Senate Bill 1271
UPDATE ON ARIZONA’S ANTI-DEFICIENCY STATUTE
The Arizona legislature passed, and Governor Brewer signed into law on November 23, 2009, Senate Bill 1004 which returns Arizona’s trustee’s sale statute anti-deficiency clause to its form prior to passage of Senate Bill 1271. The Bill includes a retroactivity clause, making the change retroactive to September 30, 2009, the day SB 1271 had gone into effect, and a statement of legislative intent confirming that the intent of the change is to return the law to its status before SB 1271. The Bill also includes an emergency clause, meaning it goes into effect immediately (as opposed to there being a 90 day waiting period as there was with House Bill 2008).
You can read the bill at the following link:
http://www.azleg.gov/legtext/49leg/4s/bills/sb1004s.pdf
The real estate industry and bankers are intending to continue work on an amendment to the law that would carve out certain speculative builders from anti-deficiency protections, but otherwise would leave existing protections in place.
Marc McCain, Esq.
McCain & Bursh, PLC, Attorneys at Law
IMPACT OF REPEAL of ARIZONA SENATE BILL 1271
As most interested parties now know, Governor Brewer signed House Bill 2008 and with it becoming law in late November, 2009, swept away the recent changes to Arizona’s anti-deficiency laws set to go into effect September 30, 2009. Residential property owners’ collective sigh of relief could be felt throughout the Valley. However, the victory parade could be short, as banking lobby will push hard to bring change to Arizona’s rather broad anti-deficiency statutes.
House Bill 2008, largely a budget bill, included the entire text of A.R.S. Section 33-814, Arizona’s statute addressing deficiency actions following a non-judicial foreclosure (called a trustee’s sale). The recent changes to subsection G, the anti-deficiency rule applicable to residential properties, were deleted entirely, leaving the language as it originally read before Senate Bill 1271 was signed by Gov. Brewer this summer. In addition, Sec. 47(B) of HB 2008 provides that the changes will apply retroactively to from and after September 29, 2009. Read the entire text of the statute on page 27-29 of HB 2008 — http://azgovernor.gov/DMS/upload/PR_090409_HB2008.pdf.
The Valley real estate market is abuzz with predictions about how the repeal of SB 1271 will impact its recovery. One thought is that foreclosures will soar as many lenders who suspended foreclosures in anticipation of SB 1271 taking effect (and being able to sue borrowers for a deficiency – largely non-owner occupied residential owners who would not have satisfied the new anti-deficiency requirements) now proceed with their pending trustee’s sales.
Another thought is that many lenders will be forced to consider alternatives to foreclosure including short sales and modifications. Given the severity of deficiencies on many under water residences in Arizona, lenders facing non-recourse loans may think twice about foreclosure. Short sales typically result in a sales price 20% or higher than what a lender would realize in a foreclosure or REO sale (PMI considerations aside). Without the prospect of recovering a deficiency following a short sale or foreclosure, it only makes sense that lenders entertain short sales.
Others think that deeds in lieu of foreclosure may increase as lenders try to reduce costs of retaking title to a severly underwater property.
Whatever the outcome, owners of residential real estate in Arizona can sleep easier knowing the deficiency rules in place for several decades will remain in place — at least for now.
Marc McCain, Esq.
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138
STATUS OF REPEAL OF ARIZONA SENATE BILL 127
Gov. Brewer signed and transmitted House Bill 2008 which includes a repeal of Senate Bill 1271, the recent change to Arizona’s anti-deficiency law contained in ARS Section 33-814(G) governing trustee’s sales. http://azgovernor.gov/DMS/upload/PR_090409_HB2008-09-12-13TransmittalLetter.pdf.
The repeal is set to take effect on approximately November 24, 2009 (90 days after the special legislative session ended), however the repeal was made retroactive to September 29, 2009 with the intent to do away with any attempt to enforce the changes implemented by SB 1271 during the window between September 30 and November 24, 2009. The repeal means that investors of qualifying properties (properties on 2 1/2 acres or less and utilized — by anyone - as single 1 or 2 family dwelling) will continue to be protected by Arizona’s anti-deficiency statutes upon a foreclosure by a first lien holder (barring any successful lender argument that SB 1271 should be applied to any foreclosures during the “window period” or any subsequent changes to the law).
