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Arizona Real Estate Journal

Arizona School of Real Estate and Business

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WHY MEDIATION TRUMPS LITIGATION

By | Articles

“Where there are no oxen, the manger is clean, but an abundant harvest comes through the strength of the ox.” Proverbs 14:4. Put another way, if you don’t do any work, you might have a clean stable, but you won’t have any crops. Applying this principal to business, if you are involved with enough real estate deals in this litigious culture, sooner or later, you are bound to run into a dispute. Common real estate disputes include failure to close, lack of proper disclosure, title issues, and other issues concerning the property’s condition. Resolving disputes through the courts is often costly and inefficient.   Read More

Greed Doesn’t Pay: Excessive Interest Charged by Lender May Result in No Interest

By | Articles

Pigs get fat and hogs get slaughtered. That is why hard-money lenders should avoid seeking hyper aggressive interest rates. Although conventional mortgage interest rates remain historically low, interest rates on private loans, or “hard money” loans range anywhere from 5% to multiples of the principal amount. But if lenders overreach, they may end up forfeiting all interest. Indeed, the defenses of usury and unconscionability are alive and well. Read More

Judgment Liens and Homestead Properties

By | Articles

COURT RULES THAT JUDGMENTS DO NOT ATTACH AS LIENS TO HOMESTEAD PROPERTIES

Most civil cases never reach the trial stage.  Instead, they are settled before trial.  However, in those smaller percentage of cases that proceed all the way to trial, the Court will award to the prevailing party a judgment.  These judgments are typically recorded with the local county recorder’s office so that the judgment can attach as a “judgment-lien” on any non-exempt property owned by the debtor. Read More

ARE USURY LAWS STILL RELEVANT?

By | Articles

One of the greatest misconceptions of Arizona law is that usury is no longer a viable cause of action. In the 1980s, Arizona amended the usury laws to remove the interest rate ceiling.  As a result, today’s usury laws essentially authorize lenders to contract for any interest rate. However, usury remains a viable defense against lenders who breach their own contracts by charging fees that aren’t allowed. Read More

Separation Agreements in Arizona

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Separation Agreements (A.R.S. § 25-317)

Sometimes married couples decide to separate, either in anticipation of divorce, giving one or both of the parties “some space,” or simply living separately for a while in hopes of sorting out their feelings and possibly reconciling.  Under Arizona law, married couples can remain married but enter into a legal contract governing their financial matters – the handling of property, debt or even support.  This is called a separation agreement and is controlled by A.R.S. § 25-317.   The Court of Appeals recently ruled that per the statute, for these separation agreements to be enforceable, the terms cannot be unfair.  Buckholtz v. Buckholtz, No. 1 CA-CV 17-0596 FC, filed January 15, 2019. Read More

Death and taxes: The Statutory Requirements for Purchasing, Redeeming and Foreclosing on Tax Liens in Arizona

By | Articles, Real Estate

Two things in life are certain: death and taxes. And if you don’t pay your taxes, there can be severe consequences. For example, if you fail to pay your property taxes, someone else can swoop in, pay the tax liability, and then ultimately claim title to your property.

Under Arizona law, a tax levied on real property is a lien on the assessed property. Read More

Election Of Remedies: Can Mortgagees Have Their Cake And Eat It Too?

By | Articles, Real Estate

Most secured creditors have multiple options if the debtor defaults on payment. That is precisely why they require borrowers to pledge security (such as real estate) for the performance of the repayment of the debt – so that if the borrower defaults, the creditor is not limited to the borrower’s promise to repay the debt – in addition, the creditor can seek reimbursement from the sale of the secured asset.

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How Long Can A Lender Wait Before Foreclosing

How Long Can A Lender Wait Before Foreclosing Or Suing On A Note?

By | Articles, Real Estate

Years ago, Justice Oliver Wendell Holmes, Jr. asked: “What is the justification for depriving a man of his rights, a pure evil as far as it goes, in consequence of the lapse of time?” Several reasons exist: [1] our laws aim to resolve just claims within a reasonable time; [2] if a claimant sits on her rights for too long, relevant evidence to disprove the claim may be lost or destroyed by the passage of time; and [3] litigation of a long-dormant claim by result in more cruelty than justice

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The definition of "Encumbrance” in the real estate world

Word of the Day: “Encumbrance”

By | Articles, Real Estate

When it comes to real estate transactions, more often than naught, the “devil” is in the details. The Arizona Court of Appeals, Division One, recently provided a roadmap to the rules concerning the specificity of an agreement required to obtain specific performance of an option to purchase real property.

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Arizona’s Limited Liability Company Act

The LLC Act Overview

By | Articles, Business

Most real estate professionals understand that a purchase-money mortgage is senior to all other liens. But that is only mostly true. One important exception for all real estate professionals to be aware is the “PACA Trust.”

