Foreclosure process in Arizona

Hello all,

I have NOT yet talked to an attorney, however I have talked to the bank that holds our Mortgage and Equity loan about this situation.

Due to a job loss and my having to go on disability, we can no longer afford to stay in our home. The mortgage holder tried everything they could (We believe) and there is just nothing they can do, due to the imbalance of our income VS our bills.

We hate to lose the home, we've been here for 18years, but just see NO WAY we can afford to stay. We owe nothing to anyone else, just this mortgage and equity line.The only option they offered was a short sale on the property, which I suppose is OK, however not sure exactly How this works? We understand, we cannot afford to stay.

We are current with the payments now, but see missing payments on both the Mortgage and equity line starting in Aug. Should we go ahead and start missing the payments and let the process unfold, or would it be best to agree with the bank and let them do a short sale ASAP?

I do not understand HOW this works though. If the house sells for less then we owe, am I still obligated for the Balance? We had an appraisal done just last month (trying to refi the loans) and turns out we are approx $18K, underwater.

If I agree to the short sale, are we going to have people tramping through the house while we are still here? Do we need to move out immediately or what? I do not particularly want people coming in and out of our home, while we are packing, trying to get out?

I have a little money saved, and could go find a cheap rental right NOW, but would it be better to wait? Can I legally leave and get a rental at this time?

As I mentioned, we have NOT talked with an attorney, just trying to get some advice before I have to do that....IF I HAVE TO???

Thanks in advance for any input......

Gary

Edited: 06/26/2010 at 08:35AM by Dismayed Homeowner

Nick J.

SFR Investor · Scottsdale, Arizona

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Jun 14 '09, 05:47 AM

well, what great timing you have as I have what I would say "some" experience in short sales and I just so happen to be an Arizonan myself :wink: GO CARDS!!!

Gary does your last name start with LawrXXXX ? by chance?

A couple of things, no one should tell you to start missing payments just because. The bank can and in most cases will proceed with a short sale even though you are current.

If you decide to do a short sale that does not mean people will be trampling through your house while you're still in it mainly because it's very important that you vacate the property.

By vacating the property you're allowing yourself to move on and detach emotionally from the property which will be the hardest thing to do considering you've been there for so long. Usually by having the homeowner occupy the property through the process it hinders the success rate of the short sale.

Since it's your primary residence you're going to be protected under the homeowners relief act ( I never remember exactly what it's called for some reason ) so you "should" be ok as far as deficiency judgments later on.

You should also not waste to much time because that is one thing that is not on your side. If you wait to long you very well may completely eliminate any possibilities of making sure a short sale is successful.

I'm not sure you'll need to obtain an attorney unless you feel the absolute need for one, at the very least you can always consult with one for free at least I'm just not sure it'll do you any good.

I'm certainly not going to give myself a shameless plug (maybe others here will vouch) but I would seriously consider getting a "better than competent" agent to list the property or a successful investor to handle the short sale for you.

Best of luck to you.

Edited: 06/26/2010 at 08:35AM by Nick J.

Dismayed Homeowner

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Jun 14 '09, 12:36 PM

Hi Motiv8td - We've pretty much detached ourselves already. Just cannot afford it.....

As for the lawyer, we t hought this just to cover ourselves as we know nothing about the process, We do not want taken advantage of?

This "homeowners relief act" you mentioned, seems like it is more for taxes on the excess then "debt" forgivness?

So if the short sale, comes up short, it would be forgiven? This was our concern and why I mentioned looking into a lawyer. Would I have to go Bankrupt, on that balance?

Thanks for the info, anything anyone else can help with, would be appreciated.

BTW - no my last name is not law......LOL.

Edited: 06/26/2010 at 08:35AM by Dismayed Homeowner

Daniel Bruckner

Real Estate Investor · San Clemente, California

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Jun 14 '09, 12:38 PM

Gary;

Several things for you to chew on...

A couple of things, no one should tell you to start missing payments just because. The bank can and in most cases will proceed with a short sale even though you are current.

So you know, the bank CANNOT begin a short sale process without the payments being behind. In AZ, for the lender to begin the foreclosure process would require for you to be behind on payments by three months. At that time, they would then file a liz pendence There is then a 3 month period before the property could be sold.

Since it's your primary residence you're going to be protected under the homeowners relief act ( I never remember exactly what it's called for some reason ) so you "should" be ok as far as deficiency judgments later on.

It is called "The Mortgage Forgiveness Debt Relief Act of 2007" and WILL forgive your debt if through a short sale, deed in lieu or foreclosure.

