Archive for September, 2011

Even As-is Properties Require a Disclosure of Any Defects

September 19, 2011

A couple purchased an “as-is” a home in Show Low last summer. They had a home inspection which was satisfactory to them at the time. However, in the fall when they turned on the furnace they discovered that there was no ductwork leading from the furnace to the vents. They contacted the seller to complain and he said that he never used the furnace because he knew that the home had no ductwork. He said that he relied on the fireplace and space heaters during the winter months. They told the seller that they wanted to use the furnace and that expected him to pay for the ductwork, the seller said that they purchased the home “as-is.” The cost to install the ductwork will be approximately $1,500. Are there any Arizona real estate laws regarding this? Does the seller have any liability to us for the $1,500?

They seller in fact does have liability for the costs. Even though a home is being sold “as-is”, a seller is still required to disclose any known latent defects in the home. The lack of ductwork from the furnace to the vents was a known latent defect. They buyers should file a complaint against the seller in the Small Claims division of Justice Court. The Small Claims division has jurisdiction of disputes up to $2,500, and is similar to Judge Judy‘s television courtroom with no Arizona real estate attorneys and no appeals.

“Show Me the Note” Defense in the Foreclosure of Home Rejected byAZ Court of Appeals

September 19, 2011

In Hogan v. Washington Mutual Bank, CV 10-0383 (July 26, 2011), the Arizona Court of Appeals rejected the argument that Arizona real estate law requires “presentation of the original note before commencing foreclosure proceedings” against a home.

This Hogan decision is the first Arizona appellate decision rejecting the “show me the note” defense of borrowers, and is consistent with several Arizona federal court decisions.

Note: Although this Hogan decision was originally an unpublished decision, the lender filed a motion for publication which the Court of Appeals granted. The significance of publication is that this Hogan decision now can be cited by Arizona real estate attorneys and judges as legal authority.

Should You Establish Multiple Trusts for Your Estate?

September 17, 2011

Recently, a couple attended an estate planning seminar in Scottsdale. The Arizona attorney presenting the seminar talked to them after the seminar and recommended a revocable living trust for their personal residence and other assets, and an irrevocable trust for their insurance policies. The husband thinks that the attorney is trying to make more money by charging for two trusts when one trust would be sufficient. Are two trusts necessary?

A revocable living trust is designed to avoid probate and permit the owner of the asset to retain control of the asset, e.g., the asset at any time can be transferred back from the trust to the owner. In addition, the tax status of the asset generally remains the same. For example, if a personal residence is transferred to a revocable living trust the $250,000 single / $500,000 family capital gain exemptions on the sale of a principal residence are still available.

On the other hand, the purpose of an irrevocable trust is primarily to avoid estate taxes on substantial assets such as life insurance policies. In their estate planning situation they may need both trusts, but if theydo not have confidence in this attorney you should seek a second opinion from another attorney or a financial planner.

Note: At least until the end of 2012 when estate tax provisions will be reviewed by Congress, the current $5,000,000 single / $10,000,000 couple, estate tax exemptions mean that estate tax planning is necessary for less than 1% of American taxpayers.

New Regulation Helping Consumers with Loan Modifications and Short Sales

September 17, 2011

A couple wants to do a short sale of their Mesa home. They are both licensed real estate agents in Wisconsin and would like to list and sell the home themselves. A real estate agent in our community advertises “experience as short sale negotiators.” Neither of them have ever done a short sale before and would like to hire this real estate agent to handle the short sale negotiations. However, when they contacted her, she said that she could only do the short sale negotiations if she gets the listing on the home. Why can’t they hire this real estate agent to do the short sales, and still list the home themselves?

The Federal Trade Commission enacted a rule effective January 29, 2011, regulating “mortgage assistance relief services” (“MARS”) such as short sales and loan modifications. There are numerous disclosures and other requirements imposed by MARS. A real estate agent can list and negotiate the short sale of a home, provided that there is compliance with the MARS requirements and the real estate agent receives no additional compensation for negotiating a short sale. In other words, a real estate agent cannot charge the seller a 7% commission and a $2,500 fee for negotiating a short sale. If the real estate agent does not have a listing for the short sale of the home, however, the real estate agent can only receive compensation for short sale negotiations if, in addition to compliance with MARS requirements, the real estate brokerage firm has a loan originator (mortgage broker) license.

Note: A MARS provider cannot receive any advance compensation, and cannot receive any compensation at all unless the seller and seller’s lender agree on the terms of the closing of the short sale. Unfortunately, although this MARS rule is salutary and pro-consumer, this MARS rule illustrates the maxim of “locking the barn door after the horse has bolted.” Several years ago there were numerous firms receiving upfront fees of $2,500-$5,000 based on deceptive advertising, and not doing anything to assist owners of distressed homes. Due to consumer awareness and the threat of criminal prosecution, almost all of these firms are now out of business.