Arizona Tenants Advocates & Association
Tenants Library
Articles written by Ken Volk

Stop Foreclosure Eviction
Averting a Rolling Disaster
Don't Foreclose Your Options

With the bursting of the housing market bubble, many Arizonan renters are finding themselves homeless through no fault of their own. It is becoming a common occurrence to arrive home one day to be served with a notice that the property is going to foreclosure auction, and that all residents will have to promptly vacate.

These situations are confusing and fraught with risks. I will attempt to identify some of the issues, and point out possible options.

Find that Darn Culprit

First and foremost, one should attempt to clarify who are the involved parties.

Normally, these predicaments arise not in multifamily apartment communities, but single family homes or townhouses owned by an individual or entity associated with an individual, such as a family trust or small limited liability company. One of the first steps is to determine who the owner was, and who the owner now is.

Contacting the county assessor can help one find out who has been paying the taxes, and the deed date by which the property was conveyed to that party. Usually, at least some of this information is available online. All county assessors in Arizona are required to also separately track rental properties, and in this way an actual responsible person can be named, along with an address and telephone number, and, if the owner is outside Arizona, a local statutory agent. Unfortunately, many times the rental properties are not so registered, or the information is outdated or incomplete.

Sometimes a landlord owns multiple properties, and can be located at one or more of the alternate addresses. Check your county’s website to see if it has such a search capability.

If the ownership entity is not a person or trust, one may be able to track down more details through the Arizona Corporation Commission or Secretary of State. This information is usually available online, although there may be many layers of ownership that work to obscure the name of and contact information for a real person.

Where Things Stand Now

More likely than not, the information available at the county level is not current. It may even be months old. One could physically travel down to the county recorder’s office to view legal filings, but that, too, may prove fruitless.

Foreclosures can occur through court proceedings whereby the lender files a notice of a pending lawsuit. Therefore, this record may prove to be a resource to determine the ownership party at any given time. However, some trust deeds permit the lender to directly sell the property upon the borrower’s having defaulted, and thereby avoid court action.

Another option would be to check with a title company, asking if it can search applicable records to find whether or not the property has been foreclosed, and by whom. A small fee paid for this service may reap much valuable knowledge.

One could try to swing a deal with the foreclosing lender, asking for leniency if you receive a notice to vacate. However, under A.R.S. § 12-1173.01, the lender has the right to boot out the tenant through the eviction process. But there is a caveat. If your lease chronologically preceded the mortgage, under A.R.S. § 12-1173.01(B) it may be superior to the lender’s interest, which could forestall an eviction and may actually give you other rights. If this is the case, you ought to consult a property rights attorney right away.

What About the Rent?

Certainly, one should determine who presently owns the property before paying any more rent. The last thing you want to do is pay the wrong party, such as the former landlord, and then find yourself alienated from the foreclosing lender by virtue of not meeting your payment obligation.

But perhaps it is in your interest not to pay anyone, at least for the time being. If the landlord no longer owns the property, and therefore is in no position to legally evict you for non-payment of rent, a calculated risk may allow you to effectively use up your deposits and prepaid rent up by living in the place rent free. This is all the more apropos given that the owner is probably not in any financial position to return your deposits, and indeed may well be considering bankruptcy.

So, consider this:As the foreclosure rate in Arizona is among the nation’s highest, and is growing fast, many lenders are barely able to attend to their immediate concerns, which are to recover losses by conducting a trustee’s sale. A little inattention may mitigate your financial damages. In fact, the lender might actually prefer to have the existing tenant in the property rather than leaving it vacant, subject to vandalism and/or being accessed by squatters.

Assuming benign neglect by the foreclosing entity, a cunning tenant might lie low, awaiting a five-day notice of nonpayment pursuant to A.R.S. § 33-1368(B). That notice could be months away. Then, upon being served with such a “pay or quit” notice, the tenant would have the choice to ante up the rent and prevent/stop the eviction proceeding, or just walk away. If you think walking away is best, be prepared to do so quickly and with all steps fully documented. Would the foreclosing entity bother to file a civil lawsuit after you have left? That is uncertain, but I would guess it has bigger fish to fry in its own field of business.

Should you decide, for whatever reason, to pay the rent, do not use a store money order. They often take six or more weeks to track, and because the courts generally do not accept a money order receipt stub as proof that you submitted the payment, if it is disputed you will either be evicted for nonpayment, or compelled to pay twice (and don’t hold your breath thinking you’ll later recover the excess payment through a lawsuit). Use a personal check or bank certified funds that are more readily tracked. Of course, always obtain a receipt for your rent payments.

Setting Your Sights High

Valuable research could unveil how much equity the owner has acquired in the property and, more importantly, how much remains due on the mortgage. If the property’s market value is substantially more than the mortgage balance, it might behoove you to make an offer to the foreclosing lender to directly purchase the property. If you can thus avoid the bidding process, thereby reducing the price, it might be in the best interest of both you and the lender. It would also be beneficial to the community, not only by retaining consistent occupancy of the premises, but also by transforming a rental into an owner-occupied property.

Tripling Your Deposit Due Back

Under A.R.S. § 33-1321(G), which governs security deposits, the holder of the landlord’s interest in the premises at the time of the termination of the tenancy is bound by this statute. I believe one could make the case that this would include the foreclosing entity.

Conversely, under A.R.S. § 33-1325, a landlord who conveys a property in a good faith sale to a bona fide purchaser remains liable to the tenant for any property and money to which the tenant is entitled under A.R.S. § 33-1321. Now, some might contend that a foreclosure is substantially differentiated from a sale, but, as a tenant, I would conversely argue that the jerk still has my deposit and prepaid rent monies and I want them back; and he should not be relieved of refunding what is due to me just because he failed to meet his other pecuniary obligations.

Who, then, to sue for return of these amounts (plus damages)? The liable party could be either, so bring suit against both and let the court decide. I sure like the idea of making claims against the bank, and succeeding!

The issues of security deposits are exhaustively addressed in my articles on security deposits and on refuting landlord claims. Read them. Suffice it to say, your claim, with statutory damages, could be thrice the amount wrongfully withheld. Just understand that accounting of this amount would need to reflect what you legitimately owe. So, if you used up your deposits in accrued rent arrearages, that could substantially reduce what you have coming to you.

Crisis and Opportunity

Whatever you do, avoid walking away from a foreclosed property. The bank may take you to task. If you want out, terminate your lease lawfully.

Yet, as much as one may feel victimized by an unforeseen foreclosure, there are possibilities to avert the worst, and maybe even turn it to your favor.

In addition, I do believe one progressive avenue would be to contact your state legislator, seeking enactment of protections for tenants and the communities they inhabit. Some ideas include mandatory advance notification of tenants that foreclosure may be pending (with substantive penalties for noncompliance), giving tenants the right of first refusal to purchase foreclosed properties on favorable terms, and clarifying that return of deposits and prepaid rent applies to foreclosed properties. If you have other suggestions, let me know.

Copyright 2007 by Kenneth Volk. All rights reserved.

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