Housing Crisis: Governor Brewer Signed a Bill that Has the Potential to Bankrupt Homeowners Facing Foreclosure

When Brandi Sveback and her husband, Chris, bought a house in Mesa six years ago, they had no idea how close the property would come to devastating their plans for the future. A couple with three small children, they just wanted a starter home. Eventually, they intended to save enough money to move to a nicer area with better schools.

Then came the housing bust. Unable to rent, sell, or make payments on their home, foreclosure was their only option. Now, thanks to an under-the-radar piece of legislation pushed by the banking industry and signed into law earlier this month by Governor Jan Brewer, the Svebacks will likely owe the bank close to $100,000.

And they're the lucky ones. Thousands of other homeowners will most certainly face bankruptcy as the result of a law passed at a time other governmental authorities are struggling to figure out ways to help homeowners.

Arizona state Senator Steve Pierce
Cronkite News Service
Arizona state Senator Steve Pierce

Details

Free seminar
Marc McCain and others will hold a free seminar on how anti-deficiency laws affect homeowners at 1 p.m. Saturday, July 25, at the Mustang Library, 10101 N. 90th St., Scottsdale. Call 602-859-9450 or e-mail outreachrsvp@yahoo.com by July 23 to RSVP.

Introduced by state Senator Steve Pierce, a Republican from Prescott, the measure will gut the current law, which can protect homeowners from bankruptcy when facing foreclosure. Three representatives of the banking industry testified in favor of the bill when it went before the Senate Finance Committee in June; no one testified against it. The amendment was tacked as a striker to an entirely unrelated bill dealing with the criminal justice system. Apparently no one on the side of the homeowner knew about the change until it was too late.

"I was shocked," says Brandi Sveback, who learned of it only after the governor signed the bill. "For them to make a law to basically wipe out people's lives . . . You go into a home with the intentions of living there — you look for the government to assist you. Now, suddenly we owe the bank tons of money."


Until two weeks ago, things were pretty good for Arizona homeowners. Arizona is one of 20 states with "anti-deficiency laws," designed to protect homeowners from bankruptcy if they face foreclosure.

It would take a law degree and 10 years in the business to understand exactly how the new law changes the way things work. It doesn't completely gut consumer protections, but it raises a lot of questions about just how much those protections have been limited.

Here's how the law has worked: If a homeowner faces foreclosure, the bank can take back only the home — it can't seize assets such as retirement funds and businesses, even if the value of the foreclosed property represents only a fraction of the original mortgage. This essentially protects homeowners already facing financial difficulty from devastation.

With two short sentences, the new law, which goes into effect September 30, nullifies this protection for thousands of Arizona homeowners, leaving them vulnerable to be sued — and possibly bankrupted — by banks for the total cost of their original mortgage.

"Businesses, retirement funds, [the banks] can liquidate you," says Phoenix real estate attorney Jim Eckley, who has nearly 150 clients who will be affected. "It's ugly. It usually pushes an otherwise solvent family into bankruptcy; stripped clean and wiped out by creditors. And in most cases these are not the so-called bad guys taking advantage of the banks — they're ordinary, responsible trustees."

In order to qualify for protection under the new law, homeowners must occupy their house for six consecutive months. They also must have a certificate of occupancy, which shows the city has inspected the new home upon its construction.

No big deal, right? One problem is that some cities — including Mesa — don't issue certificates of occupancy. And many older homes in Phoenix and Glendale weren't issued certificates when they were built. Under the new law, people without certificates and facing foreclosure can be sued by banks because they don't have a piece of paper they never needed — until now.

For many, obtaining a certificate of occupancy is likely to require a full inspection by the city. That could prove costly for people already in dire financial straits who must foot the bill for expensive repairs on a home they're only going to lose to the bank anyway.

Additionally, there are many homeowners — winter visitors, landlords, people with second homes — who don't live on their properties for six consecutive months.

Worse, the law appears to be retroactive. When the change goes into effect this fall, it won't just hit people who take out mortgages from that date forward — it could impact everyone, even if you took out the mortgage on your home 20 years ago.

