Court Decides Case Regarding Claims Arising Out of Transfers of Mortgages

A.R.S. § 33-420 permits a cause of action to quiet title to property and, among other things, also permits a claim for damages arising out of recording of documents that are forged, groundless, contains a material misstatement or false claim, or is otherwise invalid.

The Court of Appeals for the State of Arizona recently considered a case dealing with these issues as they arise within the context of multiple assignments of the lender’s interests in the home through MERS (Mortgage Electronic Registration System).

The case is Sitton v. Deutsche Bank National Trust Co. which was decided on September 5, 2013. In this case, the homeowner undeniably fell behind on her mortgage payments. During the time she owned the home, the mortgage loan was transferred to a variety of assignees. Crucial, however, was the fact that the original mortgage lender assigned its interest to MERS who then became the mortgage of record (and privately kept track of assignments from MERS to subsequent assignees even though MERS always remained the mortgage of record).

New Arizona Case Says Homeowners Cannot Prospectively Waive Anti-Deficiency Protections

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.

Arizona Property Tax Liens And Mers

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.

ARIZONA’S HOMESTEAD EXEMPTION

Under A.R.S. 33-1101, Arizona provides an exemption of $150,000 to homeowners. This exemption protects a sizable portion of the homeowner’s equity in their home from creditors and reflects the legislature’s opinion that a person’s home ought to have some minimum protection against creditors. The homestead exemption’s protections extend even into bankruptcy proceedings.

It used to be that documents had to be filed with the County Recorder’s office in order to invoke the homestead protection. However, back in the early 1990’s the laws in Arizona were changed such that the homestead exemption now applies automatically. Only in the case where you might own more than one residence would you be required to designate on which property the homestead exemption is to apply.

If you are in the process of selling your home, the title companies may inform you that any recorded judgments need to be paid on or before closing. However, that is not necessarily true. Only where the equity in the home exceeds the homestead exemption is this required. But, you may have to provide a copy of the statute to your title company or get an attorney involved to convince them of this.

Preserving The Gain Exclusion On Your Home When Divorcing

When couples are divorcing, it often occurs that the residence is one of the most valuable assets to divide, and as a result, needs to be sold in order to equitably divide the assets between each party. Typically, a federal income tax exclusion is available to offset some or all of the gain on the house. However, depending on how the divorce is structured, one of the parties could forfeit their portion of the exclusion resulting in a surprise from the IRS.

The IRS permits up to $250,000 exclusion for a single person. A married jointly-filing couple can exclude up to $500,000. If the home sale occurs prior to entry of the divorce and the couple is divorced that same year, the issues are usually fairly easy to deal with. They can jointly file their tax return, or file separately and each claim their half of the exclusion.

However, if the sale will occur after the divorce is finalized, things get more complex. At least one party will be required to remain residing in the property for two out of the last five years before the house is sold.

BANK OF AMERICA AGREES TO PAY $335 MILLION TO SETTLE DISCRIMINATION LAWSUIT

Bank of America recently agreed to pay $335 million to resolve allegations that its Countrywide unit engaged in a widespread pattern of discrimination against qualified African-American and Hispanic borrowers on home loans. The lawsuit was brought by the United States Department of Justice (“DOJ”). The DOJ says it’s the largest settlement in history over residential fair lending practices.

According to the DOJ’s complaint, Countrywide charged over 200,000 African-American and Hispanic borrowers higher fees and interest rates than non-Hispanic white borrowers with a similar credit profile. The complaint says that these borrowers were charged higher fees and rates because of their race or national origin rather than any other objective criteria.

The United States’ complaint says that Countrywide was aware that the fees and interest rates that its loan officers were charging discriminated against African-American and Hispanic borrowers, but failed to impose meaningful limits or guidelines to stop it.

Are Attorney’s Needed For Arizona Real Estate Deals?

Those of us from “back East” are accustomed to having lawyers assist with any real estate transaction. But things are different in Arizona. Buyers and Sellers are told that it is not necessary to hire an attorney. It is urged that attorneys are seldom needed because Title Companies do all of the necessary work.

All of this is true. It has been our practice for decades. But is this a good practice? Most real estate transactions go smoothly. A few do not. If your transaction is one of the few, who will be looking out for you? Your real estate agent? The title company?

Look at the documents you are asked to sign. These are “standard forms” prepared by lawyers for realtors and title companies. They contain release language protecting the realtors and the title companies. Title companies customarily disclaim all responsibility.

Although you have been told that lawyers are not necessary, the real estate documents you are asked to sign tell a different story. They recite that you have been advised to seek the advice of an attorney. Why is this? It is to protect the realtor in the event the transaction goes badly and you are damaged.

The Consequences Of Signing A Disclaimer Deed

In Arizona, any assets purchased during the marriage are presumed to be community property. This presumption can be rebutted in certain instances. One such instance is when one spouse signs a disclaimer deed. This situation usually arises when the couple purchases a home, and one spouse has much better credit than the other spouse.

The couple may decide to put the mortgage and the deed solely in the name of the spouse with the higher credit rating. Typically, the other spouse will sign a disclaimer deed to acknowledge that the home is the sole and separate property of the purchasing spouse. What that spouse may not understand is that by signing the disclaimer deed he or she may be giving away any community interest in the home.

In the case of Bell-Kilbourn v. Bell-Kilbourn, the Arizona Court of Appeals found that a properly executed disclaimer deed rebuts the presumption that property acquired during the marriage is community property. In Bell Kilbourn, the married couple purchased a home and decided to apply for credit solely in the wife’s name to maximize their chances of getting a mortgage loan. The deed was placed solely in the wife’s name as her sole and separate property, and the husband executed a disclaimer deed renouncing his interest in the property. The property mortgage was then paid from community funds until the dissolution action was filed.

Arizona Supreme Court Rules That “Show Me The Note” Defense Is Not A Valid Defense To A Foreclosure

In the recent Arizona Supreme Court case of Hogan v. Washington Mutual Bank, the Arizona Supreme Court ruled that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

In Hogan, the borrower, John Hogan, borrowed money to purchase two properties. Each of the loans was secured by a deed of trust. Hogan defaulted on both loans, which triggered non-judicial foreclosure proceedings. After receiving a notice of trustee’s sale for each of the properties, Hogan sued to stop the trustee’s sales. Hogan asserted that the lenders could not proceed with the trustees sales until they “showed the promissory notes” signed by Hogan and the lender in connection with the underlying transaction.

The Superior Court dismissed Hogan’s lawsuit and the Court of Appeals affirmed the trial court’s decision. The Arizona Supreme Court decided to hear the issue because it presented a recurring issue of first impression and statewide importance.