What Are a Commercial Property Tenants Rights After Foreclosure?

December 1, 2011

A small pet grooming business leased some space in a small shopping center. They wanted to make approximately $25,000 in tenant improvements in the back area of the leased space. Before making the improvements, they learned that the shopping center was in foreclosure. They contacted the lender (a national bank) and explained to them that they wanted to make the tenant improvements, but were not going to if we were going to be evicted after foreclosure. The lender’s representative said that the lease would be honored after the foreclosure, and that a longer lease could even be negotiated. However, an investor purchased the shopping center at the foreclosure and delivered a notice of eviction to us. Does the pet grooming business have any commercial property tenant rights to stay in their leased space? If they are evicted, does the investor have to pay them the $25,000 for the tenant improvements?

Under a 2009 federal law, a residential tenant generally has the right to stay in the home after foreclosure until the end of the lease term. A tenant in a shopping center or other commercial property, however, has no such right, and is subject to eviction after the foreclosure unless there is non-disturbance or similar language in the lease. The purchaser at a foreclosure sale, such as the investor who purchased the shopping center, has the right to evict the tenant, and has no obligation to reimburse a tenant for any tenant improvements. However, if the tenant can prove that they relied on the statement by the lender’s representative that they would be allowed to remain in the leased space after the foreclosure, they should have a claim against the lender for at least the $25,000 in tenant improvements.

Note: The pet grooming shop should immediately contact an Arizona commercial property attorney to review their lease to see if there is non-disturbance or similar language that will allow them to stay in the shopping center after the foreclosure.

Serious Penaltiesfor Filing False Liens

December 1, 2011

A gentleman was awarded hisGlendale family home in his divorce buthis ex-wife had the right to live in the home until it was sold. A buyer for the home was found and the closing sale of the home was scheduled. However, just prior to thehome’s closing, the ex-wife recorded a document saying that she was owed $50,000 from the sale of the home. Because of the document, the title company refused to close the sale of the home. Understandably, the buyer was upset and purchased a different home. The woman is emotionally unstable and just does not want to move out of the home. She has apologized but the homeowner is concerned that when another buyer is found she will record some “bogus” claim against the home again. Is there anything the homeowner can do to prevent her from recording a wrongful lien against the home?

According to Arizona real estate law, if a lien is wrongfully recorded against a home or other real property there are sanctions, namely, $5,000 or treble actual damages, whichever is greater, plus attorneys fees and court costs. A.R.S.’ 33-420(A). If these monetary sanctions do not deter you’re the ex-wife from recording a wrongful lien, a court can order her not to record any wrongful liens against the home. If your she were to violate this court order, she could be held in contempt of court with serious penalties, including jail time.

Note: If a wrongful lien is recorded in the name of an unidentifiable person or entity, e.g., invalid address or a non-existent limited liability company, a title company will generally require a quiet title lawsuit to determine that the lien is invalid. This quiet title lawsuit could be expensive, primarily due to the requirement of service of process by publication because the individual or entity is unidentifiable.

Can Seller Rent Home Back After Short Sale?

October 18, 2011

An investment group is purchasing a short sales home in Surprise, AZ. The group’s intention is to rent the home after the short sale closes.  The seller of the property would like to rent the home back from the investment group.  The group’s understanding is that a sale of the home back to the seller after a short sale is illegal, but is it possible to rent a short sale home back to the seller?

While there is no law or court decision that prohibits a buyer from selling or renting the home back to the seller after a short sale, many lenders that approve short sales will require the seller and the buyer at closing to sign “arms-length” affidavits or similar documents that generally would prohibit a buyer from selling or renting the home back to the seller after the closing of a short sale.

Even in Market Today Arizona Real Estate is Still a Good Investment

October 17, 2011

A soon to be Arizona State University graduate recently told his family that he has borrowed $40,000 in student loans for down payments to purchase three homes in a Queen Creek subdivision, in the past year.  The student says that in the next three to five years home values will appreciate rapidly, and he should then be able to make over $100,000 on the sale of these three homes.  Student loans are not dischargeable in bankruptcy, and his parents are concerned that he is in a messy financial situation.  Is it realistic to expect that the values of Arizona real estate and these three homes will appreciate rapidly in the next three to five years?

According to a Case-Shiller study the value of homes in the 100 years from 1900 to 2000 increased by 3.35% per year, just a little better than the rate of inflation.  In other words,based on the historical 3.35% annual increase in home values, if a $100,000 home were purchased today, the home would be worth $110,000 to $120,000after three to five years. In light of a seller’s normal payment of 8 to 10% for closing costs such as broker’s commissions and title insurance, the profits would be minimal, if any.

However, home ownership today is a better investment than home ownership has been historically.  Homeowners today who live in their home have tax deductions for mortgage interest and real property taxes, and since a 1997 federal tax law generally pay no tax on any gain on the sale of their home. In light of these tax advantages, and current low interest rates, values of homes, including these investment homes should increase in the next three to five years greater than the historical 3.35% annual rate.

Anti-Deficiency Statutes Protection Available for Real Property “Utilized” as Home

October 14, 2011

Five years ago a small home was purchased Bethany Home Road in Phoenixwith a mortgage loan.  After the closing, they were able to change the zoning of the home to permit the husband, to convert the home into a small office building for his chiropractic practice. However, due to the poor economy the chiropractic practice has suffered, and their income is down considerably. Additionally, they are now “underwater” at least $120,000 on the mortgage loan because of the declining property values in the area. They know that most homeowners are protected from any liability if the mortgage lender on home foreclosures. If the bank forecloses on the office building, will they have any liability for the $120,000 deficiency after the foreclosure?

They probably would in this case. The Arizona anti-deficiency statutes generally protect homeowners from any deficiency after a foreclosure only if the secured real property is “utilized” as a home.  A.R.S. §33-814(G).  Therefore, inasmuch as the mortgage loan is no longer secured by real property that is “utilized” as a home, they probably will have liability for the $120,000deficiency after the foreclosure.

After Domestic ViolenceIncident What is Tenant Lease Liability

October 12, 2011

A couple signed a one-year lease to rent a Scottsdale condominium. They moved in together about 3 months ago. Recently the boyfriend beat up the woman quite badly, and the police had to be called. The woman obviously no longer wants to live with him. However, they have nine months remaining on the lease, and the woman does not want to have to make lease payments on the Scottsdale condominium plus payments on a new apartment. According to Arizona landlord tenant law, will the former girlfriend be required to pay the remaining nine months of the lease on the Scottsdale condominium? Also, she paid $500 of the $1,000 security deposit. Will she be entitled to the return of her $500 portion of the $1,000 security deposit?

If the woman who was assaulted furnishes the landlord a copy of the police report, plus a notice requesting termination of the lease within thirty days, she should be able to avoid paying any rent after this time period. A.R.S. §33-1318. In addition, if the Scottsdale condominium is in good condition at the time your she terminates the lease, she should be able to get a refund of her $500 portion of the $1,000 security deposit.

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.