At this point, it's know difficult to know how the law will be enforced. And frankly, it's a tough time in Phoenix to get any answers. The city's nearly emptied out. None of the three Democrats on the Senate Finance Committee were available for comment; also unreachable: Barbara Leff, the committee's vice chair, or the three representatives for the banking industry who testified in favor of the bill before the committee. Governor Brewer's office did not respond to repeated requests for comment.

However, it wasn't difficult to get a hold of real estate attorneys and real estate agents to discuss the potential ill effects of the law. In fact, last Friday, the Arizona Association of Realtors asked Brewer to adopt an emergency clause to change the new law during the ongoing special session.

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26 comments
Kathy
Kathy

Since the New Times wrote an entire article but didn't bother to actually provide the law they were writing about, let me help (BTW, it isn't going to affect the deadbeats mentioned in the article at all, though I wish it would)

(with credit to the very nice and quite lovely Jeana Morrissey, a residential and commercial real estate attorney licensed to practice law in Arizona)

Ms. Morrissey who has declared bankruptcy and foreclosed on how many properties??? Talk about deadbeat....PLEASE...

TAYLOR SCOTT
TAYLOR SCOTT

Victims� Rights ComplaintGOVERNMENT OR LEGAL AGENCY(S) YOU ARE COMPLAINING AGAINST:State Senator Steve Pierce,Arizona Association of Realtors:Tom Farley

Wendy Briggs:Banking Lobbyist

Senate Finance Committee:Dean Martin, ChairmanJack Harper, Vice-chairmanRobert "Bob" BurnsKen CheuvrontJorge Luis GarciaGabrielle GiffordsRon GouldKaren JohnsonJay TibshraenyBarbara Leff, Vice Chair Representatives for the Banking Industry.

ALL THOSE WHO SERVE LOBBYISTS.FILE AN INVESTIGATION FOR BRIBERYALL TAX PAYING CITIZENS IN ARIZONA. PARTICULAR THOSE WHOM HAVE BEEN RIPPED OF BY THE MORTGAGE MELTDOWN CAUSED BY LOANS GIVEN TO THOSE WHOM COULD NOT AFFORD THEM IN THE FIRST PLACE BUT ALSO THOSE VICTIMS WHOM WERE FORCED INTO FORECLOSURE DUE TO LACK OF REGULATIONS AND LAWS. SOME PEOPLE WHO HAVE LOST JOBS DUE TO THIS CRISIS. THE MORTGAGE MELTDOWN STARTED THIS FINANCIAL CRISIS AND THE BANKS/MORTGAGE LENDERS/REALTORS/PROFESSIONAL REAL ESTATE INVESTORS WHO WERE ALLOWED TO PURCHASE MORE THAN ONE HOME WITH NO PROOF OF INCOME AND WALK AWAY WITHOUT CONSEQUENCES.

