Tucson Real Estate Attorneys

Effective January 1, 2013 California adopted what is known as the California Homeowner Bill of Rights.  The stated purpose of the new law is to ensure fair lending and borrowing practices for California homeowners. Some of the provisions of the new law are the following;

Prohibition against dual track foreclosure:  Since the bubble burst homeowners have often experienced a situation where the lender filed a foreclosure and at the same time were negotiating for, say, a loan modification.  The lender’s negotiator would orally promise not to proceed with the foreclosure.  The homeowner felt safe in continuing to negotiate with the lender only to find out that the subject property had been sold at foreclosure.  Under this new law, the lender is required to “pause” the foreclosure process if the homeowner is working on securing a loan modification. 

Single point of contact:  We have all, too often, heard stories that when dealing with lenders ‘The right hand does not know what the left hand is doing’.  We also heard so many stories about each time one would call the lender the homeowner would be stuck dealing with a new person who knew nothing about the history of the homeowner’s prior dealings with the lender.  So the homeowner would have to start from scratch (de je vu, all over again!).  This California law requires lenders have a single point of contact during their negotiations where the homeowner is attempting to retain their home.  The contact, either a person or team, for the lender, has to be one who can get the homeowner a final decision about their application for a loan modification.

Verification of documents:  Lenders who record or file multiple unverified documents can be subject to a civil penalty of up to $7,500 per loan and subject to enforcement by the appropriate licensing agency.
Enforceability:  Borrowers have the authority to seek redress of “material” violations of the new law including injunctive relief prior to foreclosure and damaged following a sale.

Tools to prosecute mortgage fraud:  The new law extends the statute of limitations to prosecute mortgage-related crimes is extended from one to three years to allow authorities to adequately investigate complex fraud schemes. 

Tools to curb blight:  Owners of properties are provided more time to facilitate code violations and also to permit and compel owners of foreclosed property to pay for upkeep to reduce neighborhoods from becoming blighted.
A separate law, the Mortgage Fraud Strike Force was created to investigate and prosecute misconduct at all stages of the mortgage process.
California has been in the forefront attempting to minimize the hardships on homeowners dealing with the abuses that have been prevalent in the lending industry especially following the bursting of the housing bubble.  Will Arizona afford some additional protection?   Time will be the judge of that.  The best guess is “no” since the worst of the epidemic of foreclosures appears to be history.  However, property owners in Arizona who still have to deal with major lenders will most likely still encounter serious problems and frustrations.

Most recently this firm has dealt with large lenders on behalf of persons wishing to do deeds in lieu of foreclosure.  It is a frustrating experience. Just recently, we wrote the forth letter to the lender indicating all the requirements have been met and information sent to the lender to facilitate a deed in lieu of foreclosure.  Each time the response from the lender is to send paperwork for a loan modification.  It does absolutely no good to continue to point out that a loan modification is of no value to the client since he cannot afford even a modified loan payment.  The owner had to move due to health reasons, bought a new home, and cannot afford the home in question.  The bank continues to respond indicating how they will “help” our client with a loan modification.  The frustration goes on!!!

In another matter I have written my third letter requesting that the lender, after two years of no action, file a foreclosure to get it over with so my client can begin to rebuild his credit.  My client moved to a new location and has a new residence.  The client is not interested in a loan modification.  So onward we go – writing request after request.  The lender does nothing.  In the meantime, the house, after two years of being unoccupied and unattended, has suffered substantial diminution in value due to lack of attention and deferred maintenance.  And the frustration continues for many homeowners!!

The Arizona Court of Appeals, in a recent decision, clarified the right of a homeowner to legally remain in their home following a foreclosure during the pendency of an appeal concerning the foreclosure.  This was the first time that this issue has been litigated in Arizona.
The case arose when a bank/lender foreclosed on the homeowners/borrowers.  The loan, secured by a deed of trust on the appellants’ home, was in default.  The lender foreclosed.  The homeowners’ claim several irregularities in the foreclosure process.  When the foreclosure (trustee’s) sale was completed the homeowners refused to vacate the premises claiming they had a right to remain in the premises pending the outcome of their appeal challenging the foreclosure.
 
