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Real Estate

Property Owners Waive All Claims And Defenses Against Lender

Property Owners Waive All Claims And Defenses Against Lender After Foreclosure

By | Articles, Real Estate

Pursuant to Arizona’s deed of trust statutes, if a borrower defaults on her mortgage obligations, the lender may foreclosure non-judicially by recording its Notice of Trustee Sale with the County Recorder’s Office. See generally, A.R.S. § 33-801, et seq. Importantly, if the borrower believes that she has any claims or defenses against the lender concerning the loan, those claims must be filed before the non-judicial foreclosure takes place.

There are generally only three ways to stop a trustee sale:

  1. reinstate the loan by paying the outstanding balance or otherwise curing the default;
  2. file for bankruptcy protection; or
  3. file a lawsuit and seek an emergency temporary restraining order (TRO).

To be clear, reinstating the loan or filing for bankruptcy are the only guaranteed strategies to postpone a trustee sale; the filing of a lawsuit, on the other hand, is only successful if the Court:

  1. grants the request for a TRO; and
  2. enters the TRO sometime prior to the date and time of the trustee sale.

Based on recent history, it generally takes the Court about five business days to consider and enter a TRO. (Importantly, any lawsuit and request for TRO must have a good faith basis and is subject to sanctions pursuant to Rule 11, Arizona Rules of Civil Procedure.)

Pursuant to Madison v. Groseth, 279 P. 3d 633, 636 Ariz. Add. Rep. 23 (App. 2012), the failure to obtain a TRO prior to the trustee sale waives all claims against the lender (and the new owner), including any allegation that the lender failed to provide the borrower with proper notice of the trustee sale.

At first blush, the above holding appears inequitable and even unconstitutional – after all, how can the borrower object to lack of notice if the borrower doesn’t discover the wrongdoing until after the fact? In Madison v. Groseth, the Court of Appeals observed this potential paradox:

Under other circumstances, [requiring a borrower to obtain a TRO to halt the trustee sale] may apply to deprive borrowers of due process if the borrower does not receive sufficient notice of the trustee sale to obtain an injunction of the sale.

Id. at 635. The Court noted that in the present case, however, the borrower admitted that she received notice of the trustee sale yet failed to apply for a TRO to halt the trustee sale. Indeed, the borrower not only received notice of the trustee sale, but the borrower actually filed a lawsuit against the lender prior to the trustee sale and did not allege that she received inadequate notice of the sale. Consequently, the Court held that this waiver requirement did not deprive her of due process.

In conclusion, if a lender initiates the foreclosure process and the borrower believes that she has claims or defenses against the lender regarding the foreclosure process, the borrower must immediately file a lawsuit against the lender and request a TRO to halt the trustee sale or else the borrower will waive all claims against the lender regarding the alleged wrongful foreclosure.

Mr. Charles regularly represents lenders and borrowers in foreclosure matters. If you or someone you know has questions regarding foreclosures or buyer/lender disputes, please call or email today to speak with Mr. Charles.

Fair Housing Act

You’re Not in Kansas Anymore: A Cautionary Tale Concerning Real Estate Transactions in Arizona

By | Articles, Real Estate

This article was written by Christopher J. Charles, Esq. and Eric L. Walberg, Esq.

With interest rates hovering at historic lows and prices generally stable, many experts agree that now is still a good time to purchase real estate in Arizona. Everyone appreciates a good deal.  But some buyers approach that goal with the wrong strategy. For example, some buyers aim to keep “one foot in and foot out” in case a better deal comes along prior to close of escrow.  We refer to this as “buyer’s leverage.” Arizona is not unique in experiencing this phenomenon. But two of Arizona’s key contract interpretation rules could result in unintended consequences for the unwary buyer.

The first of these two unique rules is that the court cannot rewrite contract terms. On the other hand, the second rule allows the court to consider oral or other extraneous evidence outside the “four corners of the contract” in interpreting an agreement (i.e., a broad interpretation of the “parole evidence rule”). This article explores these Arizona-unique contract interpretation rules and their relationship to each other in the context of real estate agreements.

The ready, willing, and able buyer cannot maximize his leverage without an appreciation and impact of these two Arizona-unique rules on the following “boiler plate” contract provisions:

This agreement constitutes the entire agreement of both parties, and all previous communication between both parties whether written or oral with the reference to the subject matter of this agreement is canceled and superseded.

In the event that any provision of this agreement is deemed vague or unenforceable, the parties agree that the [judge/arbitrator] shall rewrite the provision to be enforceable and/or to reflect the intent of the parties.

Including the latter contract provision in an effort to insert “flexibility” and maximize “buyer’s leverage” could have the unintended consequence of bogging the buyer down in litigation, thanks to the above contract interpretation rules.