LET ME MAKE IT SIMPLE, IF YOU DO NOT QUALIFY FOR A $300,000.00 AND YET WERE GIVEN ONE BY THE FORE MENTIONED ABOVE KNOWING THEY WERE GOING TO FAIL AND GO INTO FORECLOSURE. WHAT DO YOU CALL THAT? IT IS INTENTIONAL FRAUD! THIS WHOLE MORTGAGE MELTDOWN WAS A SCAM FROM THE BEGINNING. A MODERN DAY PYRAMID SCHEME RIGHT BEFORE WALLSTREET"S EYES AND THEY ARE JUST AS GUILTY IF NOT RESPONSIBLE. THESE ARE EDUCATED PEOPLE, THEY WATCHED IT GOING ON AND LET IT HAPPEN BECAUSE THEY MADE MONEY. THE ONLY THING THE FOR MENTIONED ABOVE THIEVES DIDN'T COUNT ON WAS SO MANY WOULD FORECLOSE AT OUNCE AND CAUSE THE FORECLOSURE'S IN A MASSIVE WAVE. THE NEXT WAVE IS GOING ON NOW BUT WHAT IS TO COME IS THE BIGGEST WAVE OF ALL. 2011 WILL TAKE US BACK TO THE BEGINNING BUT WILL BE WORSE. WHY? BECAUSE MOST OF THESE LOANS WERE MADE IN 2006 WITH A FIVE YEAR FIX. THESE BANKS AND LENDERS AND MORTGAGE SERVICES (AURORA LOAN SERVICERS ALL KNOW THIS AND THEY ARE RACING TO SAVE THEMSELVES. THESE SENATORS HAD TO GET SOMETHING IN RETURN FOR ACCEPTING TO PASS SUCH A HORRIBLE IRRESPONSIBLE BILL SUCH AS THE (Senate Bill 1271) HOW STUPID ARE THES PEOPLE WHO ARE LEADING THIS COUNTRY???I EXPECT HANDCUFFS ON THE SENATOR AND HIS RESIGNATION IMMEDIATELY AND A FULL INVESTIGATION INTO HOW AND WHY A LAW WOULD PASS SO EASILY BY MANY SO CALLED EDUCATED MEN AND WOMEN. IT CAN ONLY BE BRIBERY!

Bribery is a crime implying a sum or gift given that alters the behavior of the person in ways not consistent with the duties of that person. It is defined by Black's Law Dictionary as the offering, giving, receiving, or soliciting of any item of value to influence the actions of an official or other person in discharge of a public or legal duty. The bribe is the gift bestowed to influence the receiver's conduct. It may be any money, good, right in action, property, preferment, privilege, emolument, object of value, advantage, or any promise or undertaking to induce or influence the action, vote, or influence of a person in an official or public capacity.It is a form of political corruption and is generally considered unethical. In most jurisdictions it is illegal, or at least cause for sanctions from one's employer or professional organization.Bribery around the world is estimated at about $1 trillion (�494bn) and the burden of corruption falls disproportionately on the bottom billion people living in extreme poverty.[1]For example, a motorist may bribe a police officer not to issue a ticket for speeding, a citizen seeking paperwork or utility line connections may bribe a functionary for faster service, a construction company may bribe a civil servant to award a contract, or a narcotics smuggler may bribe a judge to lessen criminal penalties.In some cases, the briber holds a powerful role and controls the transaction; in other cases, a bribe may be effectively extracted from the person paying it.Expectations of when a monetary transaction is appropriate can also differ: tipping, for example, is considered bribery in some societies, while in others the two concepts may be interchangeable. In Spanish, bribes are referred to as "la mordida" (literally, "the bite"), in middle eastern countries they are Backshish or Bakshish.The offence may be divided into two great classes�the one where a person invested with power is induced by payment to use it unjustly; the other, where power is obtained by purchasing the suffrages of those who can impart it. Bribery may also take the form of a secret commission, a profit made by an agent, in the course of his employment, without the knowledge of his principal.The level of non-monetary favours that constitute an incentive to unethical behaviour is variable and may constitute a matter of opinion in a given field:

warren
warren

We citizens of AZ have a much larger problem than the immediate crisis at hand-this perfect example of what's wrong with the AZ Legislative System. Major sweeping changes are needed to prevent these cowardly, lawmakers from conspiring with lobbyists & special interest groups of all kinds from having virtually unlimted power to pass whatever bills they feel are needed to protect their own selfish interests. It's unbeliveable that lobbiests can actually draft the legislation and have a Steve Pierce sign his name to it. And now, Mr Pierce wants his "bank lobbiest" bill repealed , but not because of public out crie, but because the Real Estate Lobby wants it repealed!

Paul Revere
Paul Revere

Ha Ha, the politician that drafted this law now wants it repealed. Told ya so. Stupid is as stupid does. Sorry big banks - Not in Arizona.

Jeronimo
Jeronimo

I'm not sure if ANY of you know this already, but banks/lenders ALREADY COULD come after you for the amount you owe them after they sell your house! This law just removes the part where they sue you in court for the remaining balance. It saves THEM money and, believe it or not, it saves YOU money. This way you don't need to hire an attorney to represent you as they sue you in civil court to recover the additional money you owe them. Relax people, and before you create hyperbole over this, next time talk to a licensed realtor before penning the story.

