Arizona Decision May Complicate Foreclosure and Eviction Process for Lenders


A recent Arizona Court of Appeals decision could create new complexities for lenders exercising their power of sale under a deed of trust. In Grady v. Superior Court of Maricopa County, the Court of Appeals sided with the holdover owners and occupants (Occupants) who faced eviction from a property that had been purchased by a bank at a trustee’s sale.

The Occupants requested a stay of execution to prevent their eviction by the bank pending appeal. The trial court denied the stay, but the appellate court reversed, finding that a superior court must treat the Occupants as "tenants at sufferance." Under Arizona law, a tenant facing eviction has a statutory right to possession if the tenant files an appeal and posts a bond sufficient to cover the rental value of the property pending appeal. Accordingly, the Court of Appeals ordered the stay and sent the case back to the trial court to determine the proper amount of the bond.

The issue in Grady concerned only the stay on appeal, not the underlying merits of the foreclosure defenses. Still, Grady will likely add uncertainty and expense to the foreclosure and eviction process. Holdover owners must post a bond to obtain a stay, which may alleviate some loss in the short term, but it will not alleviate the uncertainty or the resulting effect that uncertainty will have on a still-recovering real estate market.