For example, a common issue addressed in real estate contracts is the financing contingency. The ready, willing and able buyer might wish to keep its “options open” by requiring that the financing contingency language be drafted in such a manner that he can “escape” the deal if another more advantageous deal comes along. The buyer can demand and may receive a rather vague financial contingency provision that on its face places little or no parameters on the source or terms of financing it might be required to pursue, believing that negotiating such vague terms might prevent the buyer providing more information about its efforts than it might want to divulge to the seller. By insisting on this “flexibility,” however, the buyer may unwittingly open itself up to litigation in Arizona because the seller is able to press the buyer to provide more detail about its efforts to secure financing than the buyer is accustomed to providing in other states. lf the buyer balks at providing this information, the unique contract interpretation rules in Arizona can provide the leverage to the seller against the buyer by asserting that either the brokers or parties involved in the negotiation of the agreement envisioned that the buyer would pursue a certain type of financing. In the end, the seller can claim that although the explicit terms of the agreement do not set forth what efforts the buyer must undertake or agree to, the parties cannot release the buyer from its contractual obligations by claiming a failure to obtain acceptable financing for the purchase of the real estate.

In the example above, the next move by the buyer might be to point out to the seller that the financing contingency language in the contract is so broad that the buyer need only claim the inability to obtain “acceptable” financing, and the contract is terminated. The problem with this approach is that it opens the door to the second Arizona-unique rule of contract interpretation: that court cannot rewrite the contract, notwithstanding inclusion of a contract provision expressly providing to the contrary. The seller will counter that the buyer is simply trying to insert certainty into a contract that did not contain certainty, something an Arizona arbitrator or judge cannot do. This would require the court to delve deeper into the “real intentions” of the parties, and to look to oral or other evidence outside the “four corners” of the contract. Ultimately, this results in a potentially vicious cycle of investigation into the contract that the buyer may never have envisioned at signing. Because the Arizona court cannot re-write the contract, there is no clear end game for either side.

The buyer’s leverage is a function of how many deals it can be involved with at any one time, and how motivated the seller is to close the deal to possibly become the ready, willing and able buyer himself. The dynamics of the real estate deal are rarely known by the parties and can change quickly. But often the parties (including brokers) fool themselves by believing they understand these dynamics. For example, the respective brokers or other agents (including legal counsel) can be fully informed of the motivations of both parties in entering the deal. But in the course of due diligence, the seller or buyer might be introduced to a totally unrelated alternative deal that they simply cannot pass up, making the closing (or failure to close) so important that they are willing to risk the relationship by killing (or forcing) the deal.

The moral to this story? Draft clear and complete contracts (including well-drafted amendments or addenda) to maximize the chance of smooth transactions and to reduce the risk of disputes or litigation.

If you or someone you know has questions regarding real estate contracts, please call today to speak with Mr. Charles.

Fair Housing Act

HUD Says Screening Based on Arrest Record May Violate Fair Housing Act

By | Articles, Real Estate

As many as 100 million U.S. adults – or nearly one-third of the population – have a criminal record. The U.S. Department of Housing and Urban Development (HUD) recently issued a warning and compelling statistics that reveal that certain protected classes are being disproportionately impacted by their criminal history.

The Fair Housing Act prohibits discrimination in the sale, rental, or financing of dwellings and in other housing-related activities on the basis of race, color, religion, sex, disability, familial status or national origin. 42 U.S.C. §3601 et seq.

Although criminals are not a protected class under the Fair Housing Act, criminal background-based restrictions may violate the Act if, without justification, the restrictions negatively impact one race more than others (known as “discriminatory effects liability”). In addition, where two or more applicants have similar criminal backgrounds, the Act is violated if the housing provider prefers one race over another (known as “disparate treatment liability”).

HUD warns that a housing provider violates the Fair Housing Act if the provider’s policy or practice has an unjustified discriminatory effect, even if the provider had no intent to discriminate. This is noteworthy because under this standard, an ostensibly neutral policy or practice that has a discriminatory effect violates the Act if it is not supported by a legally sufficient justification. And according to the statistics quoted by HUD, housing decisions based on criminal records conclusively result in a discriminatory effect on certain races of people.

HUD does, however, mention the following safe harbor: the policy or practice may be lawful notwithstanding its discriminatory effect as long as the decision is supported by a legally sufficient justification. For example, safety. Some landlords and property managers site the need of protecting other residents and their property as legal grounds for denying applicants based on their criminal background. For sure, ensuring resident safety and protecting property are among the fundamental responsibilities of a housing provider, and courts may consider such interests to be both substantial and legitimate, assuming they are the actual reasons for the policy or practice.

But a word to the wise: denial of housing opportunities based on past history of criminal arrests (without proof of conviction) will not likely satisfy this test. Indeed, according to the U.S. Supreme Court, “[t]he mere fact that a man has been arrested has very little, if any, probative value in showing that he has engaged in any misconduct. An arrest shows nothing more than someone probably suspected the person apprehended of an offense.” Schware v. Bd of Bar Examiners, 353 U.S. 232, 241 (1957); see also United States v. Berry, 553 F.3d 273, 282 (3d Cir. 2009) (“[A] bare arrest record – without more – does not justify an assumption that a defendant has committed other crimes and it therefore cannot support increasing his/her sentence in the absence of adequate proof of criminal activity.”); United States v. Zapete-Garcia, 447 F.3d 57, 60 (1st Cir. 2006) (“[A] mere arrest, especially a lone arrest, is not evidence that the person arrested actually committed any criminal conduct.”). Thus, a housing provider who denies housing to persons on the basis of arrests alone (without proof of conviction) cannot prove that the exclusion actually assists in protecting resident safety and/or property.