The lender then attempted to have the homeowners evicted.  Following a lower court action in favor of the lender bank the homeowners appealed the decision.  The Court of Appeals ruled that there was precedent in Arizona holding that tenants in Arizona who are litigating concerning the legality of an eviction have the right to remain in possession of the premises pending the outcome of the appeal.

The Court did acknowledge that this was not a customary landlord – tenant situation claiming that the homeowners were tenants at sufferance.  Tenants-at- sufferance is a legal theory describing a situation where a person(s) who at one time had a legal right to possess a property refuses to vacate the property after their legal right to possession has been terminated.  However, the Court of Appeals did condition the former homeowners’ right to remain in possession of the property with the requirement that the former homeowner post a bond sufficient to cover the rental value of the premises during the pendency of the appeal and to cover all damages and costs.

The Court of Appeals sent the matter back down to the lower court for a determination of what the amount the bond should be pending the appeal.
The court indicated the bond should be in an amount equal to the reasonable rental value of the property which may or may not equal what was formerly the amount of the monthly loan payment on the promissory note due to the lender.  Given that the homeowner has to post such a bond to also include the cost of the appeal itself may be a deterrent to many homeowners attempting to use an appeal as an attempt to drag out their right to possession of a property following a foreclosure.

It is difficult to deny that there have been problems created by major lenders using abusive or unfair tactics against homeowners during or concerning the foreclosure process.  California has taken some interesting steps to head off some of these abuses (See companion article, California Takes the Lead Again).  There is a longstanding history of Arizona following the laws of California.  What’s next for Arizona?? 

In a 2013 case, the Ohio Court of Appeals considered the questions of whether a brokerage firm was vicariously liable for the intentional fraudulent activities of a salesperson of the firm which agent had contracted with the brokerage firm to act as an independent contractor.  The court found the firm was responsible for the actions of the agent.

The purchaser, Torri Auer (“Buyer”) was from California.   Buyer responded to a listing from Home Town Realty (“Brokerage”), an Ohio real estate brokerage firm.  The agent (“Salesperson”) became employed with Brokerage pursuant to a contract which stated that Salesperson was an independent contractor including the fact Salesperson was solely responsible to pay her own costs and marketing for clients.  Salesperson was to pay her own taxes, insurance, licensing fees and other expenses.  However, the agreement provided commissions would be divided between the parties per the agreement.

Buyer found a listing for a property listed on the internet by Salesperson.  Buyer travelled to Ohio to look at the listing she was initially interested in.  Buyer informed Salesperson she was interested in purchasing income property to assist in supporting herself and her children.  Buyer decided not to acquire the initial property since it was too expensive.  After viewing the initial property Buyer was shown and became interested in other properties Salesperson had for sale.  Altogether, Buyer only went inside one property since Salesperson told the Buyer that the properties required extensive renovation.  On some of the properties Salesperson represented that there was a waiting list of people waiting to rent the units and the properties could be resold for multiples of the purchase price.

The Buyer ultimately acquired twenty seven (27) residential units through the Salesperson based on the fact some of the properties were already rented out and the representation by Salesperson that the properties were undervalued.  One of the units had been purchased by a company formed by Salesperson just before selling it to Buyer for four times what salesperson’s company paid for the property.  The Buyer contracted with a property management company created by Salesperson and contracted with a construction contract to improve the properties which construction company was formed by Salesperson.  Brokerage received sales commissions from each of the sales.

After almost a year Buyer received income from only one unit which got rented about nine months after being purchased.  Coming back to Ohio to view the properties she found virtually all of them were still in need of substantial work.

Buyer then filed a suit against Salesperson and Brokerage for fraud.  Brokerage objected, claiming it did not breach its fiduciary duty to the Buyer nor did it violate its duty to adequately supervise Salesperson.  After a trial by jury, the jury found in favor of the plaintiff and awarded $135,000 in damages against Salesperson and Brokerage.

Over the objection of Brokerage the Court of Appeals found the trial court had properly instructed the jury that if the Salesperson had committed fraud, then the Brokerage was vicariously liable for the actions of the Salesperson.  The Brokerage argued that the trial court should have instructed the jury that the Salesperson was required to work within the scope of her relationship with Brokerage and when the Salesperson acted beyond that scope Brokerage would not be liable for the actions of Salesperson.

