ARIZONA SUPREME COURT SIDES WITH LENDERS ON KEY TRUSTEE SALE ISSUE
IN VASQUEZ V. SAXON MORTGAGE, INC., ET. AL., the Supreme Court of Arizona recently held that Arizona’s trustee sale statute does NOT require the recording of an assignment of a deed of trust to reflect the interest of the foreclosing lender (as the current beneficiary under the Deed of Trust) before a trustee sale can be conducted. The U.S. Bankruptcy Court for the District of Arizona certified 2 questions for the Court’s consideration:
1. IS THE RECORDING OF AN ASSIGNMENT OF DEED OF TRUST REQUIRED PRIOR TO THE FILING OF A NOTICE OF TRUSTEE’S SALE UNDER A.R.S. § 33-808 WHEN THE ASSIGNEE HOLDS A PROIMSSSORY NOTE PAYABLE TO BEARER?
AND
2. MUST THE BENEFICIARY OF A DEED OF TRUST BEING FORECLOSED PURSUANT TO A.R.S. § 33-807 HAVE THE RIGHT TO ENFORCE THE SECURED OBLIGATION (that is being foreclosed)?
On the 1st issue, the Court focused on Arizona’s trustee sale process and the statutes that govern how a trustee’s sale is conducted. Finding no authority in Arizona statutes for the idea that an assignment of a Deed of Trust must be recorded in the County Recorder’s office to provide evidence that the foreclosing beneficiary is the current holder of the beneficial interest of the Deed of Trust being foreclosed, the Court refused to impose such a requirement as a condition to a trustee’s sale. The Court was mindful to articulate the reasons why an assignment of a Deed of Trust would be appropriate, but explained that such an assignment is discretionary and only impacts the rights of the parties to the assignment and potentially a third party that would buy an interest in the trust property without knowledge of the assignment. However, as between the owner and the lender, the Court found that an assignment is not necessary and cannot be used by an owner to stop a trustee from carrying out the authority granted to it in the Deed of Trust.
The Court declined to address the 2nd issue, finding that the answer to this question would not help decide any issues in the underlying bankruptcy action since the foreclosing lender, Deutsche Bank, had been assigned the promissory note in question before the notice of trustee’s sale (related to the Vasquez foreclosure) was recorded. As a result, this issue remains open to debate, although it will likely be clarified by decisions of Arizona courts in the near future. Until then, some borrowers will choose to push this issue to the forefront of their disputes with their servicers/lenders.
Unfortunately, in not addressing the 2nd issue presented, the Court left unanswered a very important question plaguing the non-judicial foreclosure process (i.e., trustee’s sales) and, in my opinion, a question that goes to the heart of the issues in many foreclosure disputes. The basic argument behind the 2nd issue is that when mortgages were sold in the securities markets, the note and collateral were separated and the collateral securing the note was never assigned to the parties that actually own the note. Since the collateral is being sold to satisfy obligations under the note, how can a party that can’t prove it owns the note, and thus the right to enforce the note, authorize a trustee to sell the property at a foreclosure auction? In many cases, it simply is not clear who actually owns the note that is causing the foreclosure. If the trustee takes direction from a beneficiary (or its agent) as to when to record a notice of trustee’s sale and when to conduct a foreclosure, this begs the question – does the party that is telling trustees to foreclose on Arizona properties actually own the notes that are the subject of the foreclosure (or work for someone that does)? If not, then one question looms large – who the heck is telling the trustees to foreclose?
Losing a home is a pretty big deal. Doesn’t common sense tell us that if you are going to take someone’s home, someone’s property, you better be able to establish that you own the note (or work for someone that does) that is the underlying reason for the foreclosure? If not, can’t anyone allege they own the note or work for someone that does, never have to prove their position, pick their own trustee to do the trustee’s sale and provided the trustee follows the statutory process, sell a borrower’s house out from under them. And what is the justification for looking the other way on this issue – simply because the borrower is delinquent? Perhaps, but does a delinquency justify such sloppy and questionable business practices?
Marc McCain, Esq.
