September 18th, 2008

The Real Deal: Your Legal Update for Real Estate
Volume 1, Number 2, September 2008

Does the Housing and Economic Recovery Act of 2008 Apply to You?*
By Adam B. Decker, Esq.
adecker@jacksonwhitelaw.com

On July 1, 2008, President Bush signed into law the Housing and Economic Recovery Act.  An estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages.  The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90% of the property’s current value.

The program begins on October 1, 2008, and homeowners in danger of losing their homes before then should not wait to contact their lenders to see whether those lenders are participating in this program.

To be eligible, the borrower must:  (1) Have a loan on an owner-occupied principal residence (investors or borrowers with second homes are not welcome); (2) Have a monthly mortgage payment greater than at least 31 percent of the borrowers total monthly income as of March 1, 2008; (3) Certify that the borrower has not intentionally defaulted on an existing mortgage; and, (4) Not have been convicted of fraud.

To apply, borrowers need to contact an FHA-approved lender.  The FHA-approved lender will determine the size of the loan that a borrower can reasonably repay and that meets the requirements of the program.  The current lender must then agree to write-down the existing mortgage to make the new mortgage affordable, and the FHA lender will pay off the discounted existing mortgage.  Loans approved must be 30-year fixed rate loans.

The program is completely voluntary for current lenders and borrowers.  If a current lender and borrower participate, then the FHA will get a portion of any future profits on the house, to make sure that the government recoups its investment over the long run.  The current lender must take a big loss (at least 10 percent) first in order to even participate.  Moreover, current lenders must waive any penalties or fees, and help pay for the origination and closing costs of the new loans.

Additionally, to prevent future abuses by lenders, the Act will establish a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders.  It also strengthens mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms.

If you believe you may qualify, do not hesitate to contact an FHA-approved lender to determine whether the program is available to you and whether your current lender will participate.

*Information provided by the Department of Housing FAQ webpage.

Foreclosure and Home Equity Lines of Credit
by Aaron M. Finter, Esq.
afinter@jacksonwhitelaw.com

During the Arizona housing boom many homeowners took out home equity lines of credit in order to borrow against the equity in their home.  A home equity line of credit is nothing more than a second mortgage on the property.  However, after the decline in home values, those homeowners found that their mortgage indebtedness far exceeded the fair market value of their property.  Unfortunately, many of these same homeowners now find themselves unable to continue making their monthly mortgage payments.

Generally speaking, the anti-deficiency statutes in Arizona preclude the lender from obtaining a deficiency judgment against a borrower following a foreclosure sale.  The decisive question to be asked is whether the collateral (i.e. the home) secures a purchase money or non-purchase money obligation. Under Arizona law, “so long as the debt of the purchaser of property is secured by a deed of trust on the property or part of it given by the purchaser to secure the payment of the purchase price the deed of trust is a purchase-money deed of trust.”  See Bank One v. Beauvais, 188 Ariz. 245, 934 P.2d 809 (Ariz.App. 1997), citing Bigley v, Lombardo, 90 N.C.App. 79, 367 S.E.2d 389 (1988).  In other words, a lender may not pursue a deficiency against the borrower where the money received was used toward the purchase of the property itself.

Generally, with a home equity line of credit, the money obtained from the lender is not used to “secure the payment of the purchase price” of the property.  Therefore, a lender may elect to waive its security for the loan (i.e.: the property) and sue on the note.   Recently, lenders have begun filing lawsuits against homeowners to recover the amounts loaned on the home equity lines of credit.  There may be hope for the borrower where the home equity line of credit was used toward the purchase price of the home.  In such a case, an argument can be made that the home equity line of credit is in fact a purchase money mortgage, and, therefore, the lender is precluded from seeking a deficiency judgment against the borrower following a foreclosure sale.

House Bill 2440 – Political Petitions
by Clint G. Goodman, Esq.
cgoodman@jacksonwhitelaw.com

This year law makers did not do much to change the laws governing community associations.  On May 23, 2008, the governor signed into law House Bill 2440.  This new law, which goes into effect September 25, 2008, imposes additional limitations on condominiums and planned communities when it comes to restricting circulation of political petitions.  The bill provides that associations cannot “prohibit” the circulation of political petitions on property dedicated to the public within the condominium or planned community.  But, condominiums and planned communities are not required to comply with this new statutory prohibition if they restrict vehicular or pedestrian access to the condominium or planned community.

Condominiums seldom have property “dedicated to the public.”  Accordingly, this new law will likely have minimal applicability to condominiums.  Not so with planned communities.  Many planned communities have streets “dedicated to the public.”  In those communities, the planned community cannot “prohibit” the circulation of petitions on the streets.  This does not mean the association must open itself to anyone at anytime.  The statute specifically provides that “nothing…requires a planned community to make its common elements available for the circulation of political petitions to anyone who is not an owner or resident of the community.”