The Arizona Court of Appeals recently decided a case where a deed of trust was mistakenly initially recorded without a legal description. In 3502 Lending, LLC v. CTC Real Estate Service, the borrower executed a deed of trust with the legal description attached as an exhibit, but the deed of trust was initially recorded without the exhibit. As between the parties to the deed of trust, the Court held that the deed was valid since it included the legal description when it was signed.
The Court next considered whether the deed of trust was superior to a later recorded deed of trust, even though the first deed of trust was recorded without the legal description. The Court held that it was, notwithstanding the initial defect in the first deed of trust, since the party holding the second deed of trust had received actual notice that there was a prior/superior deed of trust against the property.
This case reinforces the law that the recording system is for the benefit and protection of non-parties to the transaction and parties who do not have actual notice of a prior recording.
The State of Arizona has filed a lawsuit against a company accused of a foreclosure help scam. According to the allegations in the civil lawsuit, the Guardian Group charged borrowers up front fees in order to modify their loans, but rarely provided the service. The Arizona Attorney general has claimed that the company misrepresented, among other things, the amount of principal reduction to be expected, that it had investors ready to purchase their loans and the amount of refunds.
According to various economists, home prices are expected to drop overall by another 2% this year, as compared to last. The hardest hit areas, including Phoenix, may drop as much as 10% though. Earlier predictions had home prices leveling off, but recent reports state that prices will drop further before stabilizing.
On May 24, 2010, Realty Executives filed a lawsuit against its former long-time designated broker, John Foltz, in Maricopa County, Arizona Superior Court. The Complaintalleges that Foltz “engaged in a course of conduct designed, at least in part, to irretrievably damage [Realty Executives] through deliberate acts of financial and operational mismanagement, embezzlement, self-dealing and other willful misconduct and dishonest acts.” Realty Executives has brought claims for, among other things, breach of fiduciary duty/duty of loyalty, breach of contract, conversion, and breach of the implied covenant of good faith and fair dealing. Of course, the Complaint contains Realty Executives’ allegations, which have not been accepted or rejected by a judge or jury.
On June 14, 2010, Mr. Foltz filed his answer to the Complaint and a counterclaim against Realty Executives.
Investors lost billions of dollars on defective mortgage securities. Now, they understandably want to recover their losses. The investment advisers, brokers and others that sold the defective securities may have to pay. State securities and other laws prohibit misrepresentations in the sale of investments, such as mortgage backed securities. If the brokers and others knew that the securities were more risky because the underlying mortgages were defective and the brokers did not disclose that knowledge, they may be liable under state securities and other laws.
Such claims have already been investigated by, for example, the Massachusetts attorney general against Morgan Stanley. In one case involving Morgan Stanley’s reported “partner,” New Century Mortgage, the Massachusetts attorney general alleged that Morgan Stanley provided New Century with financing to provide high risk loans to low income borrowers and then Morgan packaged the loans as securities and sold the securities to investors. The loans were allegedly not correctly underwritten and violated Massachusetts laws that required the lender to ascertain the borrower’s best interests. Without admitting any wrongdoing Morgan Stanley agreed to pay a total of $102 million, including $58 million to 1,000 homeowners and $23 million in investment losses to a pension fund.
Although Arizona does not have a “borrower best interest” statute, there are Arizona laws that may provide a basis for civil claims against those that sold defective securities, including consumer fraud and securities fraud statutes, as well as common law claims for fraud and negligent misrepresentation. Berk & Moskowitz, P.C. handles most types of disputes, including claims for fraud and misrepresentation. If you or your company bought defective mortgage backed securities or other related investments, contact us.
In April 2010, the Mortgage Asset Research Institute issued its 2009 mortgage fraud report. The report gathered and analyzed various sources of data primarily regarding mortgage fraud in connection with federally insured loans. The statistics show a continued rise in mortgage fraud, even though less loans are being originated.
There was an overall increase in mortgage fraud reports (suspicious activity reports) of 5% to 8% from 2008 to 2009. Arizona now ranks 4th in the Country for incidents of mortgage fraud, having about 58% more reported fraud than expected for its volume of new loans in 2009. Notably, fraud in the appraisal increased from 22% of all fraud reported in 2008 to 33% in 2009.
Vigilance and diligence are the keys. Lenders should ensure that they verify and double check all data provided in connection with a loan.
Interested in learning more about Arizona’s Anti-Deficiency Statutes? Watch our video presentation. The video covers basic terminology, concepts and the application of Arizona’s Anti-Deficiency Statutes to trustee’s sales (non-judicial foreclosures) and judicial foreclosures.
During Arizona’s 2010 legislative sessions, there have been numerous proposed statutes dealing with foreclosures:
H2511 – Would prohibit cities from levying a tax on the transfer of a property to a lender in foreclosure.
H2739 – Would require mediation (settlement discussions) before a residential foreclosure. Foreclosure would be stopped during mediation.
H2740 – Would allow homeowners to elect to rent the home after foreclosure, as long as they use it as their primary residence.
H2766 – Would require a landlord of a home in foreclosure to notify the tenant at least 60 days before the foreclosure.
H2270 – Would require mortgage brokers to investigate the borrower’s ability to repay the loan before making the loan.
H2626 – Would require lenders to try to contact borrowers to discuss options to foreclosure, including loan modifications, at least 30 days before a foreclosure notice.
H2309 – Would regulate foreclosure consultants in order to combat a growing number of foreclosure scams.
Visit the Arizona State Legislature for more information
In the face of the poor real estate market, scammers are pursuing new ways of taking advantage of consumers. Most recently, there have been numerous reports of scams involving loan modifications and short sales. While there are legitimate companies, others demand relatively huge up front fees and guarantee results that are impossible to guarantee. Beware, these companies may not be legitimate and may just be taking your money. Consult an attorney or visit the Arizona Attorney General’s Foreclosure Resource Center for more information.
In this case, Berk & Moskowitz, P.C. represented a group of owners of residential units in Northern Arizona. They regularly rented their units to short-term vacationers. Another owner later claimed that short-term vacation rentals violated the Covenants, Conditions and Restrictions for the development. The Navajo County Superior Court disagreed and found in favor of the firm’s clients. The other owners then appealed. The Court of Appeals affirmed that part of the trial court’s decision in favor of the firm’s clients.
Read the Court of Appeals decision.
