LEGAL INFORMATION ABOUT SHORT SALES AND FORECLOSURE

THE REMEDIES GENERALLY, FOR DEFAULT:
Most Arizona home loans are made to the borrower on Trust Deeds or Mortgages and in most of those, there is no deficiency in the event of a default. That is to say, THE ONLY REMEDY THE CREDITOR HAS IS TO TAKE THE PROPERTY BACK. THEY HAVE NO RIGHT TO COLLECT THE DEBT FROM YOU PERONALLY! THIS IS AN IMPORTANT NOTE, SINCE MANY Of THE LENDERS ARE FRUADULENTLY TELLING THE BORROWERS THAT THEY ARE PERSONALLY LIABLE FOR THE DEBT AND THAT EVEN AFTER LOSING THEIR PROPERTY THEY CAN BE PURSUED ON THE BALANCE OF THE DEBT. THAT’S A LIE. THEY CANNOT.

ANTI-DEFICIENCY STATUTES:
Arizona law has two “anti-deficiency” statutes that will often apply to loans secured by single residential real estate and will apply whether or not the home is occupied by the borrower or at all. Where these statutes apply, a lender’s remedy will ONLY be a foreclosure, with NO RIGHT TO SUE FOR MONEY beyond the amount received from the foreclosure sale. These two “safe harbors” are as follows:

THE TEST FOR WHETHER THESE EXCEPTIONS APPLY TO YOU:
For either of the anti-deficiency statutes to apply, the mortgage or deed of trust must be secured by real property that: (1) consists of 2 1/2 acres or less; (2) and is restricted to and utilized for a single-family or dual-family dwelling. (3) the proceeds of the loan had to be used to pay all or part of the purchase price of the property (better that all of it was). If all three of the foregoing apply, there is no deficiency due in a modification, a short-sale, a foreclosure or otherwise and the Bank cannot ask for further compensation either through the courts, collection, by making the borrower sign some kind of new obligation or by simply telling the borrower that the Bank “reserves the right” to pursue the borrower. The Bank has no such right, flatly and simply. And to threaten otherwise is a fraud, a false and extortionate threat and certainly a wrongful debt collection practice and possibly even a separate crime! More over, the people who help the Bank do this, form agents to title and escrow companies, have some exposure here, as they are supposed to know better. The following sets out the three main ways the Banks are currently attempting to pilfer money.

BANK BIG LIE NO. 1: THE BANK ASSERTS THAT A REFINANCED PURCHASE MONEY RESIDENTIAL LOAN, A RESIDENTIAL HELOC OR A SECOND-POSITION RESIDENTIAL LOAN IS EXCLUDED FROM THE BAN AGAINST PERSONAL LIABILITY. THAT’S A LIE!!
If the current loan is not the original one that purchased the house, but a refinance of one that purchased the house or is a second loan such as one called a “Home Equity Line of Credit,” but was, in fact, used to purchase the home or refinance the purchase of the home (those 80/20 and 70/30 loans that were essentially 100% purchase money loans), this is still a non-deficiency purchase money loan in the eyes of the law. See the above definition of a purchase money loan and see also Bank One v. Beauvais, 188 Ariz. 245, 937 P.2d 809 (App. 1997) and Mid-Kansas Federal Savings and Loan Ass’n v. Dynamic Development Corp., 167 Ariz. 122, 804 P.2d 1310 (1991). Loan funds used solely to reinvest in the home such as to upgrade it or put in a pool, are not purchase money debts and would likewise give the creditor in most cases the right to sue directly on the debt or foreclose and take a deficiency. In fact, most of these loans violate the lender’s own underwriting standards, were designed in two parts instead of one to qualify the unqualified buyers with no down payment as though they had “equity” for the first loan to close the 80% or 70% loans and were thereafter, a fictional second later, then borrowing on the equity of the remaining 20% or 30% for the second loan as though the 80% or 70% loan was “pre-existing.” In this way lenders also defeated the rules requiring the transaction to pay mortgage insurance to Fannie Mae, Freddy Mac, FHA and others and could book and sell the 80% and 70% loans as high equity-based loans into the secondary markets, fooling the Raters such as Standard & Poore’s and Moodys. In all of this scheming, it appears that the lenders were really good in at least one trait: They know how to lie to and cheat everyone.

