Robert Nagle 0000-00-00 00:00:00
Arizona Lawmakers Must Do More to Protect Homeowners Consumer advocacy groups and civic leaders praise the unprecedented protection the California legislature has given homeowners. Other states, including Arizona, ought to follow California’s example and enact common sense legislative reform to provide relief to Arizona homeowners. While my primary practice is in Arizona, I am also an inactive member of the California Bar, so I follow legislative developments in our neighboring state closely. Most recently, the California legislature enacted a package of legislation, the Homeowner Bill of Rights and California Foreclosure Reduction Act (the “Act”), that created reforms which require banks to treat California homeowners fairly. Many provisions in the Act were embodied in the National Mortgage Settlement that 49 attorneys general (including Arizona’s and California’s) signed with five big banks in 2012. Since that agreement only applied to homeowners whose loans were handled by one of those five banks, legislation was necessary to extend the protections to homeowners whose mortgages were held by other lenders. This is just what the Act does. Other key elements include: "Dual-tracking" will be prohibited.The Act bans lenders from pursuing foreclosure while a borrower is seeking a loan modification. As a result, lenders must give homeowners a “yes” or “no” answer on a loan modification application before continuing with foreclosure. I have seen numerous homeowners blindsided by dual-tracking and am thrilled this law remedies the practice. Lenders cannot give borrowers the runaround. The Act requires lenders to assign borrowers a single point of contact or the lender can be taken to court. I have heard many homeowners complain that they called their lender, spoke to one person and explained their entire situation in a lengthy conversation, only to have the next person at the same company ask the same questions. Borrowers will be able to sue their banks. California homeowners will now have the right to sue lenders for “significant, material” violations of the law. Homeowners will also have a clearly-defined right to access the courts to protect themselves from violations. Even before the Act was passed, the California legislature worked to enact laws to assist and protect homeowners. In 2010, California passed SB 931, to expand anti-deficiency laws to short sales (but only to the first lien holder). Next, in 2011, SB 458 was passed to expand SB 931 protections. Specifically, SB 458 requires “non recourse” treatment for all loans in short sale transactions by prohibiting a lender approving a short sale from collecting a deficiency or obtaining a deficiency judgment. SB 458 further prohibits lenders from requiring the borrower to provide compensation, other than the proceeds of the sale, in exchange for short sale approval (this applies to first and junior trust deeds). With SB 931 and 458, California’s legislature acted to protect homeowners from these more egregious lender practices. Arizona homeowners deserve the same protections. As it stands today, Tanque Verde Anesthesiologists, L.T.D. Profit Sharing Plan v. The Proffer Group, Inc., et al 836 P.2d 1021, 172 Ariz. 311 (Ariz. Ct. App. 1992), holds that a lender who releases its deed of trust may reserve its right to pursue an unpaid balance if the borrower expressly agrees. As a practical matter, lenders take advantage of homeowners in the midst of short sales by tendering approval letters which require the borrower to acknowledge the lender’s reservation of rights. This puts the homeowner in a Catch-22 position. An Arizona law similar to SB 931 and 458 would eliminate this latent problem. In April 2012, Arizona HB 2584 was introduced and its passage would have prohibited both first and junior lenders from collecting on short sale deficiencies. Unfortunately, the bill died in committee. By failing to pass HB 2584, our legislature missed a golden opportunity to provide vital homeowner protections. A statute similar to HB 2584 and California’s SB 458 and 931 would eliminate the issue Tanque Verde ignored and several serious risks which unsuspecting homeowner’s experience every day. For over four decades, the Arizona legislature has failed to address the significant problems homeowners regularly encounter. I encourage attorneys to speak up and advise their clients of these concealed, but serious, risks. In the twenty-five years I have been practicing real estate law, nothing compares to the abhorrent lender tactics I have witnessed since the housing crisis began. Hundreds of struggling homeowners have contacted my firm for legal assistance and while we do all we can to help, we are limited by outdated Arizona laws. Until these issues are addressed by our legislature, we need to ensure lenders provide underwater homeowners with approval that relieve them of postclosing liability.
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