Archive for June, 2010

After Default on Mortgage Lender Can Collect Debtor’s Assets, Garnish Wages

June 28, 2010

Four years ago a lot was purchased in the Arrowhead area of Peoria for $300,000. They paid a $20,000 cash down payment with a mortgage of $280,000. They had kept the payments current on this lot until five months ago. A real estate broker, and says that the lot is worth $80,000 now. Because of the default on the mortgage, the mortgage lender has now scheduled a foreclosure sale in three months. The couple works for a large insurance company, and are scared that after the foreclosure sale the mortgage lender will still try to collect on the mortgage loan by garnishing our wages. How much will they owe the mortgage lender after the foreclosure sale? Is there a time period for the mortgage lender to collect against them?

After the foreclosure sale the mortgage lender will probably have a deficiency claim against them 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 them for $200,000. Unless they can prove that the lot is worth more than $80,000, i.e., “battle of appraisers,” the mortgage lender will get a judgment against them for $200,000, plus court costs and attorney’s fees. After getting this judgment, the mortgage lender can collect against their 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.


Liability on Buyer for “As Is” Arizona Real Estate Sale

June 28, 2010

Recently a HUD foreclosure home was purchased in Glendale, Arizona. In the HUD contract that was agreed to, the home was purchased in “as is” condition. The HUD contract did give the buyer right to conduct inspections. The buyer previously was in the construction industry, and after spending four hours inspecting the home, it was found to have only some minor items that needed repair. However, two weeks after the home purchase closed, the roof leaked. The roofing company has estimated that the cost of repairs to the roof will be $4,800. Does HUD have any liability for this $4,800 in roof repairs?

According to real estate laws, if a home is sold in “as is” condition, a seller generally has no liability after the close of escrow for a defective roof or any other problem with the home. Therefore, HUD probably has no liability to the buyer. HUD would have liability to the buyer, however if a HUD employee or agent had knowledge of the defective roof. The reason is that the failure of a seller to disclose a known, material problem with the home is fraud. Note: A roof is generally the most expensive repair problem in a home. Therefore, the buyer of a home should have a roof warranty at the time of closing.

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

June 26, 2010

Two partners purchased an expensive condominium in Scottsdale for an investment. Due to the failing economy and the slowdown in their business, they have been unable to make the condominium payments and defaulted on the mortgage for seven months. They know that under the Arizona anti-deficiency law they have no personal liability for any deficiency on the mortgage loan, but they also know that they are personally liable to our HOA for the monthly fees of $1,400 as long as they own the condominium. They want to give 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, nor will the mortgage company tell them when they will institute foreclosure proceedings. Can they make the mortgage company foreclose on the condominium so that they are no longer liable for maintaining the condominium, including payment of the $1,400 monthly HOA fees?

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 highly unlikely, unless they were to do a “short sale” or otherwise sell the condominium, they could be required to maintain the home, including the $1,400 monthly HOA fees, for the next six years.

Arizona Real Estate Law Requires Written Notice for Non-Return of Security Deposit

June 26, 2010

A couple moved into an apartment in East Phoenix last year and signed a one-year lease and paid a $1,200 security deposit to the landlord. The lease ended last month and they moved out of the apartment. The apartment was left spotless, and when they 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. They think the landlord is just trying to keep the $1,200 security deposit. They had never talked to the landlord, and on had only two conversations with the property manager who know refuses to return their telephone calls. What rights do these people have to get their $1,200 security deposit back?

According to 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, the couple 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 they did major damage to the apartment amounting to more than the $1,200 security deposit, the landlord will not only owe them nothing, the landlord will be entitled to get a judgment against them for any damage in excess of the $1,200 security deposit.