The path taken by people trying to get out from under negative equity or mounting bills is littered once again with potential legal problems for Realtors, buyers, and sellers.  The passage of the Arizona Senate Bill 1271 emphasizes the need for people to seek legal counsel when contemplating a foreclosure or short sale.

 

The Arizona Association of Realtors  (AAR) requested that Governor Jan Brewer amend the call for a Special Session of the Legislature to review the issues resulting from the passage of Senate Bill 1271, otherwise known as the Anti Deficiency legislation.

 

This bill states that within 90 days of the sale of property under a trust deed, “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…”

 

This does not apply to any property 2 ½ acres or less used as a one family or single two family dwelling by the trustor  for at least six months and for which has a certificate of occupancy was issued

 

The legislation continues that the deficiency judgment will be for an amount equal to the amount owned to the beneficiary as of the date of the sale, as determined by a court.  This can be for the difference in the fair market value, less the amount of liens owed, and includes any interest which may be incurred. 

 

The party seeking remediation must act within the 90 day period, and if no action is pursued, the proceeds of the sale are considered full payment of debt.

 

In the letter to Governor Brewer, Tom Farley, CEO and Cheif Lobbyist for the AAR,  points out this bill applies people with second homes, rental property, and family owned property.  Developers, Farley said, are not protected . The statute points to the “subtle difference” in the property “being utilized as a one or two family dwelling”  which is how the existing statute reads, rather than the amended version which specifies “the focus is on the trustor themselves utililizing the property instead of the property being utilized”.

 

Farley’s letter came as a result of researching case law and the consequences of this bill.  He substantiates the letter with case law from various jurisdictions.  Lenders receiving Troubled Asset Relief Funds (TARP) are authorized to seek deficiency judgments against property owners after foreclosure.  Deficiency judgments allow for the judgment creditor to garnish the wages of the judgment debtor, employ collection agencies, garnish non earnings such as bank deposits, take non-exempt property and sell it at a public auction to satisfy the debt, and place a judgment lien on real property owned or later acquired by the judgment debtor.

 

The legislation came as a result of lobbying from the Arizona Bankers Association.  Arizona is one of the highest foreclosure/short sale states and Arizona bankers would like to recover some portion of the millions of dollars lost.  The bill, as of this writing, is scheduled to go into effect September 30, 2009.  Unless rewritten in the special session, the courts may be filled with lenders seeking deficiency judgments against former homeowners, which will create another series of problems including a rush to file for Bankruptcy on the part of judgment debtor.

 

Resources:

Text of SB 1271:

http://www.azleg.gov/legtext/49leg/1r/bills/sb1271s.pdf

 

Arizona Association Realtors:

http://aarnews.com/

http://aarnews.com/?s=SB+1271&x=26&y=9 

 

Other Blogs about SB 1271:

 

http://en.wordpress.com/tag/sb-1271/

 

 

 

 

 

 

 

Tags: Foreclosures, Legislation, Short Sales, Tucson Real Estate

This entry was posted on Thursday, July 23rd, 2009 at 9:11 am and is filed under Financing, Legislation, Short Sales and Foreclosures, Tucson Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.