Secured creditors are those creditors with liens on, or interests in, property. So long as the automatic is in place, or the property is ‘property of the estate’ creditors should not enforce their lien rights in the property. The creditor must get relief from the automatic stay, or wait until the stay is lifted and-or the property no longer is property of the estate.
Property is no longer property of the estate when it is abandoned by the trustee during pendency of the bankruptcy case, or by operation of law when the case is fully administered. Property that is administered by the trustee is deemed abandoned upon the closing of the case. 11 USC 554(c).
We represent creditors seeking to exercise rights in their collateral. When your borrower files bankruptcy, before taking enforcement action, call an experienced attorney who knows how to practice in the bankruptcy court.
The discussion provided herein is information only, and should not be relied on as legal advice. Every legal issue is unique to the facts that help form the issue. If you are facing an issue similar to the subject of this blog, contact a professional for legal advice. If you would like to discuss this matter with me, my phone number is (602) 266-1327.
The United States Bankruptcy Court certified two questions to the Arizona Supreme Court. The Arizona Supreme Court answered one, and declined to answer the second. The question presented was “Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. § 33-808 when the assignee holds a promissory note payable to bearer?” The answer is no; Arizona law imposes no such requirement.
The Supreme Court answered a question referring to established law, which established law, during the wave of real estate foreclosures was being questioned. The Supreme Court examined several arguments involving A.R.S. § 33-412(B) and A.R.S. § 33-817.
As to A.R.S. § 33-412(B) the court held while an unrecorded document may create issues for the assignee, it does not affect a deed’s validity as to the obligor. The clear import of the language is that obligor’s repayment duties are not going to be disturbed if an assignment is not recorded.
Likewise, examining A.R.S. § 33-817 the court concluded “Arizona law also expressly provides that the transfer of a contract secured by a deed of trust ‘shall operate as a transfer of the security for such contract’.” When the note is transferred to the assignee, the deed of trust is transferred by operation of law.
The Supreme Court addressed other statutory based arguments, and disposed of them quickly. The Supreme Court affirmed the law in Arizona. Based on the attorneys and organizations that briefed the issues, it would be fair to say that some creditor’s were waiting for this decision to be issued before additional trustee’s sales were scheduled. It would not be surprising to see an uptick in foreclosures, following the release of this decision.
In 2009 one of Arizona’s statutes dealing with establishing deficiency balances following the foreclosure of real property was ‘almost’ amended by Senate Bill 1271. The ‘change’ anticipated by the SB 1271 would have required the trustor to utilize the property for six months in order to gain protection of the anti-deficiency statute. This change would have imposed a requirement on the trustor to live in the residential property for six consecutive months. The Bill made its way through the legislature, and was signed by the Governor. Days before the law was going to be effective, the Governor signed House Bill 2008 which put the kibosh to SB 1271.
Northern Arizona Properties v. Pinetop Properties Group, 151 Ariz. 9 (App. 1986) is a case that is routinely cited for the proposition that a single or two-family dwelling, so long as all of the other statutory requirements are met, does not require that the dwelling constitute someone’s permanent residence or normal place of abode in order to qualify for the anti-deficiency statute.
Arizona’s non-earnings garnishment provisions are set forth in A.R.S. § 12-1570, et seq. Non-earnings garnishment is limited to (1) indebtedness owed to the judgment debtor by a garnishee for monies which are not earnings; (2) monies held by a garnishee on behalf of a judgment debtor; (3) personal property of a judgment debtor that is in the possession of a garnishee; and (4) shares and securities of a corporation or a proprietary interest in a corporation belonging to a judgment debtor, if the garnishee is a corporation. A.R.S. §12-1570.01.
A non-earnings garnishment is one tool a creditor can use to collect a judgment.
Arizona’s garnishment statute (A.R.S. § 12-1598(4)) defines earnings as compensation paid or payable for personal services, whether these payments are called wages, salary, commission, bonus or otherwise. Earnings include periodic payments pursuant to a pension or retirement program. Arizona law defines a judgment debtor as a party against whom a money judgment or order for support of a person has been awarded. A judgment debtor receiving compensation that fits in the earnings definition may be subject to garnishment in Arizona.
An earnings garnishment is just one mechanism creditors use to collect a judgment.
Arizona has two statutes with deficiency balance implications:
(1) A.R.S. § 33-729(A), which applies to purchase money mortgages and to purchase money deeds of trust and
(2) A.R.S. § 33-814(G), which applies to all deeds of trust foreclosed by trustee’s sale, whether or not they secure purchase money mortgages.
One of the first questions that must be answered is whether the property meets the statutory definitions. The deficiency statutes apply only to “property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling.” The property must actually be used as a dwelling for the anti-deficiency statutes to apply.
The second question that must be answered is whether the deed of trust secures purchase money. A purchase money mortgage is a mortgage given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price.
