Foreclosure Law

Update on Recent Developments in Arizona’s Foreclosure and Short Sale Laws

If you have been following my Real Estate Law Blog posts you may have already read about some of the recent legal developments related to foreclosures and short sales in Arizona.  However, in light of a new Court of Appeals case just decided last month, I felt it was time for a summary of these recent developments.

Construction Loans and Home Improvement Loans:
A ruling last month by the Arizona Court of Appeals  in the case of Helvetica Servicing Inc. v. Pasquan answers important questions in the law and may impact anti-deficiency protections for some people.  This case involved the refinance of an original purchase money loan, in which the borrower was loaned additional funds.  The additional funds were primarily used by the borrower: (1) to reconstruct a large portion of the home, and (2) for home improvements and related purposes.
The Court of Appeals ruled on several key issues that have been in dispute in Arizona. The Court laid out the following rules to follow when determining whether a refinanced loan or construction loan will be given purchase money status under Arizona law in certain situations and thus, afforded anti-deficiency protection in the judicial foreclosure context:

A refinance of a purchase money loan, whether by the original lender or a new lender, does NOT destroy purchase money protection to the extent the loan proceeds from the refinance are used to satisfy the underlying purchase money loan.

A construction loan given to borrower that is (1) secured by a deed of trust that covers both the land and the dwelling to be constructed on the land (provided the dwelling is a qualifying property under the anti-deficiency statute), and (2) actually used to construct the dwelling, will be afforded purchase […]

Banks Want Right to Sue Over Home Foreclosures

The Arizona Bankers Association is pushing again to change Arizona’s anti-deficiency laws.  According to Paul Hickman, president and CEO of the Arizona Bankers Association, “One of our main goals is to reform this statute and bring it in line with the rest of the country . . . This law makes Arizona compare worse to other similarly positioned states.”

Banks Lose Key Foreclosure Ruling in Top Massachusetts Court

Reuters:  “In a decision that may slow foreclosures nationwide, Massachusetts’ highest court voided the seizure of two homes by Wells Fargo & Co and US Bancorp after the banks failed to show they held the mortgages at the time they foreclosed.”

Arizona Sues Bank of America for Alleged Mortgage Fraud

Arizona Republic:  “Arizona’s attorney general filed a lawsuit Friday against Bank of America, accusing the state’s largest mortgage lender of deceiving borrowers who were trying to obtain loan modifications to keep their homes. . . . ‘BofA is abusing borrowers systematically,’ Arizona Attorney General Terry Goddard said.”

Arizona Legislature Repeals SB 1271 Again – Law Would Have Changed AZ’s Anti-Deficiency Law

Good news for Arizona borrowers and real estate investors who have liens on their property secured by a Deed of Trust.  The Arizona legislature repealed SB 1271 for the second time.  Last year the Arizona Bankers Association tried to pull a fast one on borrowers whose loans were secured by Deeds of Trust on Arizona real property of 2.5 acres  or less utilized as one or two dwelling units.  The ABA got the unsuspecting Arizona legislature to pass a law called SB 1271 that was signed by Governor Brewer.  SB 1271 retroactively changed Arizona law to make thousands of borrowers liable as of September 30, 2009, for amounts they were not liable for on September 29, 2009.  The law was so bad that the State Senator who sponsored SB 1271 lead a campaign to repeal the law.
The Arizona legislature repealed SB 1271 during a special legislative session last year and Governor Brewer signed that repeal into law.  The Arizona Bankers Association filed a special action with the Arizona Supreme Court asking the court to throw out the repeal on the basis it was not constitutionally legal because it was an add on bill to a special session of the legislature called by the Governor for a different purpose.  This second repeal of SB 1271 is intended to make the first repeal moot and finally kill the ABA’s attempt to retroactively rewrite the law of Arizona to the great harm of thousands of borrowers and the economy.
For more history on this subject, see my article called “New Arizona Law Limits Borrowers’ Protection from Deficiency Judgment After […]

Some Arizona Homeowners Still Owe After Short Sale

Arizona Republic:  “Short sales allow people to sell their homes for less then they owe on their mortgage to avoid foreclosure. In Arizona, though, some former homeowners are finding they are still in debt to their lenders, even after completing a short sale.”

Some Homeowners Facing Foreclosure Saying To Banks ‘Show Me The Note’

CBS San Francisco:  “Banks seem to have most of the power when it comes to foreclosures, but some homeowners are fighting back with a new battle cry: ‘Show Me the Note!’ . . . “The deeper you look, the more illegal the actions are of these banks,” said Reno attorney Robert Hager, who’s suing MERS and hundreds of banks, alleging they’ve been foreclosing on homes without showing a true legal link to the note.”

States put Heat on Mortgage Lenders

Arizona Republic:  “As national concern about foreclosures continues to grow, attorneys general from all 50 states say they will push for an agreement with mortgage lenders to help distressed homeowners.  The prosecutors want lenders to standardize their practices to reduce the chances of improper foreclosures and create a fund to help homeowners who have been foreclosed on illegally.”

What Does the ‘Foreclosure Crisis’ Mean for You?

Wall St. Journal:  “The Recent Fracas May Not Hit You Where You Live— But the Fallout Could Affect You in Surprising Ways.  But the fallout from the [mortgage] crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.  Real-estate salespeople in some of those places are worried.”

Battle Lines Forming in Clash Over Foreclosures

New York Times:  “the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.  While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.  Banks ‘have essentially sidestepped 400 years of property law in the United States’,”