Articles Posted in Foreclosure

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Bankruptcies and Foreclosures were common just a few years ago and are still occurring. The vast majority of our Clients have never experienced these problems or procedures before, but often there simply are no other sensible options.

Understandably, Clients are concerned as to how these procedures will affect them. They ask how much their credit will be damaged, how long will the damage last and when can they consider buying a home again.   The answers to these questions will be different for each person. Some recover quickly—usually those with good jobs—and others continue to have financial difficulty. However, some answers are available.

Included below is information about how long potential buyers must usually wait before applying for mortgage financing. As it turns out, the wait can be different depending upon the type of loan being applied for.

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These days, it is not uncommon for mortgages to be sold or transferred. Many mortgages start out with one company and are almost immediately transferred to a different bank or loan servicing agency. In fact, most homeowners who finance through a mortgage, are probably not paying the same company who originally provided the loan. You may be asking yourself, why does this happen, and how does it affect the average homeowner?

Anyone who has applied for a mortgage can attest to the fact there is no shortage of paperwork to fill out during the process. Very few people actually take the time to read the fine print. In fact, most simply verify the important terms then sign and initial as applicable. However, in most, if not all mortgage contracts, there is a clause stating whether or not their mortgage will be sold or transferred. This language is required by Title 12 Chapter 27 § 2605 of the U.S. Code.

Generally speaking, there are two parts of a mortgage that can be transferred or sold. The two components do not even have to be owned by the same company. However, to most homeowners the distinction is non-existent except in name. The first component is the actual mortgage, also called the note. The note is what sets forth the terms of loan, including the amount owed and when. The note is almost always secured by a deed of trust on the physical property. In Arizona, this is what allows banks to foreclose on homeowners who fail to pay their mortgages. This is what’s known as a non-judicial foreclosure.

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ARS §33-420 is Arizona’s Groundless lien statute. Generally, it prohibits someone from making a wrongful claim against a parcel of real property. It provides that a person who causes a document to be recorded “knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial title holder of the real property for the sum of not less than five thousand dollars, or for treble the actual damages caused by the recording, whichever is greater, and reasonable attorney fees and costs of the action.”

This is a powerful statute. When a false lien or claim is discovered, often all that is needed to get it removed is to make a demand pointing out the penalties in this statute.

Recently the Arizona Court of Appeals has broadened the protection this statute provides. In Stauffer v. U.S. Bank National Association it was ruled that recorded documents that assert some interest in real property, such as a Notice of Trustee’s Sale, are subject to Arizona’s Groundless Lien Statute. This potentially gives Arizona homeowners another strong avenue of attacking a foreclosure proceeding that was filed prematurely or without legal justification.

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Arizona is one of the few states with a strong Anti-deficiency law. Our Arizona law was responsible for protecting thousands of Arizona homeowners from even greater hardship when they lost their homes to foreclosure during the recent real estate crash. The law limits the rights of a lender. It provides that a lender cannot sue a homeowner for a deficiency balance where a foreclosure sale does not produce enough money to pay off the loan or loans. The lender must take the loss, not the homeowner.

Over the years, Arizona Courts have recognized the statute’s intent is to protect Arizona homeowners and have interpreted the law broadly. Anti-deficiency protection was afforded to homeowners where no one had actually lived in the home. Even investors were protected.

As of the end of 2014 this is changing. ARS §33-729 and ARS §33-814 have been amended effective for mortgage loans that originate after December 31, 2014. Starting in 2015, Anti-deficiency protection will no longer be available for:

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In yet another case favorable to homeowners, the Arizona Court of Appeals (Division One) determined that borrowers cannot contractually waive the anti-deficiency protections afforded by Arizona statutory law. The Arizona anti-deficiency statute protects most homeowners (exceptions do apply – see an attorney for help with this) from paying for the difference owed on their homes if they are foreclosed upon and their homes are sold for less than what is owing.

In Parkway Bank and Trust Co. v. Zivkovic, a borrower contractually agreed to waive all rights or defenses he might have under anti-deficiency law. The borrower eventually defaulted and the lender foreclosed. The house sold at foreclosure for less than what was owed, and the lender proceeded to sue the borrower for the difference. The borrower argued he could not be sued for the difference because of Arizona’s anti-deficiency statute but lost. He then appealed.

The Appellate Court concluded that the Legislature in creating the anti-deficiency statute (see A.R.S. 33-814) intended to protect consumers from the risks associated with borrowing to purchase homes by eliminating the hardships consumers would suffer for failing to fully appreciate the extent to which they were subjecting their personal assets to legal process. Instead, the legislature allocated to the lenders the “risk of inadequate security” in hopes that this would deter unbridled lending and overvaluation of collateral, and would also protect consumers against general downturns in the real estate market.