By no means do you have to, or would I recommend that you move out of your house. Why? because it appears to me as if you are emotionally attached to it which is more than understandable. As long as you are compliant, willing and forthright with the short sale process (or otherwise), I wouldn't require a homeowner to vacate. Here are reasons whyt it could be better to do so:

1. It will be easier for you to qualify for a rental somewhere else before your credit does become adversely affected by becoming late (if that is what is ultimately going to happen)

2. The bank looks at vacant properties different than ones that are occupied. They begin to worry about vandals, vagrants, home issues such as water leaks, etc, etc. It "can" make a short sale more readily accepted but I don't see a difference on deals I work that are vacant or occupied that makes a huge discrepancy of one over the other.

3. You can move out of your house whenever you want for whatever reason.

Should you want to speak to an attorney, I would suggest it though many times they can make the situation all the more confusing.

Here are some more suggestions for you:

1. Maybe work with a loan modification company and see if they are able to get a loan mod. reconveyance, restructuring done for you. Be wary of who you use though as many, many are fraudulent. I always recommend this step to individuals in your situation as a first step.

2. FInd someone who is willing to buy your property through a short sale, maybe even list it with a real estate agent

SO, ultimately, there are options for you out there.

Hope this helps.

Updated: 09:10PM, 06/14/2009

I would rather not have people confused by my confused state of mind earlier so have amended this little snidbit of a post as I wasn't fully paying complete attention when I was in the midst of writing. Certain clear, precise points have subsequently b

Edited: 06/26/2010 at 08:35AM by Daniel Bruckner

Jon Holdman

Real Estate Investor · Wheat Ridge, Colorado

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Jun 14 '09, 01:01 PM

I don't see any reason to move out. I know people do this, but why? If you're not going to be paying, it doesn't matter if you're living there or not. Why pay to live somewhere else? Sorry, this just make no sense to me.

I'd go so far as to say most loan mod companies are frauds. They take an up front fee, accomplish nothing, then say sorry. If you want help, hire an experienced lawyer.

You mention you have a HELOC. Was this used to improve the property? I'm not a lawyer, but I believe there are limitations in the Mortgage Forgiveness Debt Relief Act of 2007 if money was taken out of the house and used for other purposes. My understanding is the forgivness for the taxes applies only if the loans were used to acquire or improve the property.

Selling the house on a short sale is no different than a normal sale. Yes, you will have people tromping through the place for showings. All the usual recommendations for selling a house apply. Clean up, dejunk, depersonalize, give it a little lipstick.

Edited: 06/26/2010 at 08:35AM

Jon Holdman, Flying Phoenix LLC

Nick J.

SFR Investor · Scottsdale, Arizona

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Jun 14 '09, 01:25 PM

Originally posted by Daniel Bruckner

So you know, the bank CANNOT begin a short sale process without the payments being behind.

That's not true at all.

Originally posted by Daniel Bruckner

In AZ, for the lender to begin the foreclosure process would require for you to be behind on payments by three months

Not true either

The 'fact' of the matter is short sales are commonly started without the borrower in default. The borrower only has to show they will fall behind soon because of a recent event reducing their income.

AZ is a non-judicial state but that does not mean the lender has to wait three months before they can begin the foreclosure process, they can accelerate the loan at anytime they feel their loan is in jeopardy.

I certainly welcome you to BP and welcome your contributions to the forums as a fellow investor. Please get your facts straight before posting incorrect information and stating them as facts.

Edited: 06/26/2010 at 08:35AM

Justin S.

Rehabber · Chandler, Arizona

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Jun 14 '09, 01:31 PM

Gary-

You have options with only being 18K underwater. In Arizona, that is nothing. I'm typically negotiating short sales on houses that are $100K - $200K underwater.

It is up to you on whether you want to miss payment now or later. You have to decide what is best for you and your family.

I do not agree with Daniel's statment that you need to be three months behind to start the shortsale process. Best thing to do is find someone who can buy your house and start the process. The worst the bank can say is no.

Edited: 06/26/2010 at 08:35AM

Justin S., Wheelhouse Properties
E-Mail: wheelhouseproperties@gmail.com
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Scott Hubbard

Rehabber · Tucson, Arizona

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Jun 14 '09, 02:15 PM

Originally posted by Dismayed Homeowner

Gary:

I am really sorry to hear about your situation and I commend you for taking the initiative to learn more about your options. You have certainly come to the right place!

Originally posted by Dismayed Homeowner

I do not understand HOW this works though. If the house sells for less then we owe, am I still obligated for the Balance?

