I received the following legislative update in an email from Tom Farley, CEO of the Arizona Association of Realtors. He gave me permission to share it with you in its entirety.
SB 1271 – Anti-Deficiency Law
Change
One of over 200 bills pushed through the legislature in less than a month was a big change to an existing law that provided protection to borrowers in some cases against a deficiency judgment when their property went through foreclosure. Below is some background information on the legislation that has the lending and real estate industries a buzz with its intended and unintended consequences.SB 1271 – Serious Changes to Arizona’s Anti-Deficiency Statute
SB 1271 was sponsored by Senator Sylvia Allen, a REALTOR® from the White Mountains area of our state. The legislation started out in January as a bill dealing with jail districts and property tax limits. In June a strike-everything amendment gutted the original bill and changed its direction entirely. The Arizona Bankers Association argued successfully that the changes provided in the legislation were necessary because abuses in the current law were costing Arizona-based banks millions in losses. There was significant sympathy for the Arizona community banks in making the changes provided by this legislation. In other words, the legislators found it very easy to hold property investors liable for their debts while arguing that homeowners would still retain their deficiency protection if they lived in the home for six consecutive months. The legislation sailed out of the Senate by a unanimous vote but just barely received enough votes to pass the Arizona House of Representatives. The Governor signed the bill on the last day to sign or veto the legislation.The current law – Arizona Revised Statutes (A.R.S.) § 33-814 currently states that within 90 days after the date of sale of a trust property under a trust deed, a legal action may be brought to recover a deficiency judgment against the borrower (trustor) who has now had their property foreclosed. The deficiency judgment must be for an amount equal to the sum of the total amount owed as of the date of the sale either by the fair market value of the trust property as determined by the court or the sale price at the trustee’s sale, whichever is higher. The current law prohibits a lender from seeking a deficiency judgment against the trustor (foreclosed property owner) if the trust property is 2.5 acres or less and is used as a single one-family or single two-family dwelling.
The law effective September 30, 2009 – SB 1271 amended A.R.S. § 33-814 (G) to require that the trustor must have “utilized” the property for six consecutive months and a certificate of occupancy must have been issued. What does this likely mean? Various attorneys are opining different theories. My interpretation of the statute is that after September 30, 2009, properties sold at trustee’s sale likely will not qualify for the anti-deficiency exemption unless the trustor lived in the single one-family or single two-family dwelling for at least six consecutive months. The legislative Fact Sheet, as transmitted to the Governor, states that SB 1271:
- The trustor has lived in the trust property for at least six consecutive months.
- A certificate of occupancy has been issued for the property.
Places the burden of proof on the trustor to demonstrate that the statutory requirements to prohibit a deficiency judgment are met.Prohibits a deficiency judgment against a trustor pursuant to a trustee’s sale of a trust property that is 2.5 acres or less and is used as a single one-family or single two-family dwelling if both of the following apply:
As before this law was passed, REALTORS® should advise their clients to consult legal counsel regarding the application of the anti-deficiency statute.
Big change. Consequences undetermined. Lots of questions on this one.
UPDATE 7/23/09 from Tom Farley at AAR:
“The passage of SB 1271 dramatically alters the existing anti-deficiency statute and well settled case law in Arizona. The bill has far reaching effects considerably beyond those that were initially intended. AAR has completed its legal and practical analysis of the bill and has found that there are significant issues associated with the changes it makes that need immediate attention. AAR has sent an appeal to Governor Brewer respectfully requesting that she amend her Call to Special Session to include SB 1271 in order to try to address the serious issues and unintended consequences resulting from its passage before it is enacted as law.”
AAR UPDATE 7/29/09:
Sen. Steve Pierce, sponsor of SB 1271, feels the bill needs to be fixed due to the unforeseen and unintended consequences of the legislation. He has asked the Legislature and the Governor’s office to repeal the bill so that legislators and industry stakeholder groups can work on a new bill to accomplish the original objective of 1271- to help small community banks in Arizona.
Pierce met with AAR and other stakeholders yesterday to discuss changes to the legislation. The consensus was that there is a more direct way to assist local Arizona banks, who were not eligible to receive any TARP funds, on the ever-growing foreclosure issue.
AAR UPDATE 8/7/09:
SB 1271 has been getting a lot of press lately as it will have serious and unintended consequences for many real estate owners facing foreclosure in Arizona. In light of this the original sponsor of the bill, Senator Steve Pierce, has asked the legislature and the Governor for an immediate repeal of the law which is slated to go into effect at the end of September. The state’s original anti-deficiency language has been inserted into two budget bills (HB 2008 and SB 1024) currently being debated by the legislature which would have the effect on nullifying the passage of SB 1271. HB 2008 has quickly passed the Arizona House of Representatives. SB 1024 is awaiting final vote which could happen August 8th or on the 10th. If for some reason, the Senate Bill fails on final vote, we will immediately focus on our next effort to repeal the law. The banking lobby and at least one member of the legislature are pushing for an amendment to SB 1271, instead of repeal, that would allow it to still apply retroactively to loans already in existence. We have been advised that this action would ultimately be unconstitutional if not unjust. Stay tuned for more updates on our efforts to repeal SB 1271 through the bills cited above.
AAR UPDATE 8/24/09:
The good news is the Senate has transmitted HB 2008 to the governor’s office. Depending on the circumstances, Governor Brewer could have up to 10 days to sign, veto or allow the bill to go into law without her signature. As a reminder, there are a couple of other provisions that affect the industry that also are contained in HB 2008, including partial language from HB 2269 that effects the notification of tenants in foreclosed properties. The language requires the trustee to notify the tenant that the property is in foreclosure by mailing a copy of the Notice of Foreclosure to the property. Another provision of HB 2008 allows the Arizona Secretary of State to provide the Arizona Landlord Tenant Act on its website instead of providing printed copies. Stay tuned for more information regarding HB 2008.
AAR UPDATE 9/4/09:
Governor Jan Brewer signed HB 2008, which repeals SB 1271 and its change to the anti-deficiency statute.
AAR UPDATE 11/23/09:
The House of Representatives passed SB 1004, the anti-deficiency fix, early this afternoon with a vote of 53-0. SB 1004 included the repeal and replacement of ARS§ 33-814 essentially returning the statute to its original status prior to the passage of SB 1271. With this fix, Arizona will continue to operate as a deed of trust state with the protections that have been in existence since 1971.
SB 1004 did pass both the Arizona State Senate and House of Representatives with an emergency clause, and it will go into effect upon Governor Brewer’s signature. We will continue to work with the Arizona Bankers Association on language to address “speculative builders” in the upcoming session in order to resolve this issue entirely.
