As a result of the national real estate crisis many Phoenix and Arizona homes remain underwater. The recovery has helped, but not enough to lift all homeowners into positive equity territory.
It has come to our attention in speaking with clients that many times people have ceased payments on a second deed of trust. Usually this was done as a matter of necessity to reduce living costs. A loan secured by a first deed of trust must be paid or the home will be foreclosed upon. However, a holder of a second deed of trust will seldom foreclose on an underwater property. So payments on the second loan can be stopped and often were stopped to obtain short term relief.
It is now eight years since the housing crash and we are finding individuals who have deeds of trust recorded against their homes where no payment has been made for years. In many cases, their homes are still underwater. If the old deed of trust could be eliminated, it could make the difference between having an underwater home or a home with substantial equity.
Arizona law can help where no payment has been made on a loan secured by a deed of trust for over six years.
A.R.S. §33-816 provides that:
“The trustee’s sale of trust property under a trust deed shall be made, or any action to foreclose a trust deed as provided by law for the foreclosure of mortgages on real property shall be commenced, within the period prescribed by law for the commencement of an action on the contract secured by the trust deed.”
A.R.S. §12-548 requires that an action on a contract in writing for debt must be commenced within six years from the time of default.
When foreclosure under a deed of trust is time barred, its continued existence can serve no purpose other than to wrongfully cloud a homeowner’s title. The deed of trust can be removed by a quiet title action. An Arizona Memorandum decision, Wood v. Fitz-Simmons (Ariz. App. 2010), indicates that the quiet title procedure can be used to remove an expired deed of trust and free up formerly encumbered house equity. A.R.S. §33-420 might also be helpful as it provides for the recovery of statutory damages, costs and attorney fees if an invalid lien is not removed within 20 days following a demand.
If you have a situation where you have not made a payment on a real estate loan for many years and the lender has not foreclosed, have us look at the circumstances. You might be entitled to remove the deed of trust and free up equity. But this analysis can be complicated. Under Arizona law any partial payment or even an acknowledgement of the debt by a promise to pay can start the six year statute of limitations running all over again and reinstate the lender’s right to foreclose.
The lawyers at Platt and Westby, P.C. have been practicing in the area of Real Estate Law for over 40 years. Our partners are experienced real estate investors and landlords. Contact any of our Phoenix Real Estate lawyers at 602-277-4441 or contact us to schedule a no-fee initial conference concerning any matter involving Real Estate. We will answer your questions and, where appropriate, suggest potential solutions.
Platt and Westby, P.C. has offices in Phoenix, Arrowhead, Avondale, Scottsdale and Gilbert, Arizona.