short sales in arizona
SHORT SALE TIPS FOR ARIZONA RESIDENTIAL PROPERTIES
1. Know what leverage you have, if any. If Arizona’s anti-deficiency statutes apply to your loan(s), use this fact to reject any lender demand for a seller/borrower contribution at close of escrow. Most junior lenders will ask for a contribution from the borrower, sometimes a significant one. If the loan is covered by Arizona’s anti-deficiency laws, the lender would be barred from seeking a deficiency if the home goes to foreclosure. A savvy borrower or his short sale negotiator will use this fact as leverage to get an approval without a borrower contribution, or at least not a significant one. Of course, each loan can be different, so know the law and how it affects each of your loans on a property before the short sale process begins.
2. Always ask for the lender’s express release of liability as a condition to the short sale – even if your loan(s) would be covered by Arizona’s anti-deficiency laws. The short sale proceeds should be taken by the lender as full satisfaction of all indebtedness under the loan(s). Attempt to get this in writing from each lender. If the lender is unwilling to provide such an express release, understand what liability you may have as a borrower following the short sale before you agree to the sale. In some cases, Arizona law prohibits a lender from waiving its security and suing a borrower on its note. As a result, if a lender in such a case releases its security in a short sale, Arizona law should prevent the lender from seeking any recourse against the borrower following the short sale.
3. Understand the process and information the lender will require for a short sale before starting the process. Nearly all lenders require a borrower to submit current financial information – bank statements, tax returns, W-2’s, company profit and loss statements, etc. In addition, lenders typically require a borrower to establish a hardship as a condition to approving a short sale. What constitutes a hardship can vary from lender to lender, and how a borrower portrays the hardship can make a difference. If a borrower may be liable for a deficiency following a short sale, that borrower may want to think twice about providing a lender with a snapshot of its current financial condition. Since a borrower must accurately disclose its income and financial condition, doing so may provide a lender the information it needs to ask for a larger contribution and/or pursue its deficiency rights following a short sale.
4. Use a skilled, experienced negotiator to process your short sale. The short sale process can be lengthy, time consuming and frustrating. Without help from an experienced real estate agent or attorney, the process can be overwhelming for many borrowers. Despite the difficulties, if a short sale is right for you, don’t give up if met with initial resistance or delay from your lender and don’t necessarily blame your negotiator. Even the best real estate agents and attorneys run into unreasonable lenders and their legion of inexperienced and uncaring loss mitigation representatives.
5. Know what you are agreeing to in the short sale process and approval. The standard ARR Short Sale Listing Agreement and Short Sale Addendum require a seller to provide all information requested by a lender in the short sale application process. For reasons noted above, some borrowers may not want to agree up front to provide all information a lender requests. Moreover, the Short Sale Addendum requires the seller to work in earnest to get the short sale approved. As a result, a seller should not enter into a short sale contract unless it truly intends on seeking its lender’s approval and consummating the sale.
6. Read and understand your lender’s approval terms. Most lenders require a seller to sign and return the short sale approval or agreement. The approval conditions and agreements used by lenders vary widely. Some lenders are silent on deficiency issues, others attempt to get borrowers to agree that they will be liable for a deficiency following a short sale, even in instances where such an agreement is contrary to Arizona law and its anti-deficiency provisions. Some approvals require a borrower to sign an unsecured promissory note. Whatever the conditions, a borrower must understand what potential obligations and liabilities it is taking on in the lender’s short sale agreement and related documents.
7. Stay apprised of changes in the law and short sale programs. Commencing on April, 5 2010, the Federal Government’s Home Affordable Foreclosure Alternatives program will implement changes to short sale and deed in lieu workouts for participating lenders and loans. Among the many requirements of the program, a lender will not be able to seek a deficiency following a qualifying short sale or deed in lieu.
8. Understand what tax liabilities may result from a short sale. If a deficiency is not permitted or if a lender writes off any loss on a short sale, the lender should issue a 1099 C to the borrower to report the amount of the cancelled debt. Unless the borrower falls under a recognized exception to cancellation of debt income, a borrower must recognize the income and pay and associated tax liability. A prudent borrower will always understand the probable tax impact of a short sale (or other workout) before the transaction is consummated.
Marc McCain
McCain & Bursh, PLC, Attorneys at Law
(602) 604-2138
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