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A recent case illustrates at least one of the pitfalls for those who invest in property tax liens. In Delo v. GMAC Mortgage, an investor (Delo) purchased a property tax lien on a property that had been acquired by Pinal County. Mr. Delo paid the outstanding property taxes and received an assignment from the County.

Following the three year waiting period for the owners to redeem the property tax lien by paying the past due taxes (plus interest), Mr. Delo proceeded to foreclose. Neither the owners nor the lenders defended and Mr. Delo obtained a default judgment.

However, while Mr. Delo’s lawsuit was proceeding, the lender on the property initiated a separate non-judicial foreclosure proceeding on the property. The original lender was EquiFirst with MERS (Mortgage Electronic Registration System) “as a nominee for Lender and Lender’s successors and assigns” and as “the beneficiary under the Security Instrument” and as legal title holder.

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In Arizona, many homeowners who lose their home to foreclosure are not required to pay their lender for any deficiency between what they owed on the home and the price that the home is sold for at a trustee’s sale. This protection from liability is found in Arizona’s “anti-deficiency” laws.

However, Arizona’s anti-deficiency statutes do not protect all property owners from liability for a deficiency in the event of a foreclosure. In these instances, in order to determine the correct amount of the deficiency, the fair market value of the property must first be established. In MidFirst Bank v. Chase, 1 CA-CV 11-0013, the Arizona Court of Appeals found that a bank’s bid price for a property sold in a Trustee Sale is not evidence of the property’s fair market value for purposes of calculating a deficiency judgment.

In MidFirst Bank v. Chase, the lender, MidFirst Bank (“MidFirst”) loaned $1,620,000 to a borrower. The loan was secured by a deed of trust recorded against real property, and was guaranteed by two individuals, Mike and Linda Chase (the “Chases”). The Chases defaulted and MidFirst purchased the property at the trustee’s sale for a credit bid of $486,000.

MidFirst then moved for summary judgment against the Chases seeking a deficiency judgment of $1,325,044.09. The Chases argued that there was no deficiency because the “value of the Property far exceeds anything that could be owed on the Loan.” The trial court granted MidFirst’s motion for summary judgment. The trial court reasoned that, “No reasonable juror could find for [the Chases] on the issue of fair market value based upon the record presented.” The Chases appealed and the Court of Appeals reversed the trial court’s decision.

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Fannie Mae and Freddie Mac recently announced new rules for deeds-in-lieu of foreclosure. The new rules will become effective on March 1, 2013. A deed-in-lieu of foreclosure allows a borrower to convey all interest in a real property to the lender to satisfy a loan that is in default and avoid foreclosure proceedings.

The principal advantage to the borrower is that it immediately releases him or her from most or all of the personal indebtedness associated with the home. Another benefit to the borrower is that it hurts his or her credit less than a foreclosure does.

Due to the decline in the housing market, many homeowners have been stuck in homes that are worth much less than they owe. The new rules for deed-in-lieu transactions will assist many homeowners who no longer wish to remain in their homes.

The new rules apply to people who are current or less than 90 days late on their mortgage payments. To be eligible for the deed-in-lieu programs, borrowers are required to have a 55 percent debt-to-income ratio, which means that 55 percent of their monthly gross income goes to paying the debt and must also document a hardship, such as illness or a spouse’s death. The home must be clean and not damaged.

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The Mortgage Forgiveness Debt Relief Act of 2007 (“the Act”) has been extended until January 1, 2014. The Act exempts most homeowners from paying federal income tax on debt forgiven by lenders through foreclosure, short sale or loan modification.

The Act was set to expire on January 1, 2013. The extension of the Act is expected to impact the market for short sales. If the Act had not extended, then a seller would pay income tax on the amount of debt forgiven by a lender in a short sale. As a result, many homeowners may have been reluctant to attempt to do a short sale and pay a significant tax on the forgiven debt had the Act not been extended.

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The Arizona Court of Appeals recently ruled in Independent Mortgage Co. v. Alaburda, that Arizona’s anti-deficiency law (A.R.S. § 33-814(G)) protects a borrower who has a fractional interest in a vacation home.

The Alaburdas purchased a 1/10 fractional interest in a single-family residential condominium in Sedona. Independent Mortgage financed the purchase with a loan in the amount of $321,750, which was secured by a deed of trust on the 1/10 interest in the property. The Alaburdas could vacation at the property for up to twenty-eight days each year.

The Alaburdas defaulted on the promissory note, and Independent Mortgage foreclosed on the property via a trustee’s sale. The property sold for $285,000, which was less than the amount owed on the promissory note. Independent Mortgage filed a lawsuit against the Alaburdas as a result of the deficiency balance.

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