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Supreme Court Rules: Claims for Wrongful Foreclosure Must Be Filed Prior to Trustee Sale

Supreme Court Rules that Claims for Wrongful Foreclosure Must Be Filed Prior to Trustee Sale

By | Articles, Real Estate

The recent Arizona Supreme Court case, Zubia v. Shapiro, 243 Ariz. 412 (2018), reminds homeowners to obtain early legal counsel when facing foreclosure, while bolstering lenders’ affirmative waiver defenses. Particularly, the Supreme Court ruled that borrowers waive claims to damages concerning the validity of a trustee’s sale when they first fail to obtain injunctive relief to prevent the trustee’s sale.

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Choosing The Correct Business Entity

By | Articles, Business

Societies have conceived new business structures since time immemorial. Fundamentally, joining together with business partners spreads the demands of capital and limits risk.

Italians made family firms, compagnia, where fathers, brothers, and sons would pool their labor and capital. Fittingly, the name compagnia derives from the Latin phrase for the act of sharing bread, cum panis. Then, companies granted by royal charter arrived, like the East India Company, an import-export business who received special privilege from the Crown to pursue a monopoly on trade between London and Asia, with offerings varying from pepper to textiles to tea. The East India Company, the mother of the modern multinational corporation, pioneered the joint stock mechanism. That innovation allowed for separation of investors and managers, broadening the pool of capital; it also spread risk and provided limited liability, and it allowed the enterprise to trade on its own account, rather than in the names of the individual owners.

Now, with a few clicks and an electronic signature, anyone can form a business entity, securing the same limited liability separation between an entity and its owners as employed by corporate giants across America.

But which form of entity is right for your business?

For many business owners, the choice-of-entity decision is driven purely by tax considerations. But the two most prevalent forms, the corporation and the limited liability company (LLC), also offer sought-after advantages of: (i) limited personal liability, (ii) easy transfer of ownership, and (iii) management separation from ownership.

Certainly, the tax benefits are relevant, like the incentive to avoid double taxation or the substantial restrictions on entities under subchapter S of the tax code — but don’t miss the legal distinctions and historical context. The LLC is structurally different than a corporation. Today, many owners form LLCs, almost by default, without considering their unique attributes, such as: (1) the primacy of the operating agreement, and (2) the application of fiduciary duties.

First, owners should consider that the LLC is as much a creature of contract as of statute. As a result, once an LLC comes into existence and has a member, the LLC necessarily has an operating agreement, whether written, oral, or implied by law. The operating agreement plays a vital role, as it establishes the fundamental rules for the relationships between the LLC, its members, and any manager.

Even so, many business owners select the LLC form but never draft an operating agreement — or perhaps worse, draft one, but neglect to sign it.

On the other hand, a corporation is not driven by private contract between individuals. Rather, there is a body of statutory and common law that, in some ways, cannot be displaced. A corporation has been judicially defined as “an artificial being, existing only in contemplation of the law; a legal entity, a fictitious person, vested by law with the capacity of taking and granting property and transacting business as an individual. It is composed of a number of individuals, authorized to act as if they were one person. The individual stockholders are the constituents or component parts, through whose intelligence, judgment, and discretion the corporation acts.”

Second, the owners should consider the obligations they intend to impress on themselves and management; for example, owners should consider whether they can limit their fiduciary duties to simultaneously pursue other ventures.

Granted, the topic of fiduciary duties raises many of the most complex questions in the law of business organizations.

For the LLC, the primary issue is to what extent the members can privately agree in the operating agreement to vary or eliminate those duties. Although a contract cannot completely transform an inherently fiduciary relationship into a merely arm’s length association, the operating agreement has substantial power to “reshape, limit, and eliminate fiduciary and other managerial duties.” For example, the classic fiduciary “duty of loyalty” means: (i) not “usurping” company opportunities or otherwise wrongly benefiting from the company’s operations or property; (ii) avoiding conflict of interests in dealing with the company (whether directly or on behalf of another); and (iii) refraining from competing with the company. Members can agree, however, to tailor those limitations and allow a member or manager to engage in other business or compete with the company. On the other hand, corporate directors and officers are not free to contract out of their duties to shareholders.

The law of business organizations has continually modernized, providing us with accessible tools to limit personal liability. But, whether your company is in real estate or technology, simply holds investments or engages in long-distance trade voyages around the Cape of Good Hope, building upon the right legal structure is critical to its long-term success. If you or someone you know has questions about how to structure their business or investments, please call our office today to schedule a consultation with Andy Anderson.

Andy Anderson is an Attorney with Provident Law®. He serves businesses and individuals, counseling them as they form, operate, and protect their companies. He is a member of the State Bar of Arizona Subcommittee tasked with revising the Arizona Limited Liability Company Act. He also serves on the Board of Directors of the Christian Legal Society and he is a graduate of the James E. Rogers College of Law at the University of Arizona and the W.P. Carey School of Business at Arizona State University. Andy can be reached at andy@newnewprovidentlawyers.mystagingwebsite.com or 480-388-3343.

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.