In a recent column you stated that a commercial property lease is terminated after the foreclosure by the lender. Our small real estate brokerage firm has two years remaining on our lease in a large Tempe office building. Due to the real estate slowdown, we would like to move into smaller space. After the commerical property’s foreclosure sale by the lender last week, we believed that our lease had terminated. The lender’s property manager disagrees, and says that we are now required to make our lease payments to the lender as the new owner of the office building. Our attorney has reviewed our lease, and even he says that the language in our lease requires us to make the lease payments for the next two years to the lender as the new owner of the office building. How can the lender as the new owner of the office building enforce language in a lease after the foreclosure sale terminated the lease? What is going on?
Real Estate Law Blog
My husband is a pilot at Luke Air Force Base who is being transferred to the Far East for at least a year. We have our home listed for sale, and I am concerned that we will get a good offer to purchase our home but my husband may be difficult to contact. A friend has suggested that before he leaves for the Far East my husband contacts an Arizona real estate law attorney and executes a power of attorney to me so that I have the authority to sign the deed to sell the home. What type of language is necessary in a power of attorney to give me the authority from my husband to sign the deed to sell the home?
We own three four-plexes in East Phoenix secured by one loan. When we purchased these three four-plexes seven years ago, we knew that the neighborhood was not a good one, but we believed that the neighborhood would improve. To the contrary, the neighborhood has continued to deteriorate. The loan balance now greatly exceeds the value of the three four-plexes, and we can no longer make the loan payments. Our lender has refused to accept deeds in lieu of foreclosure from us. The lender wants us to do a “short sale” of the three four-plexes, but we would still have to pay the amount of the remaining loan balance. If the lender continues to refuse to accept deeds in lieu of foreclosure, can the lender foreclose on the three four-plexes and demand payment of any deficiency?
In our Peoria neighborhood the covenants, conditions, and restrictions (“CC&R’s”) prohibit basketball goals in the front yard. Due to many foreclosures in our Peoria neighborhood our homeowner’s association (“HOA”) has no funds to enforce the CC&R’s. Two of our neighbors on our street have now installed basketball goals in their front yard, and at a recent barbeque in our community park, several other neighbors said that they were planning on installing basketball goals in their front yards. We are an elderly couple, and we do not want children playing basketball in the streets. If the HOA will not enforce the CC&R’s restricting basketball goals in the front yard, can we as individual homeowners enforce the CC&R’s?
Question: My brother was in a car accident last summer, and has been unable to work since the accident. He could not make his payments and is in mortage default on his home in Flagstaff. A foreclosure sale has now been scheduled in three months. I am a real estate agent who has listed the home for my brother. If I disclose to potential buyers that the home is subject to a foreclosure sale in three months, I am afraid that I will only get buyers that are “bottom feeders” because my brother is a desperate seller, and that buyers will want to “grind” my brother on the purchase price. Do I have to disclose this foreclosure sale of my brother’s home to buyers? If so, when do I have to disclose?
Question: We purchased our home in Gilbert with a $240,000 mortgage. After we purchased our home we borrowed $100,000 on a home equity line of credit (“HELOC”). The home is worth less than $200,000 now. Although we are trying to get a loan modification on our first mortgage loan of $240,000, even if we get the loan modification agreement we will probably not be able to stay current at this time with the monthly mortgage payments. In addition, we have not made any payments on our $100,000 HELOC for the last two months. We do not want to lose our home to foreclosure. My husband has just started a new job, and in the next year or so we may be able to get out of this mess. Can the homestead exemption under Arizona law protect us from foreclosure by either the first mortgage lender or by the HELOC lender?
Question: Last month I purchased a home in Surprise from a California investor. The California investor had leased the home to a tenant under a lease which now has four months left. My goal is to sell the home as soon as possible, and hopefully close on the sale to the buyer at the same time as the tenant’s lease expires in four months. At least three different times I have given the required two days notice to the tenant to show the home to a prospective buyer. On prior visits to the home the tenant had an excuse such as sickness and refused to let me in the home. Yesterday I went with a prospective buyer to the home and the tenant slammed the door in my face. The prospective buyer is naturally no longer interested in purchasing this home. Do I have to get a court order to get access to this home that I own?
Question: My Chicago business partner and I purchased an expensive condominium in Scottsdale for an investment. Due to the failing economy and the slowdown in our business, we have been unable to make the payments and let the condominium go into mortgage default for the past seven months. We know that under the Arizona anti-deficiency law we have no personal [...]
