The Governor of Arizona just signed into law a new rule that will affect real estate investors.
Laws, rules and guidelines are constantly changing as it relates to foreclosures, short sales and home loan modifications. Arizona in particular now has an action to recover the balance after sale or foreclosure on property under a trust deed. How many other states will follow suit? In a state that had a solid “purchase money” rule, where the lender couldn’t pursue you for a deficiency judgment if you still had the original indebtedness on your mortgage has now changed that law and is saying that if you have not lived in a residence for at least six CONSECUTIVE months in, the lender can pursue you for a deficiency judgment.
You may ask, what does this mean exactly? Well it means that people who own investment properties that are upside down and have “negative equity” who’ve been hit hard by the ailing housing market, simply have to weather the storm until the market returns or possibly face a hefty deficiency judgment. The effect of this law is going to be staggering. One, it may now stave off people looking to buy investment properties in Arizona. Two, it will cause an enormous wave of bankruptcies to extinguish these judgments. Three, it may cause other states with anti-deficiency laws to join in, siding with the banks to strip real estate investors of their every last penny.
You may say, well the investors took the risk and shouldn’t be able to just walk away from these properties. However, this anti-deficiency law was in place to protect the real estate investor and keep the banks from lending irresponsibly. Now, after lenders acted irresponsibly, to change the law in their favor is a slap in the face and simply betrayal to the investor.
Here is a section of the bill
33-814. Action to recover balance after sale or foreclosure on
property under trust deed
A. Except as provided in subsections F and G of this section, within
ninety days after the date of sale of trust property under a trust deed
pursuant to section 33-807, an action may be maintained to recover a
deficiency judgment against any person directly, indirectly or contingently
liable on the contract for which the trust deed was given as security
including any guarantor of or surety for the contract and any partner of a
trustor or other obligor which is a partnership. In any such action against
such a person, the deficiency judgment shall be for an amount equal to the
sum of the total amount owed the beneficiary as of the date of the sale, as
determined by the court less the fair market value of the trust property on
the date of the sale as determined by the court or the sale price at the
trustee’s sale, whichever is higher.
Also
G. If trust property of two and one-half acres or less which is
limited to and utilized for either a single one-family or a single two-family
dwelling BY THE TRUSTOR UNDER THE DEED OF TRUST FOR AT LEAST SIX CONSECUTIVE
MONTHS AND FOR WHICH A CERTIFICATE OF OCCUPANCY HAS BEEN ISSUED is sold
pursuant to the trustee’s power of sale, no action may be maintained to
recover any difference between the amount obtained by sale and the amount of
the indebtedness and any interest, costs and expenses. THE TRUSTOR IS
RESPONSIBLE FOR DEMONSTRATING THAT THE TRUST PROPERTY WAS USED BY THE TRUSTOR
AS A ONE-FAMILY OR A SINGLE TWO-FAMILY DWELLING FOR AT LEAST SIX CONSECUTIVE
MONTHS.
Deficiency Judgments
Although deficiency judgments are rare on 1st trust deeds, 2nd trust deed lenders are beginning to file their law suits. Some of the law suits being filed are unlawful and should be fought and defended. Speaking with an attorney associate of mine, he said “Lenders will just send a bunch of cases to a law firm for them to pursue deficiency judgments and they won’t even look at the type of loan it is or if they even have the “right” to enforce a judgment. If no one objects or fights the suit, the lender may just get their judgment and the homeowner could have avoided it.” This happens all the time with credit card collection types of judgments and it’s now starting to happen with 2nd liens.
Conclusion
Banks and Lenders continue to get bailed out and rescued in spite of their bad decisions because it’s what’s “best” for our economy…or is it? Homeowners on the other hand seem to be getting thrown under the bus for making a bad decision.
Jon Maddux
CEO
www.YouWalkAway.com
