Archive for June, 2011

Can the Sale of Gifted Home be Forced?

June 30, 2011

Two years ago a woman suffered a stroke and moved to Glendale so her son could help take care of her. She purchased another home in Glendale for her son, and said that “this will be your home forever.” The son put all of his savings into this home for landscaping, appliances, and carpeting. Plus, he drove his mother to all of her doctors’ appointments and shopping trips, etc. Recently she passed away. The mother named her daughter in Ohio as the personal representative of the estate in her will. The daughter has now written her brother saying that she wants to sell the home and all of the sale proceeds would go into the estate. According to Arizona real estate law, can this man’s sister make him sell his home?

Probably not. First, the mother probably made a gift of the home to her son. And the improvements,made to the home by her son, such as landscaping, appliances, and carpeting is strong evidence of a gift. Second, even if there was no gift, the mother’s oral agreement to give her son the home in exchange for his assistance to her in her declining years should be enforceable.

Note: In the typical circumstance the parent is on title to the home, and the child and the parent orally agree that, in consideration of the child rendering personal services to take care of the parent in the parent’s declining years, the child will get the home upon the parent’s death. Although the Statute of Frauds generally requires written agreements to transfer any real property, this type of oral agreement is an exception to the Statute of Frauds and is generally enforceable after the death of the parent.

Arizona Landlords Must Set Reasonable Security Deposit Amount for Tenants

June 6, 2011

Four Arizona State University college students will be attending summer school. Their current lease expires in May, and they made an offer to lease a small home in Chandler for the three summer months. The monthly rent is $1,500. The landlord is demanding a security deposit of $2,000, which they may have a problem paying. Additionally, the landlord is also demanding a $1,500 non-refundable cleaning deposit, which is outrageous and they will be unable to pay. Does Arizona Landlord Tenant law allow the landlord charge a $2,000 security deposit? Can the landlord charge a $1,500 non-refundable cleaning deposit?

A landlord cannot demand a security deposit, including pre-paid rent, in excess of one and one-half months’ rent. A.R.S. §33-1321(A). One and one-half times the monthly rent of $1,500 is $2,250. Therefore, the $2,000 security deposit is lawful. The $1,500 non-refundable cleaning deposit, however, is not lawful. Although a landlord can charge a “reasonable” non-refundable cleaning deposit, a $1,500 non-refundable cleaning deposit is not “reasonable” for a small home being leased for the three summer months. A.R.S. §13-1310(G)(14).

Loan Settlements for Credit Cards, Non-Purchase Money HELOCs and Vacant Lot Loans

June 4, 2011

Arizona real estate law protects most people from being sued on mortgages. However, certain loans carry personal liability and these borrowers are being threatened or sued on the loans. Of course, if the borrower has little or no money, bankruptcy is an obvious solution. But not all people are good candidates for bankruptcy. For people with substantial income or assets, reaching a settlement of the account is the best option available. This article is the first of three to address what type of settlement a borrower can expect to reach with their creditor.

Vacant lot loans are the most troubling for borrowers. Lenders have all but stopped making loans on vacant land causing the market to plummet. Furthermore, lenders have just 90 days to sue the borrower after a foreclosure. The result is numerous foreclosures and lawsuits being filed against people with lot loans.

The sheer volume of lawsuits may also provide the best motivation for lenders to settle. Surprisingly, lenders will typically accept a settlement between 15-35% of the debt owed depending on the income/assets of the borrower, e.g. Bill Gates versus homeless person; lender would obviously settle for different amounts. Furthermore, most lenders will accept this reduced amount over time with little or no interest. The end result is settlement payments less than the original loan payment. Best of all, the obligation is paid off in 5 years or less compared to a lifetime of payments.

Example, $150,000 lot loan at 6.0% interest-only payments of $750 per month. Lot is worth $40,000. If the borrower continues to make payments for 5 years, they will have made $45,000 in payments and still owe $150,000. If the borrower lets the lot foreclose and then settles for 35%, the settlement payments at 0.0% interest would be just $641.67 per month. After 5 years, the borrower would have paid $38,500 and owe nothing.

HELOC Default May Result in Tax Bill After Foreclosure

June 3, 2011

A couple bought a new home in Tucson with a first mortgage loan four years ago. The real estate market was still booming at that time, and by the time they moved into the home there was an additional $40,000 in appreciation. They took out a $40,000 Home Equity Line of Credit (“HELOC”). This $40,000 was used to buy a new car and to pay off their credit cards. Unfortunately, the home is now “under water” by potentially $80,000 and they can no longer afford to make the mortgage payments on the first mortgage loan. According to Arizona real estate law, if they stop making the mortgage payments both on the first mortgage loan and on the $40,000 HELOC, when will the foreclosure occur? Will their wages be garnished? Would they be responsible for any income taxes if the first mortgage loan or the $40,000 HELOC do not get full payment of their loans?

If the first mortgage loan forecloses, they generally would not have liability for any deficiency. Until the time of the actual foreclosure sale (which you should personally attend), however, they will have to keep the home in reasonably good condition, which means they also must keep up their homeowner’s insurance policy. The $40,000 HELOC will not foreclose, but will get a judgment against them for $40,000, and can garnish your wages and take other collection action. In regard to income taxes, they will have no liability for income taxes on the potential $80,000 debt forgiveness because there is no income tax on debt forgiveness of a mortgage loan used to purchase a primary residence, or to make improvements such as landscaping or a new roof to a primary residence. Inasmuch as the HELOC was not used to purchase or make improvements to a primary residence, if the HELOC lender gets less than $40,000, they should owe income tax on the difference between the amount paid by them and the full $40,000 owed.

AZ Title Company Should Record Quit Claim Deed To Transfer Home Interest

June 3, 2011

An unmarried couple purchased a home in Scottsdale five years ago. They had each been paying one-half of the monthly mortgage payment. They had been arguing constantly mostly because of financial difficulties relating to the mortgage payments on the house. Although there may be some equity in the home, they are probably “upside-down” on the home. His parents don’t like the girlfriend, and would help him make the mortgage payments if he was the only person on the home’s title. The girlfriend is willing to quit claim her interest in the home. She bought a quit claim deed form at a stationery store. If she signs this quit claim deed before a notary public, and he records the quit claim deed, will he be the sole owner of the home or will they need to consult a real estate law attorney?

If this quit claim deed is recorded, they should be the sole owner of the home. In general, however, no one should ever transfer any interest in a home or other real property without procuring title insurance. Before a title company will furnish title insurance, they will furnish a commitment for a title insurance policy. This commitment will show any liens that have to be paid before a “clear” title insurance policy can be issued. For example, if the girlfriend has a $20,000 credit card judgment, and the quit claim deed to him from her is recorded, this $20,000 judgment would be a lien against the entire home, not just the girlfriend’s one-half interest in the home. In addition to “clear” title, a title company will require the proper form of the quit claim deed and would require the recording of an affidavit of property value and any other necessary documentation.

Note: If they do not use a title company, and there is a mistake in the form or recording of the quit claim deed, this mistake will have to be corrected when you want to sell the home in a few years. At that time, however, he may not be able to locate her or she may not be willing to cooperate in signing any documentation. You would then have to contact an Arizona real estate law attorney to file a quiet title lawsuit.