To say that the current real estate industry is in turmoil, is an understatement. Regrettably, over the last two years, home values in Arizona have dropped anywhere from 20% to 40% (and still dropping with no bottom in sight). Open any newspaper or watch any news broadcast and you’ll see that foreclosures are now the HOT TOPIC. With home equity vanishing, many homeowners are losing their desire to keep their mortgages. In addition to the trauma and anxiety afflicting a debtor about to lose his home through foreclosure, there are often unexpected (and unpleasant) consequences that may ensue. Regrettably, many are under the impression that the only consequence of a foreclosure is losing the property, when in fact there are a number of implications and consequences, such as tax, legal, credit, etc., that need to be thoroughly assessed when a homeowner is considering letting the property go back to the bank. The unwary homeowner may be in for a big shock if they don’t plan accordingly or play their cards right under the circumstances.


But why should I consult an attorney when I’m being foreclosed on? How can he possibly help me?


Every time I consult with someone losing their property (or contemplating it), they are surprised at the number of additional factors that they failed to consider (indeed, some which may even prevent the foreclosure). Below I highlight several of the issues that need to be considered when facing a foreclosure:


  1. 1.What exactly is a foreclosure and what are the mechanics of the process?


  1. 2.How long do you have to get out of the house after the home is auctioned?


  1. 3.Can the lending bank sue you for the difference if you’re “upside down” on your mortgage?


  1. 4.Are there any legal defenses to the foreclosure?


  1. 5.Should you seek to postpone the foreclosure? And when is it advisable (there are actually several reasons to do this).


  1. 6.Should you attempt a loan modification? If so, should you do it on your own or through an attorney?


  1. 7.How will the mortgage lates and the foreclosure affect your credit and for how long?


  1. 8.What are the advantages and disadvantages of giving the property back to the bank in the form a deed-in-lieu of?


  1. 9.Will there be tax consequences? Surprisingly, there can be - and significant ones too.


  1. 10.What about those so called foreclosure rescue artists? Are they legitimate or are they scams?

  1. 1.What exactly is a foreclosure and what are the mechanics of the process? Answer: Very simply and generally, it’s the legal process by which the lender takes the property back due to a default in the terms of the payment agreement.  This process can take anywhere from 4 to 9 months to complete (from the time the foreclosure process officially begins).


  1. 2.How long do you have to get out of the house after the property is auctioned? Answer: Surprisingly, once your home is auctioned, the new owner cannot immediately take possession. The new owner has to serve you with a demand notice giving you 5 days to vacate. If you don’t leave within that time period, then the new owner must go to court to have you evicted in much the same way a landlord evicts a tenant.  It’s possible that you may be able to stay in the home for an extra 2 to 4 weeks after the home is lost to foreclosure.


  1. 3.Can the lending bank sue you for the difference if you’re “upside down” on your mortgage? For example, say you owe $300k on the mortgage, but the property is now worth only $200k.                                                                                 Answer:Sometimes yes, sometimes no. It will depend on several factors, such as if you have a “second mortgage” or “HELOC”; whether any amount of the current mortgage was used for things like purchasing a car, paying off credit card debt (like in a cash-out refinance to consolidate debt); and whether the mortgage was a non-purchase money mortgage - in other words, is the mortgage which is being foreclosed the original mortgage you took out to purchase the home, or was it refinanced at a later time.


  1. 4.Are there any legal defenses to the foreclosure? Answer: Yes, there may be. Sometimes, the foreclosure procedure is not properly followed by the trustee or lender, or the appropriate legal notices are not made (or are defective). Practically speaking, these errors don’t occur too often, and when they do, they are corrected by the trustee or the bank. Nevertheless this could be extremely beneficial as it generally allows the homeowner (or his attorney) more time to work out an agreement with the lender.


  1. 5.Should you seek to postpone the foreclosure? And when is it advisable? Answer: There are actually several reasons to do this. Often times, getting a postponement serves a great benefit to the homeowner. The extension allows the homeowner more time to work out a deal with the lender, or assuming the homeowner is unwilling to make any further mortgage payments, allows him to literally live in the home “rent free” until the home is auctioned off.

  1. 6.Should you attempt a loan modification? If so, should you do it on your own or through an attorney? Answer: If you really intend to keep the home, but the payments or terms are unmanageable, I strongly urge you to work with your lender to modify the terms and payments of your loan. Some lenders are more willing to do this if they determine that the borrower is truly in financial distress. However, if the lender is unwilling to make any modifications after you attempt to work with them directly, please contact my office.  The reality (or unfortunate reality) is that many lenders only seem to get serious about a loan workout when you have retained an attorney.


  1. 7.How will the mortgage lates and the foreclosure affect your credit and for how long? Answer: At present, mortgage lates and foreclosures will appear on your record for several years, however, that doesn’t mean that they’ll negatively affect you for that long.  Provided you immediately set out on a course to rehabilitate your credit after your mortgage lates or foreclosure, you should be fine in a couple to a few years. In fact, if you’re only late one time on your mortgage, and provided you have no new derogatory credit, you should be able to rehabilitate your credit in as little as seven to eight months (by this I mean that in about 7 to 8 months your credit score should rise to the same level/score as before your mortgage late).


  1. 8.What are the advantages and perils of giving the property back to the bank in the form a deed-in-lieu of? Answer: The advantage is that it may reflect a little better on your credit score overall versus a foreclosure. However, this is not always the case.  Also, don’t be lulled into thinking that merely because the bank accepts a deed-in-lieu, that it cannot go after you to recover for any deficiency if you’re “upside down” on your mortgage. One must exercise additional caution when there is a 2nd mortgage or HELOC on the property.


  1. 9.Will there be tax consequences? Answer: Surprisingly, there can be - and significant ones too. Especially with homeowners who are losing their investment properties.


  1. 10.What about those so called foreclosure rescue artists? Are they scams? Answer: Sometimes they are. As always, caution is the word of the day. I strongly recommend that you don’t enter into any deals with these entities until you’ve had an attorney review their proposed purchase of your property


If you have any questions concerning the extent of the rights of lenders and borrowers in real estate transactions, please feel free to call me at 480.710.5079.  Joseph Velez also practices employment law, business law, and estate planning.

Arizona Foreclosures: Questions, Issues & Traps You Should Be Aware Of

Law Office Of

Joseph A. Velez

480.710.5079

Real Estate & Business Law Attorney

The Law Office of Joseph Velez

Commercial Real Estate & Business Law Attorney

Scottsdale Financial Center

7272 E. Indian School Rd., Suite 111

Scottsdale, Arizona 85251

480.710.5079

Our law office represents clients throughout the Phoenix, Arizona area including the cities of Scottsdale, Maricopa, Mesa, Surprise, Paradise Valley, Avondale, Gilbert, Chandler, Glendale, Florence, New River, Fountain Hills, Peoria, Surprise, Queen Creek, Tempe, Sun City, Apache Junction, and Casa Grande. We serve the counties of Maricopa, Yavapai, Gila, Pinal, La Paz, Yuma, and Pima County.

DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.

One hour initial office consultation fee is $295 for the matters discussed above.