And it only applies to people who do not even live in the home at the time of foreclosure. So it only really affects the people who were trying to either "flip" their houses, or become mini "real estate investment tycoons". This law will not lead to anyone who lives in the home as a primary residence.

Paul Revere
Paul Revere

Marcy, and for this one example and most likely a minute collection of others, you'd allow big banking and our law makers to come in, sneak a law into effect by hiding it in the back pages of another unrelated law with literally a "midnight" vote? No offense or disrespect directed directly at you, but this is facist government at work. I understand you're willing to tolerate this kind of secrecy because obviously this law does not affect you directly, but what will you do when a law is changed that DOES affect you? Arizona and Arizonans used to be such a free-thinking territory and state, but now we're just a mass of uneducated and uncaring sheep being fleeced by facist thinking within our borders. Do you have any idea how free-thinking and pro-citizen our State Constitution and laws used to be? And how much we've unwittingly allowed our government to take away from us? That is the real import of the article and the real issues I have with this whole situation. This particular law will never survive and the lawsuits and costs that will be spent making sure that it is over-turned will be staggering. But, in the meantime, I would think you'd be bothered by this more. Are you not troubled by the 700 Billion buyout banks were handed, essentially wiping these so-called "bad debts" off the books? And now the banks are handing out BONUSES to CEO's and high officials in the MILLIONS and making profits despite our overall economy (e.g. see the 2nd Q profits Bank of America reported! - in the BILLIONS ! ! !) Banks now are empowered to go and seize the very properties for which they got their bad loans wiped out with the bailout. But, are you aware that banks do not even have to declare a "loss" on a foreclosed property until the bank actually "resells" the property? This is creating a so-called "shadow market" where banks will, in the future, be able to continue to artifically keep the housing markets suppressed by hanging onto empty homes for months, years and and releasing into the market when convenient - and how does that help banks you ask - they can keep the values down and with this new law go after OTHER assets to make up the "loss" difference between actual mortgage amount and foreclosed amount value and then when markets increase (which they have the greatest degree of control in moreso than any other entity) - turn around and sell the houses for a higher profit margin while keeping the OTHER assets seized ! ! ! (query - when the banks do do this, and they will, are they then ethically bound to go back to the homeowners they took to court and forced into BK and "make them more whole"?) Meanwhile they've crushed individual citizens who will now require government assistance - which you and I pay for - after we've paid for the buyout of course through taxes. And you see this as (1) fair, and (2) good for "Arizona"? These banks for the virtual most part, are not even headquartered in Arizona. This is a sad day again for Arizona and Arizonans. I think you've got a pretty short-sighted view on this whole issue Marcy, but nothing personal.

bds
bds

A note to Paul Revere:

Mr. Revere, the banks are at fault to be certain; however, the loan officers didn't use electrocution and water boarding to force people to use the loan products they offered.

Did the legislators pass the bill riding on an unrelated piece of legislation? Yes, and it happens all the time.

Should the banks be held to a higher standard of fiscal responsibility? Yes, they should--and I'm looking forward to seeing that happen.

Should people be required to honor their signature on the bottom of a contract and be held responsible for their actions--good or bad? Absolutely, and I can't believe it's even open for debate.

marcy
marcy

Paul Revere,

Brandi and her husband did a cash out refinance that put $60,000 in cash in their pockets.

Now they want to walk away and not pay it back.

That wasn't a loan to buy a house, it was lining their pockets with risk free money.

It certainly beats robbing banks in the risk/reward category.

Saw ir coming
Saw ir coming

I is unfortunate that it caught some by surprise. I did hear investors that were quite giddy about the number of houses they acquired without risk, because they were using "other people's money." Now it is their risk.

Mary
Mary

All of these legislators and the Governor should be absolutely ashamed of themselves. QUESTION: Which banks used their bailout money to purchase this piece of legislation from our so-called representatives. Does any news agency really want to get to the truth? Dare yah!!!!