McCain & Bursh, PLC
602 604-2138
Tags : Arizona anti-deficiency laws, arizona foreclosure attorney, Arizona real estate attorney, arizona real estate lawyer, arizona short sale attorney, cancellation of debt in short sale, chain of title in foreclosure, deed in lieu of foreclosure, deficiency after short sale, foreclosure attorney, foreclosure lawyer, loan modification, marc mccain, Marc McCain attorney, marc mccain lawyer, MARS guidelines, mars rules, mccain and bursh, mccain and bursh attorneys, phoenix real estate attorney, phoenix real estate lawyer, produce the note in foreclosure, produce the note in trustee sale, short sale attorney, short sale lawyer, supreme court rules on lender's chain of title, tax liability in foreclosure, tax liability in short sale
DÉJÀ VU ALL OVER AGAIN – SENATOR CALLING FOR REPEAL OF ARIZONA’S ANTI-DEFICIENCY STATUTE
Didn’t we just go through this a few years back? Didn’t the Banker’s Association support a bill that would have stripped anti-deficiency protections to what could have been tens, or possibly hundreds, of thousands of homeowners in the State of Arizona? Didn’t the Senator that sponsored that bill learn after its passage that the Banker’s Association had not been accurate in its portrayal of Arizona’s anti-deficiency laws and failed to mention the horrible impact the legislation would have had on already battered consumers and our State economy? Didn’t that same Senator, after learning how the covers had pulled over our legislature’s eyes, call for the repeal of his own bill? Didn’t the repeal end in a messy battle with the Banker’s Association suing the Governor over the repeal of the bill only to have our legislature pass a stand-alone repeal of the bill that passed with only a single dissenting vote? Didn’t the repeal leave the banking community with egg on its face over an issue that was already enflamed with the public’s outrage over the bailouts of our heralded financial institutions?
The answer to these questions is “yes”. Unfortunately, one Arizona Senator thinks it is a good idea to tinker with Arizona’s anti-deficiency statutes even though the statutes have been on the books since 1971 and are grounded on fundamental policy rationale that consumers need protections from falling home values when those assets are pledged as collateral for a loan. Republican Senator Jack Harper of Surprise thinks that banks need more protection against consumers when making a residential mortgage loan and wants to strip Arizona’s longstanding anti-deficiency protections from consumers, enabling lenders to sue borrowers for any deficiency owed on a loan after taking a home in foreclosure. In doing so, the thought goes, banks will suddenly be apt to lend in Arizona and this will get our economy going in the right direction.
While the specifics of the bill are still in question, a recent article and news story by Fox News of Arizona indicated that the Senator’s bill intends to target loans written after the date the legislation takes effect. This is a fundamental difference with the prior bill that was only short lived – it is forward looking and won’t affect the rights and protections afforded to homeowners with loans written before the new legislation would go into effect. While Senator Harper can be commended for leaving pat the rights of borrowers and lenders in existing loans, the potential problems that such a change to our well established anti-deficiency laws would create are too many to address in a single blog post (more to come on these problems in future posts). Read the story at:
http://www.myfoxphoenix.com/dpp/news/housing_market/strategic-foreclosures-penalty-bill-12-13-2011#
Suffice it to say this – Arizona’s anti-deficiency statutes and the case law that has interpreted them must be fully understood before our legislature starts tinkering with parts of the statute. What was clear in the last dog and pony show that took place over our anti-deficiency statutes is that our legislature did not understand the many complex rules and painstaking analysis that must take place when working through our statutory non-judicial foreclosure scheme and its sister scheme, judicial foreclosures. Our legislature did not understand that changing only the trustee’s sale anti-deficiency statute, while leaving intact the judicial foreclosure statute, would throw most of our case decisions and analytical framework out the window and leave everyone wondering how certain cases would be decided. It did not understand that in order to properly address the rights of lenders and borrowers in this market, a comprehensive statutory overhaul would be in order. An overhaul that would also address borrower liability after a short sale.
