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A lender has scheduled a trustee’s sale for next week. The borrower intends to tear out various fixtures, including, the sink, ceiling fans, wiring, cabinets, etc. Is the borrower permitted to retain any of the fixtures and, if not, what risk does the borrower face by removing and retaining the fixtures?

ANSWER:

According to most standard form deeds of trust, fixtures are a part of the lender’s security for the underlying loan. By removing and retaining the fixtures, the borrower is destroying a portion of the lender’s security and taking something that they are not entitled to. The borrower risks federal prosecution for mortgage fraud and state prosecution for theft and defrauding a secured creditor. (See A.R.S. § 13-2204(A) “A person commits defrauding secured creditors if the person knowingly destroys, removes, conceals, encumbers, converts, sells, obtains, transfers, controls or otherwise deals with property subject to a security interest with the intent to hinder or prevent the enforcement of that interest.”) In addition, the borrower risks a conversion-based lawsuit from the lender(s).

After purchasing a home, the owner of the home replaced the “original” sink faucets and built-in microwave with upgraded fixtures. Prior to the trustee’s sale, the owner removed these upgraded fixtures and replaced them with the “original” fixtures. After the foreclosure sale, the new owner, which is a bank, is demanding that the “original” fixtures be replaced with the upgraded fixtures. Must the former owner return the upgraded fixtures?

ANSWER:

Yes. Once the new fixtures were attached to the home they became part of the bank’s security.

Once the new fixtures were attached to the home they became part of_____?



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The buyer purchases a single-family residential property located on less than 2.5 acres. The buyer obtains a first mortgage for 80 percent of the purchase price, and a second mortgage for 20 percent of the purchase price. After the close of escrow the buyer obtains a third mortgage in the amount of $25,000 for the purchase of a swimming pool from a swimming pool contractor. The home has substantially depreciated in value since the time of the purchase, and is now less than the value of all three mortgage loans. Furthermore, the buyer is now unemployed and can no longer make payments on the three mortgage loans. If the buyer fails to make any more payments on the three mortgage loans, will the buyer have any personal liability for any of the mortgage loans?

ANSWER:

A.R.S. §33-814(G) provides that mortgage loans used to purchase the home are non- recourse. In other words, the buyer has no personal liability, and the lender’s only recourse is to foreclose and take the property. If the property does not sell at foreclosure for the amount of the purchase money loan, the buyer is not liable to the lender for this deficiency. Therefore, the buyer has no personal liability for the first mortgage loan for 80% of the purchase price, or for the second mortgage loan for 20% of the purchase price. The third mortgage loan for the purchase of the swimming pool, however, was not used to purchase the home, and therefore the buyer does have personal liability for the $25,000 owed to the swimming pool contractor, and the swimming pool contractor is entitled to file a collection lawsuit against the buyer for the $25,000.

The broker enters into a 6% listing agreement with the bank for the sale of an REO property. After the transaction closes, the bank requests a 2% “referral fee.” Can the broker pay a 2% “referral fee” to the bank after close of escrow?

ANSWER:

Yes. The bank as the REO owner of the property is the seller. The listing broker at all times is entitled to pay compensation back to the seller. In essence, if the real estate broker pays a “referral fee” to the bank, the real estate broker and the bank have agreed to reduce the listing commission. The real estate broker, however, is never required to reduce the agreed amount of the commission in the listing agreement.

Quick Quiz

Fill in the Blank:

The broker at all times is entitled to pay compensation back to the .

A bank owns several REO homes. A real estate agent has agreed to furnish to the bank a Broker Price Opinion (“BPO”) on each of the homes. The real estate agent is charging a minimal fee for each of these BPOs. The goal of the real estate agent is to procure listings on some or all of these homes. Can the real estate agent directly receive compensation for these BPOs, or should the compensation for these BPOs be paid to the real estate agent’s broker?

ANSWER:

The fee for each of the BPOs should be paid to the broker. Although an appraiser’s license is generally required for an appraisal of real property, “[a] real estate broker or salesperson who is licensed in this state and who, when acting as such, gives an opinion as to the price of real estate if this opinion is not referred to as an appraisal,” is exempt from the appraisal licensing statutes. A.R.S. §32-3602(1) (emphasis added). Therefore, if the real estate agent is exempt from the appraisal licensing statutes only if “acting” as a real estate agent, any compensation received must be paid to the real estate agent’s broker. See A.R.S. §32-2155.

The broker listed an REO property on the MLS stating it was connected to a septic system, but failed to provide a Notice of Transfer form at close of escrow indicating that a septic inspection had taken place. The 15-day time limit for submitting Notice of Transfer has expired, but the lender refuses to work with the buyer to obtain a septic inspection. Who is financially responsible for the septic inspection?

ANSWER:

The Arizona Department of Environmental Quality (ADEQ) states that when a lender forecloses on an REO property with an on-site wastewater system, the ADEQ does not consider that act as a transfer between a buyer and a seller. Therefore, no Notice of Transfer is required upon foreclosure. However, when the lender sells the REO property, the parties must comply with the Notice of Transfer requirement. Thus, the lender must obtain a septic inspection prior to a sale of the property; however, payment for the inspection is negotiable.

The Arizona Department of



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