arizona foreclosure assistance
COMMON MYTHS ABOUT ARIZONA FORECLOSURES AND SHORT SALES
Over the past 18 + months of advising owners of distressed property, several common myths have emerged regarding foreclosures and short sales in Arizona. Here is a list of common myths.
1. Only purchase money loans on qualifying residential property get anti-deficiency protection in Arizona. This is not necessarily true. If the holder of a mortgage secured by a single 1 or 2 family dwelling on 2.5 acres or less forecloses via a trustee’s sale, that lender will be barred from seeking a deficiency pursuant to A.R.S. 33-814(G). However, rights of junior lien holders and the right of a lender to waive its rights under a Deed of Trust and sue a borrower on its note must be analyzed under a different context.
2. A borrower must have occupied its residential property as its primary residence to get anti-deficiency protection. This is simply not true. Although a recent amendment to A.R.S. 33-814(G) intended to impose a requirement for the borrower to have lived in the property, this law was subsequently repealed such that it never took effect. In Arizona, the anti-deficiency statutes have always been interpreted to only require that a qualifying residential property have been put to use as a dwelling by someone, not necessarily the actual borrower.
3. Arizona’s anti-deficiency statutes don’t apply to short sales because a short sale is not a foreclosure. This statement entirely disregards established Arizona precedent. It is true that Arizona’s anti-deficiency statutes are contained within the judicial and non-judicial foreclosure statutes and that a short sale is not a foreclosure. However, several Arizona cases interpreting Arizona’s anti-deficiency statutes provide clear and established precedent restricting a lender’s right to sue a borrower where Arizona’s anti-deficiency laws would apply to a lender in a foreclosure context. In short, if a lender makes (or holds) a purchase money loan on qualifying residential property, that lender’s rights to sue a borrower for lack of payment on the note are severely restricted, if not altogether prohibited.
4. A short sale will always be better for a borrower’s credit. Although I am not a credit counselor and do not profess to understand all the ins and outs of how a credit score is calculated (does anyone?), in most cases, a lender will require a borrower to be delinquent before contemplating a short sale. As a result, a borrower’s credit is almost certainly to be hurt before the short sale is consummated, and once it is, the reporting of the sale as a short sale will generally damage one’s credit even further. However, a potential benefit of a short sale is the ability (in concept) to qualify for certain loans sooner versus having a foreclosure on one’s record.
Marc McCain, Esq.
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138
BANKS SUE ARIZONA GOV. BREWER TO STOP REPEAL OF CHANGE TO ANTI-DEFICIENCY LAW
Looks like the threat was real. Banks hired one of Arizona’s most seasoned attorneys to block a portion of HB 2008 from taking affect. Among its many provisions, HB 2008 repealed Senate Bill 1271, which made significant changes to Arizona’s anti-deficiency law related to trustee’s sales. Senate Bill 1271 became the law September 30, 2009 and impacted investors and second home owners of residential property on 2.5 acres or less. Before passage of Senate Bill 1271, lenders could not seek a deficiency judgment against owners of such property following a trustee’s sale. However, with the passage of Senate Bill 1271, an owner has the burden to prove it lived in the dwelling for at least 6 consecutive months and that a certificate of occupancy was issued for the residence. See prior blog posts on SB 1271 and its myriad of problems.
Banks pushed SB 1271 through the legislature in a hurried fashion and presented inaccurate information to Arizona’s legislators. In fact, virtually all assumptions and statements of existing law and practice containted in the legislative summary for SB 1271 were WRONG (the summary is circulated to legislators and their staff to assist in considering the merits of a bill). Of course, the errors created sympathy for the banks and their bill and it passed with ease. When the local real estate community and consumers figured out what had happened, they were outraged. The outrage was channeled into quick and effective lobbying of our legislators to repeal SB 1271 and its terribly drafted language and unfair ramifications to tens of thousands of Arizona homeowners.
As part of Senator Pierce’s drive to repeal his own bill, he expressed a willingness to raise the issues related to SB 1271 in the next legislative session. Apparently not satisfied with addressing this issue on an even playing field, with ACCURATE INFORMATION AND STATEMENTS OF THE LAW as a backdrop to discussions, banks have now decided that paying thousands to attorneys and suing our Governor is the most productive way to move the ball forward.
While the dust settles on the lawsuit filing, perhaps banks can explain a few things to their Arizona customers (and no doubt, to hundreds of thousands of similarly situated customers in the United States):
1. did banks play a role in the (unreasonable) run up of real estate prices and the current foreclosure crisis?
2. did banks and their agents benefit in making questionable loans based on shoddy underwriting and overly optimistic appraisals — were they paid fees, points, commissions?
3. are banks being transparent with their customers in addressing loan workouts — modifications, short sales, deeds in lieu of foreclosure (remember, banks demand full disclosure of a borrower’s financial information to consider a workout — do the banks open their books to ANYONE including our Fed. Gov’t)?
4. are banks approving workouts of distressed loans/properties where it makes sense to both the bank AND THE BORROWER, or only when it is in the bank’s best interest to do so considering all of the behind the scenes deals at play that the borrrower has no idea are impacting its workout request (such as stimulus money, Gov’t guarantees or insurance of losses, private mortgage insurance, etc)?
5. are banks willing to sacrifice their bottom lines NOW, to assist its borrowers avoid financial ruin (remember banks, today’s foreclosure victims and bankruptcy filers won’t be your customers tomorrow — they won’t have any money).
It is anyone’s guess how this will play out in the Court or Arizona’s legislative process. One thing is for sure, the banks aren’t satisfied with playing within the established rules of Arizona anti-deficiency law. When times are tuffest, banks want to change the rules in their favor, on top of the billions they have already received from US taxpayers. Consumers are asking, where is my assistance, when will the banks work with me and do what makes sense? Unfortunately, unless our local and Federal governments stand up to the banks and their hired guns, consumers will continue to take it in the shorts and ask, where do we look for assistance?
Marc McCain, Esq.
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138