Moreover, if getting lenders to lend more in Arizona is the goal, it is highly questionable that such a change in our anti-deficiency statute will achieve this purpose. First, loan rates in Arizona already factor in the additional risks to lenders that our anti-deficiency laws impose. Second, anti-deficiency statutes should, in theory, make lenders more cautious when writing loans and valuing the real estate that serves as collateral for the loan. However, we all know this didn’t happen over the last decade. Thus, the notion that changing our statute will change the way loans are written in Arizona is without any historical support – if our statutory non-judicial foreclosure scheme is so bad for lenders, why were lenders so willing to make the risky loans they made in the past? Why did lenders not question the substantial spike in home values with so much to lose?
Additionally, most loans are insured through one form of insurance or another – whether it be private mortgage insurance paid by a borrower, insurance provided by FHA, Fannie Mae, Freddie Mac or even insurance purchased by lenders on their own portfolios. This insurance and who pays for it is another factor in the interest rate a borrower pays and a lender’s willingness to lend in Arizona. As long as this insurance is available, and as long as lenders diligently underwrite residential mortgage loans, lenders should not be motivated to make a loan by the prospect of being able to pursue a borrower for a deficiency post-foreclosure. Even without such insurance, prudent lenders will simply factor in the potential for increased losses into the interest rate on a loan to compensate them for additional risk of loss.
It seems more logical to suggest that if anti-deficiency protections didn’t cause lenders to be cautious when making loans on Arizona properties over the last decade, putting the risk of future falling real estate prices on the backs of Arizona property owners will only encourage lenders to look past asset values and make even more risky loans in the future. If so, this would not be a good by-product of such legislation — our economy has suffered enough by lender’s shoddy lending practices. What is clear in this matter is that Senator Harper, while having good intentions, needs to consider the many ramifications and consequences of changing our anti-deficiency statutes. Trying to deal with a shattered housing market by putting more of a burden on homeowners is simply not the answer.
If you are concerned about this legislation or want to voice your opinions on the matter, contact your local representative and express your views. You can find information on your representatives at www.azleg.gov
Marc McCain, Esq.
McCain & Bursh, PLC
(602) 604-2138
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PHX Consulting’s 1st Annual Holiday Food Drive
We are still looking for more donations and there is still plenty of time (the food drive ends on December 14, 2011). Even as little as one or two cans of food can make a huge difference in these people’s lives. Thank you for your support!!!
During this holiday season there are many less fortunate families that are severely struggling in obtaining basic needs such as food and clothing. Here at PHX, we are looking to raise 2,500 units of non-perishable food items to be organized into food baskets that will be donated to the Wesley Community Center. Recently, on several occasions the Wesley Community Center Food Pantry has run out of food to feed its surrounding community.
We are asking for your help in achieving this goal by donating whatever you can. For your convenience, you can either drop off your donations at McCain&Bursh, PLC located at 4300 N Miller Rd, Suite 250, Scottsdale, AZ 85251 at anytime or we will also be conducting weekend home pickups on 11/26, 12/3, and 12/10.
If you would like us to pick up your food donation, please send an email to 2011FoodDrive@PHXConsultingServices.com with the date, time of pickup, and address of the property. Please place the non-perishable food items in a plastic bag near the garage door.
For additional questions, please contact Michael at (480) 559-4365.
About the Wesley Community Center
The Wesley Community Center was established in 1950 as a 501(c)(3) non-profit, community service organization dedicated to empowering and assisting families in the south-central Phoenix community of Nuestro Barrio (our neighborhood). This predominately Hispanic community is home to approximately 7,000 individuals, in which 70% are living in sub-standard housing making less than $12,000 per year.
Some of the neighborhood challenges include:
• Extreme Poverty
• Social Problems
• High Crime Rates
• 42% School Dropout Rate.
Wesley’s Mission Statement:
“Together We Empower Positive Change,” is at the heart of all Wesley programs.