Question: Four years ago we purchased a lot in the Arrowhead area of Peoria for $300,000. We paid a $20,000 cash down payment with a mortgage of $280,000. Although it has been difficult, we have kept the payments current on this lot until five months ago. Our neighbor is a real estate broker, and says [...]
Question: When we moved into our apartment in East Phoenix last year we signed a one-year lease and paid a $1,200 security deposit to the landlord. Our lease ended last month and we moved out of the apartment. We left the apartment spotless, and we asked the property manager for the return of our $1,200 security deposit. The property manager later said that the landlord inspected our apartment, and had told the property manager not to return our $1,200 security deposit because there was major damage done to the apartment. We think that the landlord is just trying to keep our $1,200 security deposit. We have never talked to the landlord, and we have had only two conversations with the property manager who know refuses to return our telephone calls. What can we do to get our $1,200 security deposit back?
Question: We recently purchased a HUD foreclosure home in Glendale. In the HUD contract we agreed that we were purchasing the home in “as is” condition. The HUD contract did give us the right to conduct inspections. My husband used to be in the construction industry, and after spending four hours inspecting the home, he found only some minor items that needed repair. Two weeks after we closed on the purchase of our home, however, the roof leaked. The roofing company has estimated that the cost of repairs to the roof will be $4,800. Does HUD have any liability for this $4,800 in roof repairs?
Answer: Probably not. If a home is sold in “as is” condition, a seller generally has no liability after the close of escrow for a defective roof or any other problem with the home. Therefore, HUD probably has no liability to you. HUD would have liability to you, however if a HUD employee or agent had knowledge of the defective roof. The reason is that the failure of a seller to disclose a known, material problem with the home is fraud.
Note: A roof is generally the most expensive repair problem in a home. Therefore, the buyer of a home should have a roof warranty at the time of closing.
On May 20, 2009, President Obama signed Senate Bill 896 (Helping Families Save Their Homes Act of 2009) into law. Title VII of this Act is called “Protecting Tenants at Foreclosure Act of 2009” (“PTFA”) and is designed to protect “bona-fide” tenants from being displaced when their landlord’s property is foreclosed. While the new law protects tenants, it raises significant issues for landlords, property managers, lending institutions and buyers.
The PFTA applies where foreclosure has occurred on a “federally-related” home loan. A winning bidder at the foreclosure sale, often the bank, is termed by the PFTA as the “immediate successor in interest.” Pursuant to the PFTA, immediate successors in interest acquire the property subject to any “bona-fide” leases in place at the time of foreclosure. To qualify as “bona-fide,” (1) the lease must have been executed prior to the issuance of the notice of the foreclosure; (2) the defaulting borrower may not be the tenant under the lease; (3) the lease must be the result of an arms-length transaction; and (4) the lease must require “fair market rent” for the property.
Question: Four years ago our small homebuilding company purchased ten acres of land in Gila County just outside the town of Payson. We split this ten acres into five lots and built homes on each of the five lots. The last of the five homes finally (!) closed escrow last month. We now have the opportunity to buy the adjacent ten acres at a great price, and in the future we may build another five homes. Will we have to comply with the subdivision laws, e.g., file a public report, if we build and sell five homes on this adjacent ten acres?
In the current Arizona real estate market there is confusion about a homeowner’s liability to the lender for a home that is “upside down,” i.e., the home is worth less than the amount of the loan on the home. The following five general observations of current Arizona real estate law that should be helpful in clarifying this issue.
1. Lender Can Sue Borrower Only if Non-purchase Money Loan.
If a loan was used to purchase the home, the loan is a non-recourse loan. In other words, the homeowner has no personal liability for the loan, unless there is excessive damage such as vandalism or flooding, i.e., “waste” to the home. Therefore, the lender’s only recourse after loan default is to foreclose on the home, and the lender cannot waive foreclosure and sue to collect the amount of the loan. If, however, the loan was not used to purchase the home, e.g., a home equity line of credit (“HELOC”), the lender can waive foreclosure and sue to collect the amount of the loan. For example, if the homeowner after purchasing the home borrows $50,000 under a HELOC, the lender can waive foreclosure of the home and instead file a lawsuit in civil court to collect on the $50,000 promissory note.