On the other hand, denial of a housing-related opportunity based a criminal conviction is likely okay. But the housing provider must still prove that such policy or practice is necessary to achieve a substantial, legitimate, nondiscriminatory interest. A blanket ban on anyone with a conviction record – no matter when the conviction occurred, regardless of the crime, or what the person has done since then – will be unlawful.

According to HUD, a blanket ban against anyone with a criminal record results in discrimination against certain races of people because of the disparities in the U.S. criminal justice system. As a result, the housing policy should differentiate between various crimes and the date of the convictions. For example: [1] convicted sex offenders need not apply (regardless of the date of conviction); [2] convicted felons guilty of violent crimes, kidnapping, terrorism, drug manufacturing, need not apply (regardless of date of conviction); [3] conviction of any drug-related offenses involving possession only, or alcohol-related offenses where no one was injured or killed, must be at least 2 years old.

To summarize, the Fair Housing Act does not prohibit housing providers from considering an applicant’s criminal background when making housing-related decision. But according to HUD’s recent warning, the Act does prohibit housing-related decisions based solely on the applicant’s criminal history. And the Act may prohibit housing-related decisions based solely on the applicant’s conviction record without evidence of a legally sufficiency justification such as safety concerns. As a result, housing providers should immediately implement thoughtful application policies and practices that consider the type of crime, evidence of a conviction, the date of the conviction, and the person’s behavior since the conviction.

If you or someone you know has questions regarding multi-family housing, landlord tenant issues, or other real estate matter, please call or email today.

Christopher J. Charles is the founder and Managing Partner of Provident Law®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He is also an Arbitrator and Mediator for the AAR regarding real estate disputes; and he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.

Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at chris@newnewprovidentlawyers.mystagingwebsite.com or at 480-388-3343.

Law Approving Vacation Rentals in Arizona

Governor Ducey Signs Law Approving Vacation Rentals in Arizona

By | Articles, Real Estate

Keeping true to his goal for Arizona to become to the sharing economy of what “Texas is to oil and what Silicon Valley used to be to the tech industry,” Governor Ducey signed SB1350 paving the way for vacation rentals in Arizona. Prior to SB1350, cities such as Scottsdale, Phoenix, and Sedona opposed residential rentals for less than thirty days.

Now state law prevents cities and counties from banning short-term rentals and establishes uniform tax laws for vacation rentals.

Click here, to review an overview of the new law in Arizona. This new law protecting vacation rentals in Arizona is the first of its kind in the nation. Airbnb and VRBO are now lobbying across the country for similar laws in other states.

Although SB1350 prevents cities and counties from restricting vacation rentals, in limited situations HOAs may restrict short term rentals pursuant to CC&Rs.

For more information regarding vacation rentals, call or email Mr. Charles today, to schedule a consultation.

State Senate Votes to Protect Vacation Rentals

Breaking News! State Senate Votes to Protect Vacation Rentals

By | Articles, Real Estate

Due in part to the convenience of our new “Sharing Economy” through websites like VRBO and airbnb, vacation rentals are booming. Short-term rentals, however, are under attack by certain cities and HOAs. Some cities such as Sedona, Arizona and Coronado, California, have passed legislation to expressly prohibit rentals for less than 30 days. And other cities including Scottsdale and Phoenix have recently taken the controversial position that although their codes and zoning ordinances do not expressly prohibit vacation rentals, any rentals for less than 30 days in residential districts are illegal as “commercial use.”

In an effort to clarify owners’ property rights in Arizona, the State Senate recently voted to pass SB1350 sponsored by Senator Debbie Lesko. SB1350 prevents cities from restricting vacation rentals and clarifies taxation issues. The bill is currently pending before the House of Representatives.

Governor Doug Ducey endorsed vacation rentals in his State of the State address: “Arizona should be to the Sharing Economy what Texas is to oil and what Silicon Valley used to be to the tech industry.”

If you or someone you know has questions regarding vacation rentals, please call our office today to schedule a consultation.

Please see below for more information on vacation rentals:

Ways to Increase Your Odds at Mediation

Tax Liens and What Property Owner’s Need to Know About Mortgage Foregiveness Tax

By | Articles, Real Estate
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If you own a property you know that getting the mortgage is only the beginning. There is also real property tax, state tax and tax liens, just to name a few. As a property owner it’s always good to keep yourself informed.

In this video Arizona State Bar Certified Real Estate Specialist, Attorney Christopher J. Charles provides some useful information and explains the details about Arizona tax liens.

Understand short-term lease is

Short Term Leases

By | Articles, Real Estate
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What is a short-term lease? What does the Super Bowl have to do with short-term leases? Watch this video to listen to Arizona State Bar Certified Real Estate Specialist, Attorney Christopher Charles, explain the “ins and outs” of short-term leases in Arizona.

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