sale, and interest on that amount (Ariz. Rev. Stat. Ann. § 12-1285).
You can see why redemption is so rare. A homeowner who, only a short time ago, was unable to keep up on the home’s mortgage payments would have to turn around and come up with not only the purchase price, but additional amounts to cover interest and your expenses.
It's also possible, but rare, for the IRS to redeem the property after a judicial or nonjudicial foreclosure, if there was a federal tax lien on the home. The IRS gets 120 days (or the allowable period under state law, whichever is longer) to redeem. If the IRS considers redeeming the house, it would send you a notice beforehand.
Another possibility, which is exceedingly rare, is for some other party to redeem the property, such as other creditors who had liens on the home. In Arizona, if the former homeowners do not redeem the home during their redemption period, each creditor who had a lien on the property gets five days thereafter to redeem the property (Ariz. Rev. Stat. Ann. § 12-1282).
So long as no one redeems, the sheriff will deliver the deed to the property to you once all of the redemption periods expire (Ariz. Rev. Stat. Ann. § 12-1286). (If the homeowner or a creditor did take steps to redeem, you would probably first learn about it when the sheriff notifies you that they have redeemed the home.)
Besides the possibility of redemption, there are other issues to take into account when considering buying a home at a foreclosure sale. For example, you won’t get any seller disclosures regarding the condition of the property before the sale, and you will have to purchase the property “as is,” without negotiating over repairs.
And, the fact that the owner was in financial distress means the property could be in bad condition. (Learn more in Nolo’s Buying Foreclosed Properties area.)
To find the Arizona statutes, go to the Arizona Legislature’s webpage. The statutes that discuss the right to redeem after a judicial foreclosure can be found in Title 12, Chapter 8, Article 11.