Question: Our California partnership signed a contract to sell forty acres of land in the Rio Verde area of North Scottsdale. The buyer deposited $100,000 earnest money and under the contract had a sixty-day inspection period to conduct all “due diligence” inspections, including environmental inspections, relating to the forty acres of land. The sixty-day inspection period has passed, and escrow is scheduled to close next week. The buyer’s environmental expert is now saying that the southern portion of the forty acres has environmental problems because of hazardous wastes due to dumping of paint and other building materials by homebuilders in the area. The buyer is demanding that the contract be canceled and that the $100,000 earnest money be returned to him. We are refusing to agree to the return of the $100,000 earnest money to the buyer because our understanding is that a buyer is not entitled to cancel a contract because of environmental problems after the inspection period has passed. I had no knowledge of any environmental problems, and no one in our California partnership group other than me has even seen the land for several years. Are we entitled to the $100,000 earnest money if the buyer won’t close the transaction?
Arizona and a small minority of other states have adopted anti-deficiency statutes to prohibit a homeowner’s personal liability after losing a home to foreclosure. In the past two years in Arizona there has been both a rapid increase in homeowners who default on mortgage home loans and a rapid decline in home values. Therefore, the scope of the protection of the anti-deficiency statutes is now of heightened interest to both homeowners and lenders.
Frequent questions are: Can the lender waive the right to foreclose on a home and bring a collection action on the promissory note? Do investors and developers have the protection of the anti-deficiency statutes after foreclosure on a home? Do the anti-deficiency statutes apply to the refinancing by the homeowner of the original purchase money loan, even if a portion of the loan refinancing exceeds the original purchase money loan? This article will attempt to answer those questions.
Question: Four years ago we purchased a home in a Chandler subdivision. The branches of our neighbor’s large eucalyptus tree have now grown over the common wall into our backyard. On a windy day the leaves from this large eucalyptus tree litter our yard, stain our patio, and clog our pool cleaning system. We have had to replace the pool pump because of overheating due to the leaves clogging our pool cleaning system. Can we trim the branches of this large eucalyptus tree? If so, can we get reimbursement for the cost of the trimming?
Answer: The general rule is that a homeowner is entitled to trim up to the property line the branches of a neighbor’s tree that hang over onto the homeowner’s property, provided that this trimming will not kill the neighbor’s tree. Therefore, prior to trimming the overhanging branches of a neighbor’s tree, a homeowner should consult with an arborist or other professional. If trimming is allowed, the neighbor is generally not liable to reimburse the homeowner for the cost of the trimming. If the branches of the tree, however, cause “sensible injury” to the homeowner’s property, the neighbor will be liable for any costs, including the homeowner’s trimming costs. 145 Ariz. 115. The damage to your pool cleaning system, including the replacement of the pool pump, is probably a “sensible injury.” Therefore, you should be able to get reimbursement from your neighbor for the cost of trimming the branches of your neighbor’s large eucalyptus tree. In addition, you should be able to get reimbursement for the cost of a new pool pump.
At a bank foreclosure sale our investment group purchased a home in Gilbert. The home was in very poor condition, and our plan was to “flip” the home to another buyer for a profit after we made $20,000 worth of improvements and repairs to the home. Although we knew that there was a tenant in this home, the bank’s agent had said that this tenant was only in the home on a verbal month-to-month lease. When we furnished the tenant with a five-day notice to move out as we have done with other foreclosure homes that our investment group has purchased, the tenant showed us a one-year lease signed by the former owner of the home. This one year lease has seven months remaining. When we went back to the bank’s agent with a copy of this one-year lease, the bank’s agent said that the tenant had forged the signature of the original homeowner on the one-year lease, and that there is only a verbal month-to-month lease. Does it make any difference if the lease was month-to-month or that the lease was a one-year lease with seven months remaining on the lease? How do we get this tenant out of the home? Help!
Question: Three years ago we signed a five-year lease for our Central Phoenix office space. We have paid the same monthly rent for three years. This month the landlord sent us a bill for the monthly rent plus an additional charge for an increase over the previous year in the operating expenses for the office building. I reviewed our lease, and the lease says that each year the landlord can bill the tenant for any increase in the operating expenses (such as insurance and repairs/maintenance) over the operating expenses for the previous year. When I complained to the landlord about being billed for the increase in the additional operating expenses, the landlord said that the former bookkeeper simply failed to bill us each year for the increase in the operating expenses, and that we should be thankful that we were not being billed retroactively for the increases in the operating expenses for all of the prior years. Even though the lease provides that the landlord can charge us for the annual increase in the operating expenses, can the landlord after three years start to make us pay this annual increase? In other words, has the landlord waived the right to collect for increased operating expenses?