If your home is on 2.5 acres or less and does not have more than 4 units, then your protected from a deficiency judgement on your first mortgage and you home equity loan. Arizona's laws that prohibit deficiencies are found in Arizona Revised Statutes Sections 33-814.G and 33-729.A. These types of laws are also called "anti-deficiency legislation."

However, you may be required to pay income tax for the HELOC unless you can provide documentation that a majority was spent on your home. (see your tax advisor) You can also look into this further by reading the Mortgage Forgiveness Debt Relief Act of 2007.

Originally posted by Dismayed Homeowner

We had an appraisal done just last month (trying to refi the loans) and turns out we are approx $18K, underwater.

First, $18K below market value might be overcome but really depends on the sales price of your home. If you have a $450K home, you may be able to overcome that deficiency and decrease your chances of having to pay income on the loss amount.

Originally posted by Dismayed Homeowner

If I agree to the short sale, are we going to have people tramping through the house while we are still here?

Generally, if you list the property in the MLS which might be your best bet, then you will likely have people viewing your home. If you choose to use an investor and that investor intends to buy your home a rental, then you may not have people tramping through it.

Originally posted by Dismayed Homeowner

Do we need to move out immediately or what? I do not particularly want people coming in and out of our home, while we are packing, trying to get out?

Mostly, a short sale will take some time to negotiate giving you time to pack up, so you will not need to move out right away. Depending on the lender, the short sale can take anywhere from 6 weeks to 6 months depending on the lender. Since you have not received a Notice of Trustee Sale, then you will likely have 90 days to save up for moving.

Originally posted by Dismayed Homeowner

I have a little money saved, and could go find a cheap rental right NOW, but would it be better to wait? Can I legally leave and get a rental at this time?

You can legally leave, but the lender may send an agent to check your property for vacancy. If vacant the lender may choose to proceed with foreclosure since there is a chance for vandalism. I recommend you stay put as long as you can.

I certainly echo most of the information here and encourage you to further educate yourself in this matter. As a former REALTOR, I would certainly look very hard for an Agent (if you decide to go that way) that has a track record of successful Short Sale Transactions. In my experience, most agents lack either the time or the experience to handle short sales. That is why, as a group, REALTORS have a dismal performance record. Good Luck!

Originally posted by motiv8td

I'm certainly not going to give myself a shameless plug (maybe others here will vouch) but I would seriously consider getting a "better than competent" agent to list the property or a successful investor to handle the short sale for you.

Nick: I think that was a plug! I should know.....

Edited: 06/26/2010 at 08:35AM by Scott Hubbard

Nick J.

SFR Investor · Scottsdale, Arizona

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Jun 14 '09, 02:22 PM

Thanks for another great post Scott!

and good work calling me out mister :)

Edited: 06/26/2010 at 08:35AM

Jim Wineinger

Real Estate Investor · ten mile, Tennessee

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Jun 14 '09, 02:44 PM

Gary, I wonder after reading all this thread if there is another possibility.

Should you do a Short sale using some investor like Nick, or Mike, or Scott who is intending to buy and hold, then after the short sale they would be looking for a renter.

Dont give numbers here, but PM one of them and maybe, just maybe they can work out a short sale where the numbers will work for them at what you could afford in rent. This would keep you in the home, they have a decent renter, and you credit takes the least hit.

Has anyone been able to work out something like this for a homeowner?

Or are the numbers never close enough.

Edited: 06/26/2010 at 08:35AM

Daniel Bruckner

Real Estate Investor · San Clemente, California

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Jun 14 '09, 04:06 PM

Originally posted by motiv8td

Originally posted by Daniel Bruckner
So you know, the bank CANNOT begin a short sale process without the payments being behind.

That's not true at all.

Originally posted by Daniel Bruckner
In AZ, for the lender to begin the foreclosure process would require for you to be behind on payments by three months

Not true either

The 'fact' of the matter is short sales are commonly started without the borrower in default. The borrower only has to show they will fall behind soon because of a recent event reducing their income.

AZ is a non-judicial state but that does not mean the lender has to wait three months before they can begin the foreclosure process, they can accelerate the loan at anytime they feel their loan is in jeopardy.

I certainly welcome you to BP and welcome your contributions to the forums as a fellow investor. Please get your facts straight before posting incorrect information and stating them as facts.

Ok, I should pay definitely pay better attention when posting instead of doing several things at a time... SORRY and thanks for pointing that out.

