Archive for July, 2011

Cracks in Wall Could Be Homebuilders Liability According to Arizona Law

July 30, 2011

A couple purchased a new Flagstaff home last year from a homebuilder and received a one-year written warranty from the homebuilder. Shortly after moving into the new home they noticed a large crack in the living room. The homebuilder came and spackled over the crack. Then three months later the same crack reappeared, and again the homebuilder spackled over the crack. Once again, the crack has reappeared along with another crack on the opposite side of the room. The homebuilder is now saying that he has no liability to them because the home is no longer under the one-year written warranty. The homeowners are concerned the reoccurring cracks may mean that there is a structural problem in the home. Is there anything the homeowners can do?

First, the Registrar of Contractors can require a homebuilder to repair any construction defects discovered in the first two years after the purchase of the home. Second, if the homeowners are not satisfied after working with the Registrar of Contractors, I would recommend that they hire an engineer or other construction expert to determine the reason for this cracking in the living room. Third, all homebuilders by Arizona law impliedly warrant the proper construction of the home. Generally, a lawsuit for a breach of this implied warranty may be brought within eight years after substantial completion of the home. Therefore, if an expert determines that the cracking is caused by a structural problem due to faulty construction, the homebuilder should have liability now to the homeowner for the cost to remediate the structural problem.

Note: A homebuilder is not required by any law to furnish any written warranty, and can therefore limit any written warranty to a certain time period.


Arizona Landlord-Tenant Act Two-Day Notice Not Needed in Foreclosure

July 29, 2011

A Phoenix area limited liability company (LLC) purchases homes at foreclosure sales, makes repairs, and then “flips” the homes to new buyers. When the LLC purchases a home at a foreclosure sale, they generally have not inspected the home and don’t know the condition of the home. While they know there is a risk involved with not having any knowledge of the condition of the home at the time of the foreclosure sale, they want to know the condition of the home as soon as possible to get repair estimates, etc. Under the Arizona Landlord-Tenant Act an owner of a home has the right to inspect the home upon two-day notice. Does this Arizona Landlord-Tenant Act allow them to inspect the home by furnishing two-day notice to the owner of the home after the foreclosure sale?

No. Unless the home is abandoned, after the foreclosure sale the former owner of the home is required to move out after written notice. A.R.S. ’12-1173.01. If the former homeowner does not move out, the eviction process must be started in Superior Court (not Justice Court), and it generally takes at least two to three weeks before the former homeowner is actually evicted. Unfortunately, the two-day notice provision in the Arizona Landlord-Tenant Act does not apply as there is no “rental agreement” between the former owner of the home and the new owner of the home after the foreclosure sale. As a practical matter, however, even if the LLC was entitled to furnish two-day notice, but the former owner nevertheless refused access for an inspection, it would probably take the LLC two to three weeks to get a court injunction to be granted access to inspect the home.

AZ Court of Appeals Upholds Unprecedented Federal Tenant Protections

July 28, 2011

The Arizona Court of Appeals recently ruled that under federal law a tenant living in a foreclosed home was entitled to a ninety-day notice to vacate before the new owner could require the tenant to move, even though Arizona landlord tenant law only required a five-day notice to vacate. See Bank of New York Mellon v. De Meo, 607 Ariz.Adv.Rep. 33 (App. 2011).

A tenant was living in a home with a month-to-month lease agreement with the homeowner. After the homeowner defaulted on the mortgage, the bank foreclosed. The bank delivered the tenant a five-day notice to vacate pursuant to A.R.S. § 12-1173.01 after the foreclosure sale. More than ninety days later the bank filed a lawsuit to evict the tenant.

At the eviction trial the tenant argued that she was entitled as a month-to-month tenant to the ninety-day notice required by the Protecting Tenants at Foreclosure Act of 2009 (“PTFA”). The bank argued that, because the eviction lawsuit was filed more than ninety days after the five-day notice had been delivered to the tenant, the tenant was not entitled to any additional time. The trial court ruled in favor of the bank, and the tenant appealed to the Arizona Court of Appeals.

The Arizona Court of Appeals reversed the trial court’s decision, holding that the PTFA requires that the effective date in the notice to vacate cannot be less than ninety days notice to a month-to-month tenant. Therefore, the five-day notice to vacate delivered to the tenant was insufficient. The fact that the lawsuit was filed after ninety days, and not just after five days, was irrelevant.

The Protecting Tenants at Foreclosure Act of 2009 was part of the Helping Families Save Their Homes Act of 2009.

Real Estate Attorney Recommends Contacting Title Company in Transferring Deed

July 27, 2011

A couple is establishing a revocable living trust and one of their assets is a small office building in Phoenix. What language should they use on the deed transferring this office building to their revocable living trust?

Initially, the couple should be commended for knowing that a deed is required to transfer real property into a revocable living trust. Many husbands and wives form revocable living trusts, but fail to properly document the transfer of assets into the revocable living trust. Transferring automobiles requires motor vehicle title transfers, transferring personal property requires bills of sale, and transferring real property requires the drafting and recording of deeds.

