Each state has a laws that govern real property (land, house, etc) rights and duties. These laws include how secured interests (mortgages) are perfected, foreclosures completed or the rights of various parties as to the land. Sometimes it is confusing for lenders or property owners what laws govern. Arizona is no different. Once a loan is placed on real property and recorded that loan established a priority position (a place in line as to rights over other loans or liens). That loan stays attached until either the debt is paid or a court enters a judgment removing the loan as a lien on the real property.
Can a lender just lay in wait for the real property to appreciate in value and then foreclose? Trying to understand this can leave you feeling as though you are lost in a maze. The answer is “perhaps” because it depends on the laws governing waiting to collect a debt. These laws are called “statutes of limitation”. Arizona has a six year statute of limitation to collect on a contract (presumably that applies to deeds of trust or mortgages).
12-548. Contract in writing for debt; six year limitation; choice of law
A. An action for debt shall be commenced and prosecuted within six years after the cause of action accrues, and not afterward, if the indebtedness is evidenced by or founded on either of the following:
1. A contract in writing that is executed in this state.
Also, the foreclosure statutes limit the ability to start a foreclosure after the statute of limitations runs.
33-816. Limitation on action or sale of trust property
The trustee’s sale of trust property under a trust deed shall be made, or any action to foreclose a trust deed as provided by law for the foreclosure of mortgages on real property shall be commenced, within the period prescribed by law for the commencement of an action on the contract secured by the trust deed.
What happens to the recorded lien? It stays on the public record and some title companies will demand the borrower pay the debt as part of selling the property. The borrower can use another law to remove the old debt.
ARS 12-1104 Allegation of lien or interest claimed by adverse party; jurisdiction of court to enter decree
A. In an action to quiet title to real property, if the complaint sets forth that any person or the state has or claims an interest in or a lien upon the property, and that the interest or lien or the remedy for enforcement thereof is barred by limitation, or that plaintiff would have a defense by reason of limitation to an action to enforce the interest or lien against the real property, the court shall hear evidence thereon.
B. If it is proved that the interest or lien or the remedy for enforcement thereof is barred by limitation, or that plaintiff would have a defense by reason of limitation to an action to enforce the interest or lien against the real property, the court shall have jurisdiction to enter judgment and plaintiff shall be entitled to judgment barring and forever estopping assertion of the interest or lien in or to or upon the real property adverse to plaintiff.
I expect to see thousands of junior mortgages or deed of trust that will find an astute borrower asking a court to remove that debt as a lien on the real property. In bankruptcy we do that all the time in chapter 13 cases.
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