Archive for August, 2010

In Chapter 13 Bankruptcy, Second Mortgage Can Be Removed

August 27, 2010

With record high home foreclosures and a slumping economy, homeowners are concerned about losing their homes and searching for options to keep from losing their home. Many people are being faced with the reality that their home has depreciated to the point that it is worth substantially less –in some cases half what they owe. Some cannot afford their mortgage, and others, when faced with the difficulty of continuing to pay on a home that is upside down, decide to walk away from the house.

Instead of just walking away from your home, a Chapter 13 Bankruptcy can keep you in your home, and, if you are paying on a second mortgage, can significantly reduce the amount you actually pay for your home. The Ninth Circuit Court of Appeals has held that the bankruptcy code allows, in situations where the value of the home is less than the amount owed on the first mortgage, the second mortgage can be “stripped” off, leaving only the first mortgage to pay. For example, if your first mortgage is $200,000, and you also have a second mortgage of $50,000, but your home is worth only $185,000, in a Chapter 13 Bankruptcy the $50,000 second mortgage can be stripped off, leaving only the first mortgage on the property.

In a Chapter 13 Bankruptcy you can also stay in your home and be given significant time (3-5 years) to get caught up on any payments you may be in arrears. In short, a Chapter 13 Bankruptcy can be a valuable tool in navigating these troubled financial times, especially in the area of residential real property and second mortgages. The Combs Law Group offers a free 30 minute consultation for bankruptcies.

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Commercial Lease Might Not End With Foreclosure Sale

August 27, 2010

It was recently stated that a commercial property lease is terminated after foreclosure by the lender. A small real estate brokerage firm has two years remaining on their lease in a Tempe office building. As a result of the real estate slowdown, they wanted to move into smaller space. After the commercial property’s foreclosure sale by the lender they believed that their lease had been terminated. However the lender’s property manager disagreed and said that were now required to make lease payments to the lender as the new owner of the office building. The real estate brokerage firm’s attorney reviewed their commercial lease terms, and also said the language in the lease requires them to make lease payments for the next two years to the lender as the new owner of the office building. How can the lender as the new owner of the office building enforce language in a lease after the foreclosure sale terminated the lease?

In general, the rule in an office lease, residential lease, or any other lease, similar to other junior liens, is terminated at the time of the foreclosure sale by the lender. However, in many commercial projects, a lender will require language in the lease, or in a separate agreement, that the lease will be enforceable after the foreclosure sale, and that the tenant will then make the lease payments to the lender or other purchaser at the foreclosure sale. Similarly, a major tenant like Albertson’s or Home Depot that has a favorable lease because of their anchor tenant’s status will want similar language in the lease or in a separate agreement. These types of commercial lease provisions are generally enforced by the courts on the theory that the lender or other purchaser at the foreclosure sale is a third-party beneficiary of the language in the commercial lease.

Note: Since the May, 2009, federal law, residential tenants after a foreclosure sale are generally entitled to stay in the home through the end of the lease term, provided that the lease payments are made to the new owner. The residential tenant, however, is not required to stay in the home, and can move out after the foreclosure sale.

Enact a Power of Attorney for Selling an Arizona Home?

August 27, 2010

A pilot at Luke Air Force Base is being transferred to the Far East for at least a year. His family listed their Arizona home listed for sale, but the pilots wife is concerned that they will get a good offer on their home and her husband will be difficult to contact. It was suggested to the pilot’s wife that before her husband leaves to contact an Arizona real estate lawyer and execute a power of attorney to her so that she would have the authority to sign the deed to sell the home. What type of language is necessary in a power of attorney to give a wife the authority from her husband to sign the deed to sell the home?

Inasmuch as a title company will only record the deed to the buyer if the title company approves of the form of the power of attorney. The pilot’s wife should have their listing broker contact a title company for their approved form of a power of attorney. For example, a title company may require language in the power of attorney that the power of attorney can only be terminated by a recorded notice of termination by the husband. In any event, if her husband signs the power of attorney of the title company, there should be no problem in recording the deed to the buyer at closing.

Note: The power of attorney from her husband may be more important in accepting offers on homes as prospective buyers usually want quick responses to purchase offers. The power of attorney to sign closing documents like the deed, however, is not as important because closing documents can be sent by over-night delivery a few days before closing.

Try to Short Sell Units, Deed In Lieu of Foreclosure Not Likely in Arizona

August 26, 2010

Arizona residents own three four-plexes in East Phoenix that are secured by one loan. When they purchased the three four-plexes seven years ago, the buyers knew the neighborhood was not a very good one, but believed that the neighborhood would improve. Unfortunately though, the neighborhood has continued to deteriorate. And because of the deterioration, the loan balance now greatly exceeds the value of the three four-plexes, and the owners can no longer make the mortgage payments. Their lender has refused to accept the deeds for these four-plexes in lieu of foreclosure. The lender wants them to do a “short sale”, however they would still have to pay the remaining loan balance. If the lender continues to refuse to accept deeds in lieu of foreclosure, can the lender foreclose on these properties and demand payment of any deficiency?

The answer in short is, yes. A lender is never under an obligation to accept a deed in lieu of foreclosure from the borrower. And in fact, lenders rarely accept deeds in lieu of foreclosure. If the borrowers do not make the loan payments, the Arizona real estate law of anti-deficiency statute will not protect them from a deficiency judgment after the foreclosure sale because Arizona’s anti-deficiency statute only applies to loans secured by a single-family home or duplex, not a four-plex. Therefore, the borrowers in this case should try to do a short sale, and negotiate with the bank about the amount that they would still pay back the bank. If their financial situation is poor, the bank may agree to settle for significantly less than the amount of the remaining loan balance. If they do not agree with the bank and close a short sale, the bank will eventually conduct the foreclosure sale and file a lawsuit against them for the amount of the deficiency. The bank must file any deficiency lawsuit within ninety days after the foreclosure sale.