However, remember that junior liens may or may not get anti-deficiency treatment following a foreclosure or short sale, but additional rules and analysis apply. This means that in some cases, junior lien holders whose lien is extinguished in a foreclosure or who release a lien in a short sale are not covered by AZ’s anti-deficiency laws and may sue a borrower on the note. In other cases, such lien holders will fall under the anti-deficiency statutes and will be barred from collecting on the note.
Always consult with a qualified professional on your particular situation and don’t forget that any foreclosure, short sale, deed in lieu or loan modification should be considered from a tax standpoint — consult with qualified tax professionals on your specific workout.
Marc McCain
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138
BANK LOBBYISTS CAN’T KEEP STORY STRAIGHT RE ARIZ. SENATE BILL 1271
Bank lobbyists told Arizona’s legislators that our anti-deficiency statutes needed to be revised because spec builders were “gaming the system” by claiming they lived in their spec homes to get anti-deficiency treatment. The Senate’s internal memo on the bill stated that investment properties were “NOT” protected by existing anti-deficiency laws. No one paid attention to the arguments or the law. The bill sailed through both chambers without a fight and was signed into law.
When real estate professionals and consumers realized what had happened, they were enraged, and a little embarrassed that such a spin job had just been orchestrated right under their collective noses. As the complaints rolled in and problem after problem (with the bill) was highlighted, the banking lobby changed its tune. Suddenly, the bill wasn’t just about spec builders, but more about investors and fraud on banks. But remember, the legislature believed that investors didn’t get protection under existing laws. So why in the world would the issue suddenly be about investors when the new law was passed with our lawmakers thinking they didn’t get protection anyway?
Why? Because bank lobbyists knew they had been outed and also knew that placing the blame on “investors” plays well in the media. At least until you stop and ask yourself “who is an investor”. Banks would like you to think we are talking about institutional investors with pockets spilling over with cash. This may be true for some homes purchased as investments, but it is far from the typical profile of an “investor”.
First, most big money home investors buy homes with cash – thus, there is no home loan and no issue of a deficiency. Second, and most importantly, the typical investor I meet is your next door neighbor, your friend, your retired teacher or grocery store manager. They are not ”rich”, are not trying to “game the system” and not void of moral guilt about being unable to pay their mortgage.
The “investors” I meet are hard working, honest, credit worthy individuals that wanted simply to get a piece of Arizona’s real estate profits. In many cases, they were counseled to buy a property by real estate agents, mortgage brokers, appraisers and lenders that all told the same story. You know the fairy tale — prices will continue to rise, you’ll be able to sell the property in a year or 2 for a good profit, or refinance the loan into a better loan and pull money out. Real estate prices never fall, so it can’t go wrong. Nice story huh? Too bad so many of us fell for it and are now holding the bag.
So, the closing occurred and lenders, mortgage brokers, appraisers, title companies and inspection companies all got paid. The investor started making payments on its new found goldmine. The loan was immediately sold, the bank replenshed its pockets and the process started anew with another credit worthy investor. Until the bubble burst and we all realized we had been sold fools gold. The “investor” now held an overvalued asset that couldn’t sell for the loan balance, and couldn’t be rented for anything close to satisfy the monthly payments. Investors started losing jobs, the loan market dried up and lenders wouldn’t (and won’t) work with their borrowers to modify loans to match market conditions (despite Government assistance and lots of pushing).
So it is only logical that after fueling the real estate bubble in Arizona, banks want to change the anti-deficiency law with a minute to go in the game — right before a foreclosure occurs. Selling or taking back the property they took as collateral is not enough they say — they need to take whatever hard earned money the investor may have left – wage garnishment, cash and securities, non-exempt assets. You name it — they want it.
Way to go Arizona’s legislature — keep giving banks another lifeline. They haven’t received enough as it is. Take away the one protection Arizona consumers have in the residential real estate market –they don’t need it. After all, our State and Federal Gov’t will surely be giving consumers their own bailout soon — right???
Marc McCain
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138