Oversight & Regulation of Trustees. The overall legislative intent behind the foreclosure statutes is to provide owners of Arizona property with a fair notice of the sale and a sufficient opportunity to reinstate their loan during the Trustee’s Sale process. In Arizona only specific businesses or individuals may legally serve as a Trustee of a Deed of Trust. In recent years, companies and individuals have attempted to perform Trustee’s Sales in Arizona without meeting the basic qualifications to serve as a Trustee, often to the detriment of the property owner or junior lien holders. In an effort to help protect the public from unqualified foreclosure trustees, the name of the Trustee’s regulator or oversight agency must now be stated in the Notice of Trustee’s Sale, so that the public has a point of contact for complaints.

Higher Bidder Deposits. Prior to bidding at an Arizona Trustee’s Sale, every bidder must provide the Trustee with a bidders’ deposit. For any sale scheduled or postponed to a date after Friday, August 12, 2005, the deposit amount increases from $1,000 to $10,000 for each property. This new amount would apply to a sale that has been continued to a new date that is on or after August 12, 2005. Bidders who are interested in buying multiple properties at a single auction time and place will need to bring $10,000 for each property. If the property sells for less than the $10,000 deposit, the excess is refunded to the bidder when the Trustee’s Deed is delivered. Also, starting August 12, 2005, the Trustee can refuse cash as a form of payment of a bidder’s deposit. Trustees in Arizona should define in advance the form of deposit they will accept, with many Trustees accepting only a Cashiers’ Check payable to the Trustee. Many Trustees have added a description of the form of the deposit to their Notice of Trustee’s Sale.

The Trustee must send a Notice of Excess Proceeds to the former Property Owner. When property sells for more than the amount of the lender’s debt and the Trustee’s Fees and costs, the Trustee must now send a written Notice of Excess Proceeds to the Trustor. The intent of the law is to give the former property owner written notice that there are Excess Proceeds from the sale. However, the statute requires that the Trustee send this notice to the “Trustor as of the date of the recording of the Notice of Sale”, which may not be the current property owner. When the original Trustor is no longer the property owner, notice should be sent to both the original Trustor (to satisfy the new statute), and to the property owners (who are legally entitled to the excess proceeds). This new notice is not sent to junior lien holders.

Payment of accrued Homeowners’ Association liens from any Excess Proceeds receives preferential treatment. Trustees may pay Condominium Association or Planned Community Association before any other junior lien holders upon receipt of a written claim. A Trustee that pays the Homeowners’ Association lien in good faith is discharged from any liability for that payment. Holders of other lien against the property are now expressly prohibited from seeking post-sale attorneys’ fees, and are limited to the amount owed to them as of the day of the Trustee’s Sale.

Excess Proceeds Complaints must be more descriptive and include all amendments or endorsements to the title policy. The laws governing the deposit of Excess Proceeds following a Trustee’s Sale changed significantly in August 2002, and continue to be refined. The changes this year further clarify that the title report attached to the required civil complaint must now include all amendments or endorsements obtained by the Trustee. Often junior liens will be recorded after the Notice of Sale, and then appear on the title report endorsements during a Trustee’s Sale process. Because distribution of Excess Proceeds to lien holders is determined as of the sale date, these “new” lien holders must be included in the analysis and distribution of Excess Proceeds.

To help everyone understand the liens and their priorities, the Trustee is now required to provide in the civil complaint a narrative description of the liens and encumbrances, and an analysis of the apparent priority of each lien holder. However, the Trustee is not held liable for any errors in this narrative description or analysis. Thus, the narrative and analysis serves only as a general description of the liens and priorities, not as a definitive condition of title.

Claimants seeking to recover Excess Proceeds must acknowledge any senior lien that could have priority. Junior Lien Holders and the Property Owners seeking payment from the Excess Proceeds must file an application with the Superior Court and mail a copy of that Application to all other interested parties. Starting August 12, 2005, all claimants must now acknowledge any lien holder, encumbrance, or interest that may have priority over their claim. This new statement helps the judge understand the relative priority among multiple claimants.

Protection for former property owners imposes burdens on all junior lien holders and claimants seeking their portion of the Excess Proceeds. Former Property owners continue to be aggressively pursued by individuals and companies offering to “help” recover their Excess Proceeds for a fee. The worst stories include former property owners signing away their right to thousands of dollars of their equity in exchange for either a small amount of cash or a high percentage of the actual recovery. To limit this abuse of Arizona residents, the legislature imposed new restrictions on this practice. However, the language is broad enough to apply to all junior lien holders.

The new restrictions are summarized as follows:

• Any agreement with a “third party” to pay for the recovery or assistance in the recovery of Excess Proceeds must be in writing, signed by the claimant, and notarized.
• Any agreement (whether in writing or oral) entered into with a “third party” during the first 31 days after the Trustee’s Sale is void and unenforceable.
• Any fee for payment shall be reasonable. If the fee is in excess of $2,500 it is presumed to be unreasonable, and the claimant’s obligation to pay that fee is unenforceable. The court can approve a fee higher than $2,500, but the applicant must show why the higher fee is reasonable under the circumstances of the specific case.

As an unintended consequence of the language, these new restrictions will require that companies or individuals who help junior lien holders recover Excess Proceeds from the court must have a written agreement for each property. Any agreement with a junior lien holder made within the first 31 days after the sale is void, so agreements must be made, signed, & notarized for each property. Those who fail to comply with these requirements risk the loss of the fee for helping to recover the amount of Excess Proceeds for their junior lien holder clients.

Electronic Documents: Arizona became the first state to adopt the Uniform Real Property Electronic Recording Act. This uniform law, intended to be adopted without change by all states, permits the use of Electronic Documents in all places where the law would otherwise require an original document, a written instrument, be on paper or other tangible medium. The law further authorizes the use of Electronic Signatures and electronic form of a notary, verification, acknowledgement, or made under oath. This law merely permits the use of an Electronic Document, defined to be a document in electronic form. There are many details and practical rules required to implement this change, which will be defined by a 7-member commission appointed by the Arizona Governor. Also this specific change is not effective until December 31, 2005.

Eventually, this law and the accompanying rules and regulations, will allow the direct recording of an Electronic Document, which exists only in an electronic form, rather than a printed page or scanned image of an original document.

Disclaimer: This information is believed to be accurate. This information is of a general nature and should not be relied upon to apply to your specific situation. No attorney-client relationship is formed or intended solely from this document. This summary is not a substitute for personalized advice from a competent attorney. If you have questions you should seek the assistance of an attorney licensed to practice law in Arizona.

Rex C. Anderson is an Arizona attorney whose clients include foreclosure trustees, mortgage loan servicers, and lenders that face challenging default loans His clients benefit from his experience gained while handling over 11,000 Arizona foreclosures and over 9,500 consumer bankruptcy cases for clients that included several of the largest national loan servicers. For 14 years his practice of law has helped lenders find acceptable and quick resolutions to problem loans and comply with servicing requirements, investor guidelines, and changing laws. He can be reached at (888) 675-7809 or by email at RCA@RcaLaw-AZ.com