Requested Items (Please make sure nothing is set to expire within 30 days)
• Boxed Cereal: 12 oz – 18 oz
• Crackers: 16 oz
• Peanut Butter/Jam: 16 oz
• Instant Soups: 10 oz
• Pasta/Spaghetti Sauce: 26 oz
• Sugar: 5 lbs
• Pinto Beans: 1 lb – 2 lbs
• White Rice: 1 lb – 2 lbs
• Flour: 5 lbs
• Canned Vegetables: 14 oz – 16 oz
• Canned Meat: 14 oz – 16 oz
• Cooking Oil: 48 oz or less
• Tomato Sauce: 8 oz – 15 oz
• Tuna: 5 oz
• Jello: 3 oz – 5 oz
• Instant Mashed Potatoes: 12 oz
• Macaroni ‘n’ Cheese: 7.25 oz
Please help support this great cause and thank you to our sponsors:
Distressed Property Negotiators (“DPN”)
McCain&Bursh, PLC
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Short Sale Update and Tips
One issue that comes up often in short sale transactions I review for clients is whether the servicer/lender must sign a short sale approval letter for the approval and related terms to be binding on the servicer/lender. In short, the answer is a definitive YES. Why, just a little something called the statute of frauds which requires certain types of agreements to be both (1) in writing, and (2) signed by the party to be charged with the agreement. Thus, if you are looking for a servicer/lender to release you from any deficiency that may result from a short sale, you better be certain the short sale approval is both clear and signed. There may be exceptions to the statute of frauds, but why take a chance when the deficiency could be substantial. For more information on this topic, consult with qualified legal counsel that has experience in short sale and real estate transactions.
Marc McCain
McCain & Bursh Attorneys
(602) 604-2166
Tags : Arizona anti-deficiency laws, arizona foreclosure attorney, Arizona real estate attorney, arizona real estate lawyer, arizona short sale attorney, cancellation of debt in short sale, deed in lieu of foreclosure, deficiency after short sale, foreclosure attorney, foreclosure lawyer, loan modification, marc mccain, Marc McCain attorney, marc mccain lawyer, MARS guidelines, mars rules, mccain and bursh, mccain and bursh attorneys, phoenix real estate attorney, phoenix real estate lawyer, produce the note in foreclosure, produce the note in trustee sale, short sale attorney, short sale lawyer, tax liability in foreclosure, tax liability in short sale
ARIZONA SUPREME COURT TO TACKLE KEY ISSUES REGARDING FORECLOSURE IN ARIZONA
In September, the Arizona Supreme Court will hear oral arguments on 2 issues related to a lender’s right to foreclosure in Arizona. These issues are:
1. is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. §33-808 when the assignee holds a promissory note payable to bearer?
2. must the beneficiary of a deed of trust being foreclosed pursuant to A.R.S. §33-807 have the right to enforce the secured obligation?
A thorough analysis of these issues is not possible in this blog, but suffice it to say that these issues are of paramount importance to both borrowers and lenders and the Court’s decision will send shockwaves through the legal and lending communities. The first issue goes to whether the holder of the promissory note must show that it has been assigned the rights as the beneficiary under the deed of trust that secures the note. In essence, the Court is being asked whether the beneficiary can establish a proper chain of title under the deed of trust. While hard to believe, countless foreclosures have occurred in Arizona (and elsewhere) where the alleged holder of the note was not assigned the rights of the beneficiary under the deed of trust at the time of a trustee’s sale. Essentially, a borrower does not know who owns their note and from whom the trustee that started the trustee’s sale got its authority to conduct the sale. If lenders are forced to establish a clear chain of title before foreclosing, this could present problems for many lenders who allegedly own a note but are far removed from the original lender – that is, given the shoddy document practices in the mortgage backed securities business, it may be impossible for certain lenders to get assignments of the deed of trust from the prior owners of a note so that the chain of title under the deed of trust clearly establishes they are the beneficiary who has the right to foreclose.
The second issue is, in reality, a version of the produce the note argument. In other words, must the lender that is foreclosing establish that they are the rightful owner of the note that the deed of trust secures? While one would assume this must be the case since the note is the actual obligation to pay and the deed of trust merely acts as security for that obligation, several Arizona courts have held that in a non-judicial foreclosure state such as Arizona, a beneficiary under a deed of trust need not show they own the note, but only that they followed the statutory process for conducting a valid trustee’s sale. For these courts, it is immaterial that the beneficiary may have no right to sue the borrower on the note, only that they claim to be the beneficiary under the deed of trust and followed the trustee sale process. Like the first issue, if lenders are forced to show their right to enforce the note in a trustee sale context, many will have a hard time doing so given their inability to show how they came to own the note (e.g. many don’t have the original instrument or any evidence of prior assignments of the note to them).