The language in the deed to transfer the office building to the revocable living trust is basically the same as transferring the office building to a buyer. The couple should contact an Arizona real estate attorney or title company to draft the language. Also, although there will be an additional cost, they must get title insurance. In other words, if there is an unknown title problem, and they transfer their office building into the revocable living trust, the title problem may not be discovered until after they are dead when the office building is being sold by their heirs. Many title problems can be easily corrected during the transferor’s lifetime, but after the transferor is dead the correction of a title problem can often be time-consuming and expensive.

Court Upholds Anti-Deficiency Statutes For Vacation Property Owners

July 5, 2011

Recently, a Maricopa County Superior Court judge ruled that the protection of Arizona’s anti-deficiency statutes extended to the owners of a Sedona luxury vacation home accommodation, even though the owners only owned a percentage interest of the home, and even though the owners only had a license to use the home for 28 days or less each year. The owners were represented by Arizona real estate attorney, Adam Martinez of Combs Law Group.

The owners obtained a loan to purchase a minority interest in a single-family home located in a Sedona private luxury development, Seven Canyons. The owners secured the loan with a deed of trust on the home. The owners defaulted on the loan, and the lender foreclosed on the owners’ interest in the home. After the foreclosure, the lender sued the owners for the remaining balance of the loan, i.e., the deficiency. The lender argued that because the owners had a license to use the home only 28 days out of the year, they did not have “true” ownership of the home and were not entitled to anti-deficiency protection.

Upholding long-standing Arizona real estate law that provides that investment or vacation homes are included among the types of homes subject to Arizona’s anti-deficiency statutes, regardless of the length of use, the judge disagreed with the lender and ruled that the owners qualified for protection under Arizona’s anti-deficiency statutes because the statutes do not exclude percentage interests in vacation or investment homes that otherwise qualify for protection, nor do the statutes require occupancy for a certain length of time. See Maricopa County Superior Court Case No.CV2009-026684. Finally, the court stated that only the legislature can preclude percentage interests in vacation homes from the anti-deficiency statutes.

Note: During the 2009 legislative session, a law was passed, supported by the lending industry that required occupancy of at least six months in order to qualify for anti-deficiency protection. However, this law was repealed before it ever became effective. Therefore, the Arizona anti-deficiency statutes – primarily A.R.S. § 33-814 (G) – currently afford the same protection to homeowners that has existed since the enactment of the Arizona anti-deficiency statutes more than 30 years ago.

Drug Activity Could Result in Arizona Condominium Seizure

July 5, 2011

A couple purchased a condominium in Tempe three years ago for their son when he began attending Arizona State University. The condominium title is and always has been in the parents’ names and they always made the mortgage payments. The couple’s son was recently arrested for the possession of and the sale of marijuana, which he allegedly stored in the condominium. The U.S. Attorney’s Office has written the couple a letter saying that the federal government is entitled to seize the condominium. The couple has had discussions with their son in the past about using drugs however they had no idea that he was storing drugs in the condominium. The couple was eventually planning to retire in the condominium. Is the federal government entitled to seize the condominium?

If the couple can show that they were an “innocent owner,” i.e., they had no knowledge of their son’s illegal drug activities in the condominium, they should not lose the condominium. However, if they knew, the condominium was being used for the possession and sale of illegal drugs and they made no efforts to stop this illegal drug activity, they could lose the condominium. Therefore, they should contact an Arizona real estate law attorney to assist them in negotiations with the U.S. Attorney’s Office to prove that they are an “innocent owner.”

Note: Most mortgage lenders are also “innocent,” and the U.S. Attorney’s Office will generally honor a mortgage lender’s security interest in the seized “drug house.”

How to Transfer a Title to Include Both Spouses

July 5, 2011

A husband and wife separated two years ago and during that time the husband purchased a Scottsdale condominium in his name only. The wife signed a deed disclaiming any interest in this condominium. The couple has now reconciled, and he moved back into their home. The couple would like to rent out the condo unit as an investment property and however, they want the wife’s name added to the title. How do they go about having my named added to the title?

Both parties need to initially determine how they want to take title to the condominium. Unless there are children from a prior marriage, a husband and wife should generally take title to real property as Community Property with Right of Survivorship (“CPWROS”). If title is held as CPWROS, upon the death of the first spouse there is no probate and the surviving spouse becomes the sole 100% owner of the real property. Additionally, there is a tax advantage with CPWROS in that there is a full “step-up” in tax basis upon the death of the first spouse. After they determine how they would like to take title, they should then contact an Arizona real estate law attorney or a title company to draft and record the necessary paperwork.

Note: Any investment property should generally be titled in a “single asset” limited liability company in order to avoid personally liability. If that investment property goes “bad,” e.g., extensive mold damage and the tenant suffers personal injuries, no other assets of the owners of the LLC are affected.