Ask the TITLEMAN™
Q & A
John T. Lotardo
Attorney-at-Law
December
Q. Do you know if Arizona is a "recourse" state? We’re flat broke and now we’re losing our home to foreclosure. Can the bank come back after us for a deficiency? It really stinks that we have to lose our home, move and then they can come after us for more. Talk about kicking you while you’re down!
A. Most of the time, you’re okay. Purchase money single family residential loans on 2 1/2 acres or less are non-recourse per the anti deficiency statute. That means once they foreclose on your home, they should not be able to go after you for the difference between the value they get for your home and the amount you owe under the mortgage. But the loan and collateral have to qualify under the statute. Watch out if you took out a loan for something other than that- say if you opened a credit line to buy that new Mustang GT sitting in the driveway or for that dream trip to Maui. If the property is subject to a deficiency action, the lender would still need to comply with the requirements regarding giving proper notice, timing to assert the claim against you, etc.
Q. I have just received a Purchase Contract (AAR) that has been signed digitally by the Seller. Is that okay?
A. Ah, the electronic age. Texting, IM, and e-commerce across the globe have impacted how we do business. There are many laws in place dealing with the electronic signing of documents. The AAR purchase contract does permit the signing to be done electronically.
Q. I was in escrow to sell my house and it fell out due to the buyers not being able to fund. Three weeks after escrow was cancelled, the escrow company recorded the deed of trust to the buyers by accident. (No payment was made.) They stated they inadvertently transposed some numbers and recorded the wrong deed of trust. Is the escrow company liable for all this mess?
A. I'm not sure what has transpired since your mail, but I’m sure to say these things happen does not bring you any solace. I get the impression you believe that the escrow company is not going to work on this. Have they refused get a release or record an affidavit of its erroneous recording? I'm not sure what mess has occurred in the way of damages to you since clearly the lender wouldn't/couldn't/shouldn’t foreclose on your home since it was a mistake just as you say. I would give the escrow company an opportunity to work on it. Over the nearly 20 years being a part of this industry, I have come to expect that my comrades usually help out where they can and do the right thing.October
Q. I am working with a tax client who owes back federal taxes in the amount of $30K. The IRS has filed a tax lien on the property in Pinal County. She has been trying to sell for the past several years with no luck. My question is that the mortgages are around $100K and the property is being valued at $ 75K-$80K when the client requested a refinance. My question is how the lien works - to me it seems like a Catch - 22. If you could explain how the lien works, I would greatly appreciate it.
A. Not exactly sure what you mean by how does the tax lien work but I'm guessing you're trying to figure out how the tax lien fits into the idea of selling the property. I'm assuming that the federal tax lien was recorded after the mortgages on the property. If so, seems like there is no equity in the property for them. Many times the IRS will consider releasing their lien- at least against the property- once given the proper information. If you have more questions, you may want to speak with a tax advisor on the specifics and what makes most sense.
Q. I have a seller (a doctor) wanting to sell the property to a 16 yr old whose father wants to help buy a house for him. Both of them may be taking out a loan as well. Is it valid since one of the buyers is under 18?
A. The 16 yr old should not hold title unless he's been emancipated. More than likely his parents could acquire title for him as his custodian under the uniform gift to minors act.
Q. I have a question on a Deed in Lieu where an attorney is handling the whole thing. The attorney just let me know that a different entity is coming into title on this. This new entity is not a one of the beneficiaries. Is that normal on a Deed in Lieu?
A. Many times, the parties that are doing a deed in lieu will deed to another entity under the same basic principle. This transaction is sometimes called a Deed in Aid and has been used by lenders to protect their priority while working through various title matters. Each transaction is different but more lenders are accepting property in this manner.September
Q. OK, so we now have a beneficiary deed statute. What if the owner wants to execute a beneficiary deed in favor of husband and wife beneficiaries and wants the husband and wife to take title as Community Property with Rights of Survivorship? Is that allowed? Would husband and wife need to sign an acceptance of CPWROS at the time the owner signs the beneficiary deed? Or when the owner dies? Or what?
