Archive for September, 2010

Water Damage May Soak Lender-Sellers Home

September 24, 2010

Several years ago, recent empty-nesters sold their Glendale home for $260,000. They had owned this home free and clear and, after the buyer paid $15,000 down, they gave the buyer seller carryback financing for the balance of $245,000. Under the loan documents the buyer was required to pay for homeowner’s insurance. Last year however, the buyer stopped making the loan payments to the seller and recently moved out. Upon inspection the home was in terrible condition. The main problem was extensive water damage throughout the home because the buyer had not fixed the storm damaged roof. The cost to repair the damage will be $50,000 and the seller recently learned that the homeowner’s insurance was cancelled because the buyer did not make the payments to the insurance company.

The seller needs to immediately begin foreclosure proceedings on the $245,000 loan. If the home is now worth less than $245,000, in Arizona real estate law normally one would not be entitled to sue for this deficiency after foreclosure. If there is damage to the home due to “waste,” however, one would be entitled to sue for this damage. The failure to repair the roof coupled with the failure to pay the homeowner’s insurance payments is probably waste. After the roof is repaired, the sellers should contact an Arizona real estate attorney to file a lawsuit against the buyer for the $50,000 damage to the home. Unfortunately, however, if a homeowner loses a home to foreclosure, the homeowner rarely has any assets to pay a judgment for any damage to the home.

Note: The sellers as the lender should have been named a “loss payee” under the homeowner’s insurance policy. You would then have been entitled to receive notice from the homeowner’s insurance company when the buyer failed to make the payments, and the seller could have made the payments to keep the homeowner’s insurance effective. A real estate law attorney should be able to help the seller review the homeowner’s insurance policy to see if they may have coverage for the damage to the home.

Say No to Buying Home with IRS Tax Lien Says AZ Real Estate Attorney

September 24, 2010

The perfect home was found in Tempe for $118,000 after months of looking. They are ready to close, but the title commitment shows that there is no clear title because the seller has a $40,000 I.R.S. tax lien. The seller says that we can close now because the $40,000 I.R.S. tax lien will be paid off within the next three months when the seller receives a large personal injury settlement. The prospective owners love the house, but are very concerned about closing without the removal of this $40,000 tax lien. Should they close on this house?

An Arizona real estate law attorney would advise the prospective buyers to walk away. There are three things that can happen if they were to close this transaction now, and two of them are bad. The good thing would be that the seller receives the personal injury settlement and pays off the $40,000 I.R.S. tax lien, but the two bad things would be that the seller does not receive the personal injury settlement, or that the seller receives the personal injury settlement but does not pay off the $40,000 I.R.S. tax lien. If either of these two bad things happens, the new owners would never be able to sell the home until the $40,000 I.R.S. tax lien is paid off.

Note: Under the standard residential contract, if there is any title “problem” such as an I.R.S. tax lien shown on the title commitment received by the buyer, the buyer has only five days either to cancel the contract or to request that the seller correct the problem. Otherwise, the buyer could lose the earnest money if the buyer does not close the purchase of the home because of the title problem.

In Arizona, Never Been Dedicated Easement Means Is Owners Responsibility

September 23, 2010

Recently construction of a home on five acres was completed near Prescott, Arizona. The owners have a right of way easement to use a dirt road that goes from their five acres to the main highway. The dirt road is in poor condition, but when they contacted Yavapai County to get the dirt road repaired, they were informed that they could do nothing because the dirt road had never been dedicated. What does Yavapai County mean when they say that the dirt road had never been dedicated? Additionally, their neighbor’s driveway cuts across a corner of their front yard. Should they tell their neighbor that his driveway cuts across our front yard?

The information that Yavapai County related was saying that, because the dirt road was not dedicated by the former owner, and the dedication accepted by Yavapai County, the maintenance of the dirt road is not the responsibility of the county. Therefore, the maintenance of the dirt road is the property owners’ responsibility as the current owner of the easement.

Additionally, if a property owner has a situation where a neighbor’s driveway cuts across ones property the neighbor should be told immediately, and give the neighbor permission, preferably in writing, to use the driveway. Alternatively, but not very neighborly, the property owner has the right to block part of the driveway off to prevent the neighbor from driving across the corner of the yard. If the neighbor continues to use the driveway for more than ten years, the neighbor may acquire a prescriptive easement to use the driveway across the corner of the yard.

Homestead Exemption Does Not Protect Against Mechanics Lien in Arizona Real Estate Law

September 23, 2010

A Chandler family hired contractor to do some remodeling work in the kitchen after deciding to stay in their house they could not sell, however the work was very poor quality. Due to the poor quality work, they only paid the contractor $4,000 of the $10,000 bill. The contractor in turn recorded a $6,000 mechanic’s lien against the family’s home. The family has approximately $80,000 equity in the home, and their understanding is that the homestead exemption protects up to $150,000 equity in a home from any judgments of creditors. If they do not pay the contractor the remaining $6,000 owed for the remodeling work and then are sued by the contractor, will the $150,000 homestead exemption protect the $80,000 in equity that they have in the home?

Under Arizona real estate law the $150,000 homestead exemption does not protect against mechanic’s liens. The “good” news for the homeowners in this situation is that, if the mechanic’s lien against the home is not foreclosed upon by the contractor within six months from the date of the recording of the mechanic’s lien, the mechanic’s lien will be extinguished. The foreclosure of a mechanic’s lien requires a foreclosure lawsuit, and many contractors do not want to spend the time and expense incurred in foreclosing their mechanic’s lien. The contractor, however, would still have the right in the next six years to sue the homeowners in Justice Court for the $6,000 owed.

Note: Arizona’s $150,000 homestead exemption protects up to $150,000 in equity in a home from judgments for credit card bills, medical bills, or similar debts. If a homeowner consents to a secured interest in the home, e.g., a mortgage loan, the $150,000 homestead exemption unfortunately does not protect a homeowner against the foreclosure of the home. Although most states have some type of homestead exemption, the protection of these homestead exemptions varies significantly from state to state. For example, Florida has an unlimited homestead exemption. This unlimited homestead exemption in Florida protects homeowners from all judgment creditors no matter how large the amount of the judgment, and is the reason that O.J. Simpson and former baseball commissioner Bowie Kuhn moved to Florida and purchased expensive homes. #CLG-BP-0910~1