The trend today for many is to opt for Arizona foreclosure properties before looking at anything else, but new laws are resulting in thousands of litigation’s that are leaving many destitute and without a clear deed to the property they thought they were buying. With passage of Senate Bill 1721 in July 2009 and a revision enacted in September, many are finding themselves facing years of lawsuits and appeals in the hopes of straightening out the whole mess.

When the Senate bill was passed it was found there was so much confusion and so many loopholes that few could figure out what it really all meant or how it was going to work. The revision was suppose to clarify the law but, in fact, has packed the courts with lawsuits that are leaving many destitute and without options. Additionally, since changes will be many years coming, new buyers of these properties are having second thoughts and for good reason.

Those promoting revision claimed that the current law was designed to protect those reselling a foreclosed home, such as a bank, from loosing money on the deal and making it harder to foreclose in the first place. However, the result was an interpretation of the law that allowed lenders to file a deficiency judgment against the property if the sale price was less than the debt owed. This addition not only left the former owners unprotected, but also placed a lien against the property so new owners were unable to resell until the old debt was resolved.

Another issue was confusion about residency. Although the law had a residence clause, with the revision it didn’t matter if someone resided in the property or not, it could still be sold out from under them. This also affected those absent from the property while on an extended vacation (30 days or more) or in the hospital in which case the property could be seized and sold if a payment was missed. It was up to the homeowner to prove residency, which was more difficult than at first thought. Additionally, this new revision did not explain whether all loans fell under these mandates or only those who were purchased after September 2009.

There are many issues associated with the new law that will take many years to sort out in appeals court. It is here that new laws receive interpretation, but so many judicial actions are now underway they may never sort it all out. The end result could be a repeal of the law that leaves lenders in financial straits, old owners permanently losing their property, and new owners not knowing where they stand. Eventually, new owners may find they have spent a ton of money and have nothing to show for it in the end.

Many fear the results of a repeal of the law, if it is deemed unconstitutional, since it may leave them in a far worse situation than they are currently in. New buyers may find they are in the worse position of all having bought a home that includes a lien for more than the value of the property and finding they may have to return it to the former owners in the end anyway without compensation. One example of how complex this can be is that it is unclear whether the lien placed on the property is indefinite or how it might affect a resale.

Unfortunately, courts are now being inundated with lawsuits and injunctions which are filed by lenders within 90 days of the sale of the property. They hope to eventually collect on the full value of the loan but, in the meantime, those who already couldn’t pay their mortgage payment are now faced with the cost of mounting a strong defense which could result in litigation lasting for years and costing thousands of dollars. For those who purchased one of these properties, they may find themselves in much the same position especially as those fighting the system and the law find new ways of reinterpreting it.

For those considering the purchase of foreclosed property, there are many legal questions that should be asked especially with the new Arizona foreclosure laws. As with any transaction of this magnitude, it is always best to work only through qualified real estate agents as well as with estate attorneys or other legal expert who can navigate the muddy waters of this complex legal mandate.

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