A. The owner wields a lot of power, since as the owner, he or she is in the driver’s seat. The owner can create that type of vesting in the deed for his or her beneficiaries to an extent. That said, you would want the husband and wife to sign an acceptance at time of execution of the beneficiary deed by the owner. Without an acceptance, you run the risk of them holding the interest another way when the owner dies. Remember being in a community property state, there are a lot of presumptions made in the law. But fear not, all is not lost. If done after the owner dies, they may be able to revise their vesting by completing a deed to themselves as CPWROS with an acceptance at that time.
Q. I'm not sure you can answer this, but I buy and sell short sales. I need a title company that won't have any disclosure to the lender. Do you know of any in Arizona?
A. Thank you for your question. I'm assuming you are asking about the resale after a short sale (the seller’s lender(s) accept less than that was owed under their loan(s)). The mere fact that a property is being sold at a profit after a short sale transaction has occurred is not fraudulent. Many lenders who accept a short sale payoff require a disclosure about the resale for a profit. Some even restrict the resale in some fashion for a period of time while others don’t seem to care at all. Although there are many versions and considerations and the disclosures are varied based upon the company involved and the details of the transaction, such a disclosure merely assists in giving the parties the information they may want to know. Since each transaction is different, you would need to make inquiries with your company of choice as to their requirements in the particular transaction contemplated.
Q. A client holds a carryback note secured by deed of trust. Well the guy who signed the note and deed of trust signed it just like he took title "Blackacre Company" without an "LLC" or any other indication that Blackacre Company is an LLC. I verified he bought it as "Blackacre Company" (and continues to hold it that way) without the LLC listed but we know he has an LLC by that name and everything indicates that the entity that owns the property is the LLC. Now the client wants to take a deed in lieu. How does the deed in lieu need to be written so that client is getting good title?
A. Sounds like you did your homework- you verified that Blackacre Company LLC is one and the same as Blackacre Company that bought the property (sometimes you have LLCs, Partnerships and Corporations using the same first name). The grantor could read Blackacre Company LLC, an (Arizona?) limited liability company who acquired title as Blackacre Company. If you’re note sure, you could have him also sign in his personal capacity as well.
August
Q. I received a telephone call from a former buyer who bought 4 homes in Arizona a few years ago. They were told by the City that one of their rental properties is delinquent for water service and they must pay their tenant's bill. Furthermore, the City stated to them that they are legally responsible for said bill and that their owner's title policy enforces the owner as the responsible party. Is that the case that the owner's policy includes such provisions? The owner wants to know if they can fight it and with whom.
A. Sorry to hear about them having to cover the bills for their tenants. Unfortunately, a water bill is not something that is included in the coverage in the owner’s policy. It is a matter between the City and the owner. Sounds like he either misunderstood what they told him or the City was mistaken about what title insurance is all about. If the City refuses to settle with the owner I would think his lease agreement with the tenant would permit him to sue the tenant for the expenses- assuming that the tenant was indeed responsible to pay for the water bill that is.
Q. I have a dispute going on between Brokers in regards to the definition of an "arms-length transaction." Could you provide one for me please?
A. The basic idea is concerning a transaction in which the buyers and sellers act relatively independently. The concept of an arm's length transaction is to ensure that both parties in the deal are acting in their own self interest and are not subject to any pressure or duress from the other party.
Q. I met you at a recent seminar you presented on Title Law in Arizona. I’m looking for a limited title reports (status of title reports) for use in preparation of Mechanic’s and Materialman’s Lien, and the foreclosure of a Mechanic’s Lien.
July
Q. I have been having problems with a company trying to sell time shares to me. It’s here in Arizona. Do you know who regulates time shares or are they even regulated by any state agency at all?
A. To answer your last question first, yes, those selling timeshares are regulated. They have to comply with statutes and regulations. The Arizona Department of Real Estate, the same governmental body that oversees other types of real estate sales and developments such as in subdivisions, oversees timeshares as well. They have a website which is a good resource to get you started- http://www.re.state.az.us/.
