As our firm represents investors and landlords, we are regularly advising clients of the good and the bad in real estate. We have given advice about the potential liabilities/deficiencies clients face when they lose their houses to foreclosure and, at the same time, we have advised clients about their rights when they are buying properties at trustee’s sales. In 2012, several important cases have been published by Arizona Courts affecting investors who have lost houses and those that have bought new ones. While the situations are different, the new case law is advantageous for all investors.
First, we will deal with the unfortunate case of a person losing his or her property. Arizona has an anti-deficiency statute which prohibits lenders from suing people for the deficiency owed after a trustee’s sale is conducted and the home is sold for less than what was owed on the note. This protects owners of properties that are 2.5 acres or less which are utilized as either a one-family or single two-family dwelling. (A.R.S. § 33-814(G)). This language has led to a lot of attorneys speculating about what “utilized” means. Does that include a vacant house? What about a rental home that the owner has never used? The Court of Appeals recently adopted a broad interpretation of the statute and held that a construction loan could fall within the anti-deficiency statute. Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 277 P.3d 198 (App. 2012). In other words, even if the home was not lived in, it could be considered utilized. The Court also said that even when there is a refinance, provided other factors are met, such a loan may also get the statutory protection.
Second, there are some important cases that have been heard regarding purchasers at trustee’s sales. The Courts have affirmed the conclusive presumption of title that a trustee’s deed upon sale creates for the buyer of a foreclosed property. While that sounds complicated, it means that once a trustee’s sale has been completed and the buyer receives the trustee’s deed, other persons claiming that the sale was invalid waived any objection unless they obtained an injunction prior to the sale. This issue came up in two very different cases.
In BT Capital, LLC v. TD Serv. Co. of Arizona, the Supreme Court addressed a situation in which a trustee completed a sale but never released the trustee’s deed. 229 Ariz. 299, 275 P.3d 598 (2012). The trustee then completed a second sale and recorded the trustee’s deed upon sale. The buyer/plaintiff at the first sale tried to object, saying that it had previously purchased the property and the second sale was invalid. The Supreme Court noted that the buyer did not have an injunction preventing the second sale and therefore the sale was valid. Because the ultimate purchaser received the trustee’s deed upon sale, the buyer/plaintiff waived any rights objecting to the sale and had no claim to title. This case notes the importance of getting an injunction to stop a sale if you believe it’s invalid. In this case, the buyer/plaintiff may have had a claim to title because it was the first successful bidder, but it failed to protect its interest by stopping the second sale. To protect its interest, the buyer/plaintiff should have filed suit and maintained an injunction preventing any subsequent sale.
This statutory scheme was also recently analyzed by the Court of Appeals in Madison v. Groseth, 230 Ariz. 8, 279 P.3d 633 (App. 2012). In that case, the foreclosed former owner of a property sued the buyer of the home for conversion, fraud/deceit, and trespass. The Court held that because the buyer had the trustee’s deed and the former owner failed to get an injunction, the buyer had clear title and all of the claims were without merit. This case stresses the importance of obtaining the trustee’s deed as it protects you from the majority of claims by a former owner. In this market, we are seeing more former owners filing fraudulent claims against buyers at trustee’s sales, so this case law assists in getting these cases dismissed.