Stay tuned Arizona . . . this could get interesting very quickly.
Marc McCain
McCain & Bursh, Attorneys at Law
(602) 604-2138
Tags : Arizona anti-deficiency laws, arizona foreclosure attorney, Arizona real estate attorney, arizona real estate lawyer, arizona short sale attorney, cancellation of debt in short sale, deed in lieu of foreclosure, deficiency after short sale, foreclosure attorney, foreclosure lawyer, loan modification, marc mccain, Marc McCain attorney, marc mccain lawyer, MARS guidelines, mars rules, mccain and bursh, mccain and bursh attorneys, phoenix real estate attorney, phoenix real estate lawyer, produce the note in foreclosure, produce the note in trustee sale, short sale attorney, short sale lawyer, tax liability in foreclosure, tax liability in short sale
MARS RULES WON’T BE ENFORCED AGAINST REALTORS IN SHORT SALES
On July 15th, 2011, the FTC issued a Press Release stating that they will not enforce most provisions of the Mortgage Assistance Relief Services (“MARS”) rules against real estate brokers and real estate agents. (see the statement and press release at http://ftc.gov/opa/2011/07/mars.shtm). The MARS rules as written clearly apply to real estate brokers and agents assisting clients with short sales. However, the real estate community had expressed tremendous frustration with the rules given the specific disclosures the MARS rules require in a short sale and the possibility that these disclosures would only further confuse their clients and require realtors to provide advice outside of their expertise. As the FTC noted in its press release, many real estate professionals “have raised concerns about the accuracy and comprehensibility of the disclosures mandated by the Rule, and the unintended consequences that might result from application of the advance fee ban, in the context of a real estate professional assisting a consumer in negotiating or obtaining a short sale.” The stay on enforcement means that real estate professionals won’t have to make several disclosures required by MARS that could be misleading or confuse consumers trying to navigate a short sale and is intended to eliminate obstacles imposed by MARS that may have prevented many agents from assisting homeowners in a short sale.
The stay against enforcement of most of the MARS rules applies to real estate professionals that
(1) are licensed and maintain good standing pursuant to any applicable state law
requirements;
(2) are in compliance with state laws governing the practices of real estate professionals; and
(3) are assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.
Real estate professionals who meet these requirements do not have to make the disclosures required by the MARS rules and are not subject to the MARS rule ban on collecting advance fees. However, the FTC will continue to enforce those provisions of the MARS rules that prohibit unfair and deceptive practices against Real Estate Agents (such as misleading statements in a short sale context).
The stay will bring great relief to realtors in severely depressed real estate markets such as Arizona who find short sales difficult enough without the burdens imposed by the MARS rules. However, real estate professionals much be mindful of the myriad of state regulations governing their activities in a short sale transaction including their duty of loyalty and competence to their clients. This means that realtors should never advise an owner to short sale a property without the client first understanding all legal and tax implications that can result from a short sale – issues that no realtor should tackle on their own.
Marc McCain
McCain & Bursh, PLC, Attorneys at Law
mmccain@mblawaz.com
(602) 604-2138
Tags : Arizona anti-deficiency laws, arizona foreclosure attorney, Arizona real estate attorney, arizona real estate lawyer, arizona short sale attorney, cancellation of debt in short sale, deed in lieu of foreclosure, deficiency after short sale, foreclosure attorney, foreclosure lawyer, loan modification, marc mccain, Marc McCain attorney, marc mccain lawyer, MARS guidelines, mars rules, mccain and bursh, mccain and bursh attorneys, phoenix real estate attorney, phoenix real estate lawyer, short sale attorney, short sale lawyer, tax liability in foreclosure, tax liability in short sale