Q. I’m using a power of attorney that (I think) is executed properly and recorded to buy a piece of property. The title company is saying it has to be specific to this particular transaction. They don’t know how difficult it will be to get a new one now. It doesn’t seem right. Are they?
A. Well, it depends. First off, each title company who is insuring a transaction has a little bit different underwriting guidelines on what kind of power of attorney they will accept. Many do not require a specific one for the current transaction, while others do. Some like relatively new ones, less than 6 months, while others will accept older ones. In any case, they will require whichever one ultimately is being used to comply with the statutory requirements for execution, witnessing, applicable durability provisions, and authority language.
Q. There is a mechanic lien recorded against a piece of property and the lien claimant’s attorney has filed a Lis Pendens. I told the selling agent that all liens should be released, and the Lis Pendens would need to also be released by the judge in order to sell and title insure. If this turns into a foreclosure and is bank-owned, what happens- does the mechanic lien and lis pendens just go away?
A. Though I think you have the general idea, the answer to your question is a bit more complicated when it comes to foreclosure since I am unsure about the issue of priority. Priority is what determines who's on first, what's on second, etc. If a review of the title and related documents determine that the mechanic lien is junior to the foreclosing bank and the bank properly forecloses on the property, then that could wipe out the lien and its lis pendens. Keep in mind that we're assuming that the lis pendens - which is notice of a pending court action affecting the property- is for the foreclosing of the mechanic lien and not for something else. If it's for something else, then we need a bit more snooping to figure what that's all about.
June
Q. I have a question that I hope you can answer. Can a 2nd lien holder, (line of credit) pursue a deficiency judgment against a borrower for a property in AZ? The 1st lien holder has agreed to a short sale and 2nd lien holder will only approve the short sale if the borrower will permit a deficiency judgment. I thought AZ was a non deficiency state and could not pursue the borrower. Is this correct?
A. Good question. You are correct that Arizona has an anti-deficiency statute here. However the rule has limitations. If it does apply, I do not think the borrower can waive it. I assume that we are talking about residential property of 2 ½ acres or less that is limited to and utilized for either a single 1 or 2 family dwelling. The question still remains is whether or not the 2nd was part of the purchase money at the time of acquisition or replaced part of a purchase money. If not, then there’s a chance that the anti-deficiency statute does not apply. This is why a borrower should confirm that are no longer responsible for the 2nd prior to closing. This is something many borrowers do not contemplate when they take a non-purchase money line of credit for example to be used for other things such as trips, cars, etc.
Q. I had some property quit claim deeded to me from my dad. It’s free of liens and I’m the only sole heir. He didn’t have a living will, wasn’t married, and it never went through probate. How do I convert the quit claim deed into a warranty deed? In my home state, I would have to do a heirship affidavit and record it in the county where the property is located, and disregard the quit claim and the tiltle would pass to me through intestate succession. I’m not sure in Arizona..
A. I am presuming that the quit claim deed from your father to you was recorded in the proper County Records. If so, the property transferred to you at the timeof recording. If not, there could be a question concerning validity due to an issue of delivery. Not sure why you want “to convert” the deed to a warranty deed. I am guessing from your question, that your father has died so there is no way, absent probate proceedings, to convert the deed from a quit claim deed to a warranty deed. Unless there is some other reason that the deed is invalid, the title would have passed to you- albeit without any warranties. Any questions concerning this transfer of title as a gift or otherwise should be addressed with your accountant or other financial advisor.
May
Q. A home's owner passed away and now the personal representatives, (both son and daughter) have entered into contract to sell the home. I received a phone call from the personal representative's probate attorney the other day and he advised me that he was reviewing the documents and cannot approve the transaction until after his review. The daughter already signed her set of the documents (deed, etc) but the son who is required to sign on everything with his sister has postponed due to the attorney's phone call. They have not gotten back to anyone about their decision. Questions for you: 1. Can the probate attorney hold up this transaction? 2. The buyer is ready and eager to close on the transaction. What is necessary to move forward?