What I meant to say is... from what I see, most lenders aren't going to accelerate a mortgage, especially on a property that is over-encumbered, when they are dealing with all the default issues as it is.

#2: You are correct as well on my previous statement. What I "meant" to say (in the middle of my daughter asking me to take her to the park, look at her dolls special braided hairdo and stepping on the cat) is that you can indeed do a short sale well before a property is even behind. In all the melee, I was under the belief that "motiv8t" was saying that a "foreclosure" could be started. My bad.

I will really work on really evaluating my responses beforehand.

Edited: 06/26/2010 at 08:35AM

Daniel Bruckner

Real Estate Investor · San Clemente, California

15 posts
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Jun 14 '09, 05:18 PM

For more information on the Mortgage Debt relief Act you can go here to find out all about it.

http://www.irs.gov/newsroom/article/0,,id=174034,00.html

Cherrio!

Edited: 06/26/2010 at 08:35AM

Dismayed Homeowner

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Jun 14 '09, 07:32 PM

Well, I really appreciate all the info here everyone.

It's a shame we are going to lose it after this long. However, we can see the light through the trees and just cannot afford to stay.

As for the equity line, YES Most of that has been for home improvements. Block wall, Tough Shed, additional parking in front, new air cond, installed a Master Cool. It was not blown on 60" flat screens and such, hell, we haven't taken anything from it for a year and have made steady payments on it and the mortgage. In 18 years, we've never missed one.

As for WHEN to move, we don't know. I just talked to the bank and asked what they could do if anything and we just do not have enough income at this time to do it. My wife's earning potential is not enough that it would make a lot of diff, and I have been out of work for 6 months on STD now moving onto LTD and losing 40% of my pay.... :cry: I'll probably end up on SS disability.

We saw this coming several months ago. We were just hoping things would work out differently and maybe I could go back to work. We could handle another months payment, but beyond that, It would be cutting us pretty close, and maybe NOT have enough for deposits and such, to move to another place?

I read up on the "Debt relief Act" sounds like it would help some. I mean, they cannot get blood from a turnip and that's why I was considering a lawyer. Maybe filing for Bankruptcy, because of this hardship, if they do attempt to collect it. I don't want to screw anyone here, just things have finally hit rock bottom on us.....

We hadn't thought of trying to find a buyer though. Houses are pretty depressed here in Phoenix though. Hell, when I took out this equity line in 2005, the house appraised at $236, now it's at $120....GEEEEEEEZ. WHO'D OF FIGURED??? :cry: We are not that far underwater NOW, so may be best to jump on it before it goes any farther...HUH?

If we wait, and do not make payments, the price will go higher, due to late fees lawyer's fees and such. We've raised both The kids one 16 another 19, so they could handle the move. YES, they are both still at home. One just moved back in, in Jan, due to his Job loss...... :cry:

ANYONE INTERESTED IN THE HOME, HEY, CONTACT ME......WE WOULD BE INTERESTED IN RENTING, sure beat the HECK outta packing the last 18 years worth of CRAP up and moving...LOL. :oops:

Keep the idea's coming, I learn quick. Just don't want to cause any problems with the Bank over this, but have no choice at this point, we will probably have to move out come the end of Aug, mid Sept, this year.

Gary

Edited: 06/26/2010 at 08:35AM by Dismayed Homeowner

Nick J.

SFR Investor · Scottsdale, Arizona

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Jun 14 '09, 11:12 PM

could you possibly afford the home if the 2nd was shorted?

If you're going to rent it out, would you be able to afford the difference from what you'll get in rents to what the mortgage is?

I'm not sure if you mentioned this or not, but have you talked to the lender about a loan mod or forbearance? it is possible to modify your first position lien and short the second.

If you don't mind me asking, what is your monthly PITI and your zip code along with rooms/bath/sq ft?

Since I'm local (Arcadia neighborhood) I could probably quickly predict possible outcomes based on that

Edited: 06/26/2010 at 08:35AM

Scott Hubbard

Rehabber · Tucson, Arizona

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Jun 15 '09, 12:17 AM

Gary-

I believe you have several workable scenarios given your home's price point and also the fact your only $18K underwater.

Since I believe your home may be a good buy and hold candidate. Perhaps you could work something out with an investor to stay in your home as Jawsette suggested.

I would start with Nick since he is local. Ask him if he would be interested in buying and holding for a leaseback.

If not, I am sure he can steer you in the right direction. If he is unable to help you, give me a call (use the weblink below) and I may be able to help.

Good Luck!

Edited: 06/26/2010 at 08:35AM