Joe Curwen
Joe Curwen

So what's up with Marcy? Is he/she a moneylender with skin in the game, or just generally a heartless bitch? These are hard times. I'm waiting for her to ask whether there are any prisons or workhouses.

As for Mr. Pierce, I have a pretty good guess where his bread is buttered.

Paul Revere
Paul Revere

Sad how callous people can be - Issue isn't whether these folks are "deadbeats" or not - most probably are not but rather just innocent folk experiencing hard times and about to be crushed by banks. The REAL issue is just how stupid and naive the typical Arizona voter is! "If it doesn't affect me I'll let the government do whatever it wants!". Are ANY of you callous folks even remotely bothered by just HOW this "Law" that favors BANKS, Big and Small, came into exisitence? Snuck in with an unrelated criminal law bill! Banking has ruined this economy - not the folks who got the loans. Remember, it wsa the BANKS that made the worthless loans possible. And, it is the BANKS that now have their hands on $700 TRILLION dollars to bail themselves out - yet this isn't even good enough. The BANKS want to create a whole new class of impoverished population - all to satisfy the BANKS' greed. So sad the typical voter here in Arizona lets the law makers operate in a cloak of secrecy and darkness; and hilarious when these same voters scream "foul" when a law gets passed that affects them! Same what the County of maricopa got the $340 MILLION dollar Court house scam accomplished - hide the bill in the back pages of some other unrelated bill and the voters will swallow it, except this time the voters didn't even get a say; but the BIG BANKING INDUSTRY DID ! ! ! Sad that yet another "right" the People" had in Arizona gets taken away via BIG BANKING and greed. Sad indeed. But I suspect that with the inevitable class action lawsuits and constitutional challenges for ex-post-facto laws, etc., this yet another example of right wing pro big business and banking midnight law-making before a blind populace will cost even millions more to the taxpayers of this State. ANd before you hatemongers reply - just think about whats important to you and what you'll do when the government comes and takes that awy from you - will there be any left to stand beside you and defend what's valuable to you?

bds
bds

Explain to me, please, what has changed in Brandi's life that she could afford her mortgage six years ago, but can't now? Because, the implication of this for her is she and her husband must live in a house longer than they anticipated--not impending foreclosure and bankruptcy. Did Brandi overextend herself with credit cards? Did she finance or refinance her home using one of those suspicious and ridiculous arms allowing her to either buy a house way beyond her means or pull equity out of her house on the promise the real estate market would do nothing but go up, up, up? Was she speculating?

The bottom line is if Brandi or anyone else bought a home using a responsible financial approach to personal finances there is *no* problem. The only people impacted by this legislation are those people who gambled and lost and frankly I have hard time being sympathetic to those people.

If Chris and Brandi (and others) have lost their income in this horrendous job market and are now facing foreclosure and bankruptcy, then we need to offer our help in any way we can. It's tough for a lot of people. But, don't ask me to be sympathetic or be burdened with people who speculated, wanted to make an easy buck, didn't act responsibly and are now looking for another easy way out. They made their bed--let them sleep in it.

marcy
marcy

Since the New Times wrote an entire article but didn't bother to actually provide the law they were writing about, let me help (BTW, it isn't going to affect the deadbeats mentioned in the article at all, though I wish it would)

(with credit to the very nice and quite lovely Jeana Morrissey, a residential and commercial real estate attorney licensed to practice law in Arizona)

Beginning September 30, 2009, Arizona Revised Statutes � 33-814(G) will be changed to read as follows (the changes are in all capital letters):

If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling BY THE TRUSTOR UNDER THE DEED OF TRUST FOR AT LEAST SIX CONSECUTIVE MONTHS AND FOR WHICH A CERTIFICATE OF OCCUPANCY HAS BEEN ISSUED is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses. THE TRUSTOR IS RESPONSIBLE FOR DEMONSTRATING THAT THE TRUST PROPERTY WAS USED BY THE TRUSTOR AS A ONE-FAMILY OR A SINGLE TWO-FAMILY DWELLING FOR AT LEAST SIX CONSECUTIVE MONTHS.

max
max

They homeowners in this case are CRIMINALS!!