The Court of Appeals discussed that a salesperson is required to work under the supervision of a licensed broker in all real estate transactions including the requirement that the broker is required to collect all commissions earned from such transactions.  So the Court found that a licensed salesperson can be an independent contractor in its relationship with a brokerage firm and it can, and will, be treated as such when the dispute involves just the salesperson and the broker.  But, when the court finds that there is a principal/agent relationship in place, such as here where the licensee is working with third person, that changes and the brokerage can be vicariously liable for the actions of the agent.  The court said that is so because the brokerage has a duty to supervise its licensees and because the licensees are acting in the broker’s name during their transactions.  The Courts Of Appeals found those principles apply as well when the agent commits an intentional tort such as fraud while performing his/her duty(ies) as an agent.

It should be noted that the Ohio Association of Realtors filed an amicus Curiae brief attempting to support Brokerage’s position that it should not be responsible to the Buyer in this case.  It argued that Salesperson was an independent contractor, as a matter of law, and that the trial court should never have instructed the jury on vicarious liability.  Obviously, the Ohio Court of Appeals did not agree.

This issue is often debated when an agent and his/her broker are sued for the misdeeds of the agent.  The broker wants to contend that the brokerage should not be responsible for such actions because the agent is an independent contractor and under the law pertaining to independent contractors, the hiring party is not responsible for the actions of the independent contractor.  This case spelled out, rather thoroughly, the rationale for holding the brokerage responsible in such cases where it involves a third person and not just a private matter between the salesperson and the broker.

This month, in Centennial Development Group, LLC v. Lawyers Title Insurance Corp., the Arizona Court of Appeals ruled that even though the title company failed to disclose an easement in the title policy for purchase of real property, Arizona statutes (ARS §20-1562(5)) bar a claim for negligence against the title insurance company. The statute states that a title report is not an abstract of title and “is not a representation as to the condition of title to real property but does constitute a statement of the terms and conditions on which the issuer is willing to issue its title insurance policy if the offer is accepted.” Thus, the title insurance company will not be liable for negligence, but may still be liable for breach of contract. So if there was an easement, lien, encumbrance or other defect discovered that the title insurance company failed to discover and/or disclose, the damages for breach of contract would be the difference in value of the property with and without the defect in title.

However, the title company would not be liable for what is called “consequential damages” (damages for items that come up as a result of the error). Thus, if the encumbrance made the property so costly that the owner had to relinquish it to trustee’s sale or foreclosure, the damages for loss of the property would not be covered. Similarly, if the existence of an undisclosed easement gave a third party leverage to interfere with property development, those losses due to negotiating with the easement holder probably would not be covered. Now the purchaser who wants to be extremely cautious may consider, in addition to title insurance, paying for an abstract of title to obtain a report “intended to be relied upon by the person who contracted for receipt of the representation.”

On the positive side for the property owner, the Court of Appeals ruled that the property owner was entitled to contract damages that occurred while the insured held title to the property even if the suit was filed after the property was sold.

In September of 2013, in Hawk v. PC Village Association, the Court of Appeals upheld an order from the trial court in favor of the homeowner who wanted to post a “For Sale” sign on his property. The association had twice removed signs he had installed, so he sued to enjoin the association from removing his sign.

Mr. Hawk relied on two relatively new statutes, ARS §33-1808 and ARS §33-441 which expressly prohibit associations from barring homeowners from erecting the “For Sale” signs. The association argued that because the statutes went into effect after the CC&Rs, the statutes impaired existing contractual rights banning any signs in yards, and were, therefore, unconstitutional.

The Court of Appeals rejected that argument, in part, because the CC&Rs themselves contained an exception for signs whose prohibition was barred by law. To the Court of Appeals, this meant that the contractual rights were seen as flexible and subject to change over time and thus applying the two statutes at issue in the case was not a substantial impairment of the contractual rights.

The Court of Appeals did not undertake further constitutional analysis, presumably saving that for a set of CC&Rs which does not contain any exceptions to a ban on signs.