BANK BIG LIE NO. 2: THE “TRIAL MODIFICATION” THAT NEVER BECOMES PERMANENT
Some lenders, either through disorganization or planning, have twisted some of the workout rules and laws to give themselves an advantage at the cost of the consumer. Here is another scam:

BIG BANK LIE NO. 3: TRICKING OR EXTORTING THE BORROWER INTO PAYING ON AN OLD LOAN OR SIGNING A NEW ONE TO COVER A DEBT FOR WHICH NEITHER PAYMENT IS LAWFULLY PERSONALLY COLLECTABLE.
This lie is particularly odious and evident in more and more SHORT SALES. Under any of the short sale programs, the lenders will often direct that the consumer pay or “sign a new note” for any balance remaining after application of the short sale proceeds (usually on the second loan, but is also being tried on first-position loans, too). In cases where the second loan is a deficiency instrument (see above), this is a lawful practice at this time. BUT IT IS NOT A LAWFUL LENDER PRACTICE WHEN THE LOAN ON WHICH EXTRA MONEY OR A NEW NOTE is asked is itself a NON-DEFICIENCY LOAN! the definitions of what is and what is not a deficiency loan, above. There is no consumer duty to pay all or part of a non-deficiency loan as a precondition to doing a short sale, nor is there a duty to sign another loan promising to pay some or all of it, nor can the lender lawfully make such an extortionate demand as a condition of otherwise approving a short sale !!! The Arizona case of Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988) established that a lender cannot bypass the anti-deficiency statutes by waiving a foreclosure (where the anti-deficiency statutes appear as a seeming foreclosure remedy only) and instead sue the debtor directly on the promissory note. The Arizona Supreme Court stated clearly that it is not dispositive in what foreclosure remedy the anti-deficiency rules contained, it was rather the legislature’s all-encompassing intent to limit any and all remedies for qualifying residential purchase money loans solely to a return of the property. If the loan itself is a non-deficiency type, then all aspects of it are also accordingly limited. Since the borrower is absolutely protected by the Supreme Court and law from personal liability for the debt, demands to pay it and contrived penalties for not paying it (such as denial of a short sale) are unlawful. Aside from being a fairly obvious violation of the federal Unlawful Debt Collection Practices Act, 15 USC § 1692 (the lender or servicer or attorney for them is threatening a collection right or remedy it does not legally have), it could very well be a felony for a lender to demand money for a non-deficiency loan or to insist that it has the right to do so under A.R.S. § 13-2320 as a precondition to approving a short sale. If the consumer finds himself in this position, he needs legal counsel, immediately, and SHOULD NOT SIGN THESE UNLAWFUL AGREEMENTS. MOREOVER, IF YOU HAVE ALREADY SIGNED ONE AND ANY COLLECTION ON IT IS EVER INITIATED, YOU STILL HAVE CLAIMS. THE BORROWER, NOW THE VICTIM OF A CRIME, MAY HAVE A VERY SUBSTANTIAL LAWSUIT AGAINST THE LENDER FOR THIS PRACTICE!! (On that note, if you have been a victim of these practices, let us know, as we are trying to get an accurate tally for a potential class action.) Also, again as noted above, agents, title companies and escrows who put these deals together and close them without advising the borrowers of the civil or criminal rights and implications risk aider and abettor liabilities in this activity. Best warning to them: DON’T DO THESE DEALS! There are a number of other ill-practices some lenders and servicers engage in. These are but a few. The general rule is to never sign legal documents without counsel.

THE “PUSSYCAT” BANKS HAVE TURNED RABID:
How do the Banks get away with these predations and, in some cases, financial crimes? It might be because no one knows. BUT LET’S BE MORE FRANK, HERE. IT IS MORE LIKELY BECAUSE NO ONE CARES OR TELLS! EVERYONE IS MAKING MONEY PICKING OVER THE BLEACHED BONES OF THE BORROWER! And before you lament the Bank’s positions in the financial shambles our economy has become, note that the Banks are currently declaring record profits. The fact is that they are not losing a dime in any of this and are actually making a pile. What they are not getting form you on the modification, short sale or deed back deals, they are getting in cash “in the dark and on the backside” from the government! The only one getting “done in” in this Crash is…YOU! FOR A SHOCKING AND ENTIRELY UNSETTLING BUT TRUE STORY ABOUT WHAT THE BANKS ARE UP TO (“GREED IS GOOD”), go to http://www.youtube.com/user/fiercefreeleancer

Look out for our future Newsletters with more hard-hitting realities.