2010 April Archive - Combs Law Group

Does Arizona Homestead Exemption Protect Homeowner from Foreclosure

Question: We purchased our home in Gilbert with a $240,000 mortgage. After we purchased our home we borrowed $100,000 on a home equity line of credit (“HELOC”). The home is worth less than $200,000 now. Although we are trying to get a loan modification on our first mortgage loan of $240,000, even if we get the loan modification agreement we will probably not be able to stay current at this time with the monthly mortgage payments. In addition, we have not made any payments on our $100,000 HELOC for the last two months. We do not want to lose our home to foreclosure. My husband has just started a new job, and in the next year or so we may be able to get out of this mess. Can the homestead exemption under Arizona law protect us from foreclosure by either the first mortgage lender or by the HELOC lender?

Answer: No. First, the Arizona homestead exemption protects equity up to $150,000 in the principal residence of a homeowner, but this protection only applies to non-consensual judgment liens of creditors, e.g., collection judgments for credit card bills or medical bills. The homestead exemption does not protect a homeowner from consensual liens, e.g., liens on the home consented to by the homeowner at the time that the homeowner borrowed funds for a loan such as a mortgage loan, a HELOC, or a swimming pool loan. A.R.S. §33-1101. Second, even if the homestead exemption did apply, you have no equity to protect. Therefore, you should consult an Arizona bankruptcy lawyer to discuss possible bankruptcy protection to protect your home, including “stripping” of the HELOC as a second lien on your home, especially in light of the potential for improvement of your financial circumstances because your husband is employed again.

Arizona Real Estate Law Requires Homeowner to Give Notice to Enter Home, Tenant Must Comply

Question: Last month I purchased a home in Surprise from a California investor. The California investor had leased the home to a tenant under a lease which now has four months left. My goal is to sell the home as soon as possible, and hopefully close on the sale to the buyer at the same time as the tenant’s lease expires in four months. At least three different times I have given the required two days notice to the tenant to show the home to a prospective buyer. On prior visits to the home the tenant had an excuse such as sickness and refused to let me in the home. Yesterday I went with a prospective buyer to the home and the tenant slammed the door in my face. The prospective buyer is naturally no longer interested in purchasing this home. Do I have to get a court order to get access to this home that I own?

Answer: In Arizona real estate law, the owner of the home is required to give at least two days notice to the tenant of the intent to enter the home (A.R.S. §33-1343), and the owner of the home is required to enter the home only at reasonable times, e.g., 2:00 p.m. If the owner of the home has complied with these two requirements, the tenant is in breach of the lease. Under A.R.S. §33-1376(A) the landlord is entitled to get a court order to allow access, or is entitled to terminate the lease and get a court order to evict the tenant. Therefore, you should contact an attorney to get a court order either to allow access or to evict the tenant.

Note: In my column I frequently say “you need to contact an attorney.” The reason is that, if parties can’t enter into an agreement among themselves to resolve a dispute, e.g., in this circumstance the tenant will not grant reasonable access to the landlord’s own home, the only remedy is to contact an attorney to go to court or at least threaten to go to court. As a law professor of mine used to say, “if everyone was reasonable and fair in their treatment of each other, ninety percent of lawyers would be out of business and most law students would be in business school!”

Lender Must Foreclose in Reasonable Time After Mortgage Default But Owners Liable for HOA Fees Until Then

Question: My Chicago business partner and I purchased an expensive condominium in Scottsdale for an investment. Due to the failing economy and the slowdown in our business, we have been unable to make the payments and let the condominium go into mortgage default for the past seven months. We know that under the Arizona anti-deficiency law we have no personal liability for any deficiency on the mortgage loan, but we also know that we are personally liable to our HOA for the monthly fees of $1,400 as long as we own the condominium. All we want to do is end this nightmare by giving the condominium back to the mortgage company, or lose the condominium at foreclosure. The mortgage company, however, will not accept a deed in lieu of foreclosure from us, nor will the mortgage company tell us when they will institute foreclosure proceedings. How can we make the mortgage company foreclose on our condominium so that we are no longer liable for maintaining the condominium, including payment of the $1,400 monthly HOA fees?