A As you know, there are timeswhena seller causes a delay in closing. With the son postponing to sign the needed documents, it doesn’t look like you have all that is needed to close. It appears that none of them are sure about closing. You should make a demand on them to explain what’s going on and their intentions. Obviously, your buyer has rights under the purchase contract, which they may want to review at this time to determine their next move as well.
Q. Upon proper foreclosure proceedings of a deed of trust on a house, the past Homeowners Association dues cannot be collected by the HOA, correct? They can only collect dues from the date of foreclosure to current date, correct?
A. That is usually the case. I have seen some trying to collect nonetheless. Some just do not want to give up the fight for the monies against the property and just go after the borrower who has lost the property. Convincing them the error of their ways now does save a lot of work later on.
Q. I recently attended one of your seminars where you discussed various title issues. You mentioned a deed in aid as opposed to a deed in lieu, and you mentioned that several lenders are doing this. I understand that a deed in aid is where the lender can have the property conveyed typically to a single purpose entity as opposed to the lender directly. I represent a hard money lender and we have done several deeds in lieu, but your seminar was the first time I have heard of a deed in aid. Does the lender assign its interest as the beneficiary under the Deed of Trust before the deed is recorded, or is there just a consent that the lender executes saying that the lender consents to the conveyance of the property from the trustee to the new single purposes entity? If you would let me know, I would appreciate it.
A. I have seen lenders do it a variety of ways depending upon various factors such as the state of the property, the status of the loan, the type of property, the nature of borrowers involved, etc. Many times, there is a new agreement executed by the parties outlining what they are intending to do, who takes title to what, when, clarifying the issue of non-merger, who is released from guaranties, etc. That said, the terms are negotiated between the parties so the ultimate agreement is particular to their transaction.
April
Q. A good friend brought a recent column to my attention. The question was from a woman who had signed a Disclaimer Deed on her family home and now was facing divorce and potentially nothing in the settlement. She referred to herself as stupid, as I have so many times in my similar plight. I, too, signed Disclaimer Deeds on two pieces of property here in Arizona and am now facing divorce and potentially nothing - in spite of the fact that I raised his two sons, provided all of the food, clothing, recreation and household expenses for the family for 11 years. It's almost hard to believe that there could be two such ridiculous cases, but that's part of the reason I am e-mailing you.
Was that a legitimate letter? If so, could you e-mail my address to this individual so that she can contact me? I am stunned to learn that someone else is in my position and am anxious to speak with her. I have discussed my case with my attorney and he has never mentioned "transmutation", so I will be sharing your column with him as well.
Thanks so much for any information you can provide. Knowing that I am not "the only one" is reassuring!
A. I am sorry to hear that you too have experienced this same plight. These situations are some of the hardest to deal with because ofall of the emotions involved. Believe it or not, I am sorry to saythe question was legitimate. I will forward your email address to the previous TITLEMANreader in the hopes that she too will realize that "she is not alone." Thanks for writing.
Q. Does a deed in Arizona require a legal description as opposed to common address to constitute a valid conveyance? I didn’t see a statutory requirement for a legal description, but common sense tells me that it’s needed for a title search. But if the conveyance isn’t recorded, and is just an issue between two related parties, is the common address with words of conveyance, signature and notary acknowledgement sufficient?
A. It has to do with notice. From my perspective, I think it is valid as between the two parties. The grantor and grantee should know what they are transferring. In your case, you say it is not recorded. Well, even if the two should be bound, you still have to get the title records cleared up. That said, if there is some ambiguity about what was sold it could be a proof issue. As for third parties, the issue is tricky. Since title examination using a legal description based title plant, the deed would most likely not show up and therefore would not be considered. But, I have seen addresses and/or tax parcel number used in divorce decrees, bankruptcy filings and other types of agreements that have been enough to establish the agreement to transfer. I would think you have a strong case between the parties that the transfer was legitimate. But, as a comrade of mine always says (somewhat kiddingly), it is what the title companies are willing to title insure that matters. In your case, you run the risk of no one wishing to take on that ambiguity once you square it away with the other party. A new deed, adding the legal, a clarifying agreement or even a court may be needed down the road.