You borrow money you can't possibly pay back.. spend every last fucking cent of it.. then bitch when you are being held accountable!!

fuck that! pay the $100k back or go BK you dead beats!

marcy
marcy

Nobody signed a non-recourse loan contract unless the loan contract said "non-recourse".

States are permitted to change state laws, they are welcome to change how much property is protected in a bankruptcy, under what circumstances a creditor can garnish your wages, etc.

Changing those laws isn't unconstitutional. If you want a non-recourse loan then ask your lender to write a non-recourse loan. Good luck finding one.

Now if all these deadbeats would simply pay back their loans like they agreed to instead of stripping their houses and selling the doors the real estate "crisis" would end tomorrow.

marcy
marcy

The Sevacks claim they planned on saving money and moving to a larger house. They had a house payment of under $700/mo when they moved into their house.

They not only didn't save a dime, they borrowed an ADDITIONAL $60K. Maybe Brandi and her husband should explain why people who claim they were planning on saving instead lived the good life by borrowing and apparently spending an additional $60K over the past 2-3 years.

Responsible tax payers are going to be paying the cost of Brandi's decision to borrow and spend $60K and not pay it back.

I also doubt they will be left with a deficiency judgment of $100K. Their house, unless they trashed it, is easily worth $80-100K and they owe less than $150K (unless they've been doing like a lot of bums and living in the house without making ANY payment on it for months and months).

Steal $100 from your local Circle-K with a gun and you get 5-10 years in prison. Refinance your home, pocket $60K in cash and walk away and you expect sympathy.

Deadbeats.

marcy
marcy

Let's examine the case of Brandi Sevback and her husband. Their problem didn't arise from their purchase of a home and getting a loan for $84K in 2004.

Their problem arose when two years later they obtained a new loan for $148K and pocketed $60K and now don't want to pay it back.

I dearly hope the bank drives them into bankruptcy if they don't pay back the money they took.

marcy
marcy

Rubbish, the new law won't affect people who took out their mortgage 20 years ago because their mortgage would be 1/2 paid off after 20 years.

It will affect the many crooks would did cash out refinances and walked away from their house with a pocket full of cash and that's a good thing.

CooperG
CooperG

I'm so glad the Democrats were there to protect us from this disaster of a bill. Maybe this was one of those they didn't bother to freakin' read.

Derek
Derek

The City of Phoenix did not issue Certificates of Occupancy until 2000. I wonder what percentage of homes in Phoenix were built before then?

freedomrock
freedomrock

Seems like a setup for a big class action lawsuit to me. And that's if the law isn't declared unconstitutional first. It's basic that you can't change a contract after you sign it. If you signed what was a non-recourse loan when you bought the house, how can the state come in and change the nature of your loan? Besides, how does this help the real estate industry going forward? Prices will have to adjust (downward!) to account for the increased risk of losing it all in an unintended forclosure. Hmm...Somebody's sleeping with the banking lobby, and I doubt it's the homeowners!

Jim
Jim

PURE II DUCE STYLE FASCISM SUPPORTED BY THE NATIONAL SOCIALIST PARTY{NAZI}. Politics as usual!

Brian
Brian

Another great example of how the state government is easily influenced (with monetary donations) by the banking industry. The banks in AZ approved loans knowing that this is a non - recourse state. Now the are loosing money and decided to change the state regs to make it easier for them to crush a homeowner. All the time they are sitting on their federal bail out money, our tax money, which was given to them to help out the same people that they are trying to force into bankruptcy. What a joke!

Phillip
Phillip

Why are we electing these people? This is seting up the banks to carve up peoples lives. You just gave them the power to tear out the hearts and souls of hard working people caught in a mess; good job Johnny jackass!

I wonder how much they gave to his reelection fund?

 
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