Answer: If the landlord’s former bookkeeper simply made a mistake in failing to bill for three years for the increased operating expenses, the landlord is entitled to bill you now for the increase in operating expenses over the previous year. In fact, the landlord is probably correct that you could be billed now for the increase in operating expenses for the prior years of the lease.
Question: Two months ago our small accounting firm signed a five-year lease for space in an office building in the Camelback corridor in Phoenix. Due to the current weak commercial leasing market, our lease has very favorable terms. The owner of our office building, however, has fallen behind on the mortgage payments to the lender. The lender’s property manager has told us that foreclosure proceedings will be instituted before the end of the year. If there is a foreclosure will our favorable five-year lease be terminated? Does the new federal law that protects tenants after foreclosure apply to commercial property leases and foreclosures?
Answer: The new federal law effective May, 2009, generally allows residential tenants to stay for the entire lease term after foreclosure. This new federal law, however, only applies to residential tenants, and commercial tenants have no similar protection after foreclosure. Therefore, if there is a foreclosure of the office building, your five-year lease will be terminated.
Question: My boyfriend and I are ASU students, and we rent a condominium in downtown Phoenix. Our one-year lease expires June 30. We were quite surprised when we received a notice last week from the bank stating that there will be an auction by the bank of our condominium in the next ninety days. We [...]
Question: Our professional cleaning business rents space in an industrial park in east Phoenix. Due to the economy and businesses failing, we have been unable to make the rent payments to our landlord. Our landlord has now locked us out of our leased space, and he will not let us back in to get our equipment, etc. until we bring the rent current. We are personally liable, however, for the lease of the copier and the lease of three industrial sweepers. Can the landlord keep all of our equipment, etc. until we bring our rent current? Is the landlord entitled to keep the leased copier and the three leased industrial sweepers until we bring our rent current?
Answer: Unless there is a clause in any commercial property lease such as yours that prohibits the “lock out” of the tenant for non-payment of rent, the landlord is entitled to lock out the tenant and is generally entitled to a lien on the tenant’s personal property until the rent is brought current. This landlord’s lien, however, does not include personal property owned by a third party that is only leased to the tenant. Therefore, the owner of the leased personal property has the right after furnishing proof of ownership to the landlord to enter the leased space and remove the leased personal property such as the copier and three industrial sweepers.
Question: We own a four bedroom home in a Mesa subdivision. A family of two parents and six children under the age of eleven wants to rent this home. We are concerned about potential liability because the home is two stories with a swimming pool, and we are also concerned about excessive damage to the home because of the small children. Can we refuse to rent the home to this family because of these reasons?
Answer: Probably not. Families with children are a protected class under fair housing laws, and cannot be prevented from renting a home just because the home has two stories and a pool. A landlord can refuse to rent a home, however, based upon reasonable occupancy standards, e.g., a landlord can refuse to rent a two-bedroom home to a family of 10. An occupancy limitation of two persons per bedroom, however, is presumed reasonable. See A.R.S. § 33-1317(F). Therefore, if you refuse to rent this four-bedroom home to a family of eight you probably will be in violation of fair housing laws.
Question: We borrowed money to purchase our home in Paradise Valley and our two expensive rental homes in Flagstaff. All three homes are now in short sale escrows. If the lenders approve these three short sales, will we have any tax consequences on the debt forgiveness on these three loans? Answer: Probably not. Although the [...]
The loan on our small office building in Gilbert is $850,000. The bank has approved a short sale of $700,000 to a buyer from California. As a condition of approval, however, the bank is requiring us to sign a promissory note to pay the $150,000 short sale deficiency in monthly payments over three years. The bank says that, if we don’t agree to make these payments, the bank will simply do a foreclosure sale and sue us for the $150,000 deficiency. The bank knows that we are collectable because they have our loan application which lists our personal assets. We consulted with an attorney who said that the anti-deficiency statutes don’t protect owners of office buildings. Should we let them do the short sale or just let the office building go into foreclosure?
Question: A real estate brokerage firm has been the sole tenant of a small office building in the Scottsdale Air Park. Due to the weakening real estate economy, we were able to sub-lease three office spaces from this real estate brokerage firm four months ago. Under the lease between the owner of the office building and the real estate brokerage firm, the owner was required to consent in writing to this sub-lease. We have a copy of this written consent signed by the owner. The real estate brokerage firm is now delinquent on the rent, and the owner has instituted eviction proceedings. The owner does not want to honor our sub-lease because the owner wants to find a new tenant who will lease the entire office building. Do we have any right to stay in this office building if the real estate brokerage firm is evicted?