Arizona Legislation Requires Lenders to Give Notice of Right to
Explore Foreclosure Avoidance Options

By Christopher Perry, Esq., Perry & Shapiro

Arizona trustees survived relatively unscathed by the 2010 legislative session which officially ended on April 31, 2010. All normal bills will be effective on July 29, 2010.

House Bill 2626, Chapter 325. Arizona joined the list of states which require lenders to give advance notice to their borrowers of the right to explore foreclosure avoidance options. Specifically, lenders have to make a written “attempt to contact a borrower to explore options to avoid foreclosure”. It only applies to borrowers who occupy the property as their principal residence. It applies only to first deeds of trust recorded on or after January 1, 2003 through December 31, 2008. The written notice must be given 30 days before a notice of trustee’s sale can be recorded.

HB 2626 does not proscribe specific terms for the written notice and does not provide how the written communication must be mailed (certified, regular first class or both). It specifically does not require a written declaration of compliance, and merely provides a copy of the notice “shall be maintained in the credit file” of the lender. If specifically provides that the act does not require a lender to provide a loan modification or cause a servicer to violate investor-owned loan rules for loan workouts that they are contractually obligated to follow.

HB 2626 does contain exceptions to certain lenders and servicers, so they do not have to give the state required notice. It does not apply to lender/servicers who are participating HAMP servicers. A current list of participating servicers can be found on the makinghomesaffordable.gov website. It does not apply to loans made, purchased or serviced by state or local housing agencies or authority. It finally does not apply to small private lenders who make fewer than 5 loans a year and therefore are not required to obtain a mortgage bankers or brokers license.

The biggest uncertainty revolves around the effective date of the Act. The Act becomes effective on July 31, 2010. A trustee’s sales can only be started by the recording of a notice of trustee’s sale on or after July 31, 2010 if the lender is exempt (e.g. a HAMP servicer) or the 30 day notice has already been given. In other words, 30 day notices, if required, have to be sent by July 1, 2010 to avoid a delay in the trustee’s right to record the notice of trustee’s sale.

House Bill 2479, Chapter 91, added new information which had to be included in any deed in which the purchaser or grantee is of a certain type or character. It only applies to deeds to an entity which is regulated by Arizona Revised Statutes Chapter 6 (banks and all financial institutions), Chapter 10 (corporations) and Chapter 29 (limited liability companies and partnerships). It does not apply to individual purchasers. Arizona law has for some time required identification of beneficiaries of a deed into the name of a trust or to a trustee on behalf of a trust.

The regulated entities include every grantee under a trustee’s deed upon sale, except for an individual person or persons who were either the beneficiary or a third party purchaser. The trustee’s deed must include the name and address of the purchaser or grantee, the state in which the grantee is incorporated, organized, licensed, chartered or registered, together with the country under which the entity is chartered or formed. The new provision concludes with a provision which states that the deed will not be invalid if there is a failure to provide the information required by the section.

The statute does not specify how or where the information should be on or in the deed. It is standard practice in Arizona to add a separate attachment for the beneficiary information disclosure page when a trust or trustee is the grantee. I am going to use this same format, rather than trying to integrate the information into the body of the deed.

The bill was introduced by the League of Arizona Cities and States. The bill was a consequence of the city’s and town’s frustration when giving notice to lenders when REO properties fall into neglect or disrepair and are subject to the imposition of neighborhood zoning violation notices and enforcement liens. It will be a best practice to put the actual address of the mortgage servicer or owner’s REO department, not some corporate headquarters or office. For example, Fannie Mae’s Arizona REO properties are managed from their Dallas office. This address should be included in the corporate special warranty deed from the servicer to Fannie Mae.