Answer: A phenomenon of this current real-estate market is that mortgage lenders are not “racing to foreclosure,” especially on high-end homes. The reason is that, after the foreclosure sale, the mortgage lender will not only have another REO (“Real Estate-Owned”) “dog” on their balance sheet, but the mortgage lender will be responsible for the HOA fees, landscaping, pool and other repair/maintenance costs, until the home sells. Under Arizona law, a mortgage lender is only required to institute foreclosure proceedings within six years of the default on the mortgage loan, i.e., when the borrower stops making payments. Therefore, although higkly unlikely, unless you do a “short sale” or otherwise sell the condominium, you could be required to maintain the home, including the $1,400 monthly HOA fees, for the next six years.

After Mortgage Default Lender Can Collect Against Debtor’s Assets and Garnish Wages

Question: Four years ago we purchased a lot in the Arrowhead area of Peoria for $300,000. We paid a $20,000 cash down payment with a mortgage of $280,000. Although it has been difficult, we have kept the payments current on this lot until five months ago. Our neighbor is a real estate broker, and says that the lot is worth $80,000. Because of the mortgage default, the mortgage lender has now scheduled a foreclosure sale in three months. My husband and I both work for a large insurance company, and we are terrified that after the foreclosure sale the mortgage lender will still try to collect on the mortgage loan by garnishing our wages. How much will we owe the mortgage lender after the foreclosure sale? Is there a time period for the mortgage lender to collect against us?

Answer: After the foreclosure sale the mortgage lender will probably have a deficiency claim against you for $200,000 ($280,000 loan minus $80,000 value of the lot). The mortgage lender then has ninety calendar days to file a collection lawsuit against you for $200,000. Unless you can prove that the lot is worth more than $80,000, i.e., “battle of appraisers,” the mortgage lender will get a judgment against you for $200,000, plus court costs and attorney’s fees. After getting this judgment, the mortgage lender can collect against your assets, including garnishing your wages. Any garnishment of wages, however, is generally limited to 25% of your net paycheck.

Note: The anti-deficiency statutes protect homeowners from any personal liability after the foreclosure sale on loans used to purchase a home, but do not protect owners of vacant lots.

Arizona Landlord Tenant Act Requires Written Notice if Delay in Return of Tenant’s Deposit

Question: When we moved into our apartment in East Phoenix last year we signed a one-year lease and paid a $1,200 security deposit to the landlord. Our lease ended last month and we moved out of the apartment. We left the apartment spotless, and we asked the property manager for the return of our $1,200 security deposit. The property manager later said that the landlord inspected our apartment, and had told the property manager not to return our $1,200 security deposit because there was major damage done to the apartment. We think that the landlord is just trying to keep our $1,200 security deposit. We have never talked to the landlord, and we have had only two conversations with the property manager who know refuses to return our telephone calls. What can we do to get our $1,200 security deposit back?

Answer: In Arizona real estate law, the Arizona Residential Landlord and Tenant Act provides that, after a residential lease has terminated and the tenant has requested the return of the security deposit, the landlord is required to deliver a written notice to the tenant within 14 days specifying in detail the reasons for withholding all or part of the security deposit. A.R.S. §33-1321. If the landlord fails to timely deliver this 14-day notice to a tenant, the tenant is entitled to file a lawsuit to recover damages of three times the amount of the security deposit. Therefore, you should be entitled to recover $3,600 (three times the $1,200) in damages from the landlord in a justice court lawsuit.

Note: if the landlord is correct and you did major damage to the apartment amounting to more than the $1,200 security deposit, the landlord will not only owe you nothing, the landlord will be entitled to get a judgment against you for any damage in excess of the $1,200 security deposit.

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