Q. A customer has a neighbor that inherited a piece of vacant property and is seeking my input. It appears that they only paid a few hundred dollars for the lot in the 1960’s. Current tax roles appear to list the value as just under $1000. In Arizona, is the tax value normally that same as the appraised value?I suspect this is a lot in the middle of nowhere that was probably bought sight unseen and is, for all practical purposes, worthless. Were there land sale promotions like this in Arizona?
A. It is true that sometimes the appraised value and market value are not identical and, at times, quite far apart. That is due to many factors, including periods of rapid appreciation in the open market (Or rapid decreases in a bad market), limited increases condoned by the local County Assessor, etc. As for these types of sale promotions, I would say they are becoming less common as communities are being developed but there are still those properties in the “middle of nowhere” that are ‘dirt’ cheap.I would suggest getting in touch with a few reallicensees in that area to get some opinions of value from a local perspective. That way, the current (and future)value can be determined.
January
Q. I am working on several deeds-in-lieu transactions (big surprise!). Right now they are just in the negotiation stage. What are some of the title endorsements used in such transactions?Also, I am thinking of leaving the deed of trust in place. Your thoughts?
A. I have found that lenders are considered just the same things as you are in what to do in this market. Some are foreclosing, some are accepting the property back from the borrowers under a deed-in-lieu and some are even having the borrowers deed into another related entity (known as a deed-in-aid transaction). The typical endorsements vary depending upon what the transaction ultimately becomes and what the concerns are for the lender/grantee. Some endorsements you could consider is one of the non-merger endorsements if you in fact are concerned about a merger of title between the lender’s deed of trust and the grantee under the deed in lieu/in aid. Another possible endorsement is a creditor’s rights endorsement. That said, this endorsement is typically heavily underwritten before it will be issued. For these endorsements the title company may require additional documentation, special provisions included in the documents, etc.
Q. Many years ago, “Old Guy” records a Beneficiary Deed for his "Old Girlfriend". A few years later, Old Guy executes a deed from himself into himself and "New Girlfriend", as joint tenants with right of survivorship. Then, Old Guy dies. Does the "Old Girlfriend" have any right to the property, or does the "New Girlfriend" get it? Old Girlfriend has now started a lawsuit arguing a bunch of stuff. Do you think any claim by the "Old Girlfriend" would be legit or affect the title?
A. This sounds familiar. Normally the "Old Guy" could transfer without the Old Girlfriend/ Beneficiary needing to consent. The statute does not require her consent. I am unsure about the assertions found in the lawsuit which may have something else for us to consider and many companies would not want to incur defense costs. A little information should help decipher what is going on here.
Q. I was wondering if you had dealt with the issue of a lender’s policy on short sales. At least one lender has sent an approval letter which says if they find anything false or fraudulent, they will rescind their approval- even after the transaction closes! What is up with that?
A. I have seen this a few times. I find that many will not insure with this type of short sale approval letter from a lender since this conditional approval purports to give the lender a right to rescind a short sale. I don’t know about you, but I would like a transaction to be over and done with once the transaction closes. I was told that this provision was making its way into town from other locations and I am not sure how it has faired there either. It would be best to get the lender to complete their investigation, remove the provision and resend a new approval letter.
The information supplied is of a general nature and should not be relied upon as legal advice. You should consult with your own legal counsel. To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. Copyright © 2010 John T. Lotardo, All rights reserved.
Ask the Titleman ArchivesJohn T. Lotardo aka the TITLEMAN™ is Senior Vice-President/General Counsel for Stewart Title & Trust of Phoenix, Inc, State Counsel for Stewart Title Guaranty Company and is a regularly featured columnist. In addition, he is a frequent speaker and presenter on real estate-related topics. Have any questions for him? Send it to him at titleman@askthetitleman.com