A. Deed of Trust Sales aka Trustee’s Sales
A.R.S. § 33-807 authorizes a creditor to foreclose on property through a deed of trust sale. A lender may not pursue a deficiency judgment following a deed of trust foreclosure on trust property of two and one-half acres or less which is used as a single one-family or single two-family home, even if the lender is not dealing with purchase money collateral. A.R.S. § 33-814(G); Baker v. Gardner, 160 Ariz. 98, 106, 770 P.2d 766, 774 (1988). The Arizona Supreme Court has stated that a creditor “who chooses the advantages of non-judicial foreclosure cannot obtain a deficiency judgment even if he is not dealing with purchase money collateral.” Baker, 160 Ariz. at 106, 770 P.2d at 774.
B. Judicial Foreclosure
Lenders may choose to foreclose through a judicial foreclosure under A.R.S. § 33-721, et seq. Judicial foreclosures allow creditors to obtain deficiency judgments for the difference between the sale price and the outstanding balance on the loan. Deficiency judgments, however, are not available when the mortgage is for purchase money. A.R.S. § 33-729(A).
C. Waiving Collateral
In cases where the creditor is capable of obtaining a deficiency judgment, the creditor also has the option of waiving the security interest under A.R.S. § 33-722 and suing directly on the note. Baker, 160 Ariz. at 107, 770 P.2d at 775. When the loan is a purchase-money obligation, however, the lender is prevented from suing on the note and must pursue the security interest. A.R.S. § 33-729(A).
In Arizona, real property encumbered by a deed of trust can be foreclosed in 91 days with a nonjudicial trustee sale. The manner, means and method of a trustee sale are specifically identified by Arizona law. Title 33 of the Arizona statutes addresses the requirements the trustee must follow to conduct a nonjudicial trustee’s sale.
If you receive a notice of trustee sale, in all likelihood, you received it because the statute indicated you should receive notice. DON’T IGNORE THE NOTICE. You received a notice for a reason. If you don’t know why you received it, or what it means, get counsel from one who does know its meaning.
In general, community property is liable for debts incurred for the benefit of the community. A.R.S. § 25-215(D). A presumption in favor of a community obligation arises “when either spouse incurs a debt during marriage for the benefit of the marital community.” This presumption must be overcome by clear and convincing evidence that the debt is the separate obligation of one of the spouses. The burden of proof that it was not a community obligation is on the party asserting it.
Additionally, although generally spouses have equal rights to bind the community property, certain transactions will not bind the community unless both spouses join in the transaction. A.R.S. § 25-214. These include “[a]ny transaction for the acquisition, disposition or encumbrance of an interest in real property” and “[a]ny transaction of guaranty, indemnity or suretyship.” A.R.S. § 25-214(C)(1), (2).
Most creditor attorneys will allege the presumption of a community debt, unless, the facts suggest they cannot do so. Many times a “John Doe” or “Jane Doe” defendant will be alleged. This is because the defendant is believed to be married, but, the attorney does not know the exact name of the spouse.
The Arizona statute dealing with the interest rates to be applied in contracts was relatively easy to apply, up until last legislative secession. Now, amendments to the statue have changed things up. The applicable statue, A.R.S. § 44-1201, was changed in the summer of 2011 to read as follows: B. Unless specifically provided for in statute or a different rate is contracted for in writing, interest on any judgment shall be at the lesser of ten per cent per annum or at a rate per annum that is equal to one per cent plus the prime rate as published by the board of governors of the federal reserve system in statistical release H.15 or any publication that may supersede it on the date that the judgment is entered. The judgment shall state the applicable interest rate and it shall not change after it is entered.
This change came as a surprise to many in the financial and legal services. So, until the statute is amended, we are left with this statute. What is the lesson to be learned – make sure contracts have set interest rates to avoid application of this statute.
1. Experience Matters
No two cases are the same. However, there is a certain legal process getting from point A to point B. You need to know how many cases like yours the attorney has handled so that he has experienced the issues getting from point A to B.
2. Results – Are you going to get paid and when?
An experienced attorney will tell you what it is going to take in terms of time and treasure to get a judgment and get it collected. A results oriented attorney will be able to tell you what they are going to do to collect your judgment and how long it is going to take.
3. What will it cost?
Some cases are best handled on an hourly basis, some on a flat fee basis, some on a contingency and some on a blended arrangement. The fee agreement must work for both the attorney and the client. If the case is one where recovery is limited or doubtful, the client may want the attorney to handle it on a contingent basis. Successful lawyers don’t work for free.
4. Guaranteed success should scare you.
Experienced lawyers know they cannot guarantee the success of any given venture. Your typical lawsuit will take twists and turns and the experienced attorney will advise you on the recommended course of action at each twist and turn and why. If your attorney is making verbal or written guarantees about success, get them in writing, and make sure their malpractice insurance is up to date.
5. Be comfortable with your attorney.
If you can’t reach your attorney on the telephone when you’re trying to hire him or her, you won’t be able to reach them once they’re working for you. If your attorney doesn’t answer your questions during the hiring process, the attorney is not going to answer those questions once hired. You need to be comfortable with the relationship you are forming with your attorney. If it doesn’t feel right, make another phone call.
