Tucson Land Use Law Blog : Tucson Land Use Lawyer & Attorney : Fleishman Law Firm : Tax Liens, Foreclosures, Zoning

A new federal federal task force, dubbed the "Residential Mortgage-Backed Securities Working Group" led by New York Attorney General Eric Schneiderman has sent subpoenas to the 11 largest financial institutions in the past few days as part of its investigation into possible residential mortgage-backed securities fraud. 

Attorney General Eric Schneiderman who was cast off the central negotiation committee of Attorneys General trying to crack down on several securitization issues related to the major banks, seems to be gaining a foothold in his attempt to forge his own settlement with the major banks outside the realm of the federal regulators and AG Tom Miller's crew. 

Schneiderman will be joined by Delaware AG Beau Biden, Massachusetts AG Martha Coakley, Nevada AG Catherine Cortez Masto, California AG Kamala Harris and Illinois AG Lisa Madigan, several of whom refused to bow to continued pressure to try and settle legacy issues surrounding the robo-signing scandal and other securitization issues.

It is very interesting that President Obama allegedly formed this task group, which he announced during his State of the Union address Tuesday.  President Obama has come under increasing pressure to do something substantive about the ongoing foreclosure crisis, which has not been curtailed in the slightest by the introduction of yet another acronym. 

U.S. Attorney General Eric Holder said 15 lawyers and investigators are working with the group. The FBI will add 10 agents, and another 30 lawyers and staff will join the group, along with the

The SEC will also participate. SEC Director of Enforcement Robert Khuzami said there "would be no stone unturned, no dark corner unexposed to the light."

Schneiderman, in a clear shot across the bow to the major banks commented: "We have jurisdiction to go after every aspect of the mortgage bubble and the crash of the financial market . . . We have jurisdiction over every MBS issued over the last decade with Delaware and New York joining the group."

Secretary of the Department of Housing and Urban Development, Shaun Donovan, has also made clear the investigation and ongoing settlement negotiation between other state AGs and mortgage servicers over foreclosure problems would be separate and any charges would not release the banks from liability in the robo-signing scandal.

"It became clear very quickly that Eric [Schneiderman] and I shared a vision that it would be a grave injustice to hold these institutions accountable and potentially have hundreds of billions be paid to private investors and pension funds but not make sure homeowners who hold those loans who depend on being able to get those loans fixed to be able stay in those homes," Donovan said.

Iowa Attorney General Tom Miller, who has been heading up the mortgage servicer investigation, has said the resulting settlement would not release the banks from securitization or lending liabilities.

This is going to produce a very interesting political sideshow as AG Tom Miller tries to keep his band of AG's together, while Schneiderman forges ahead with the new found support of the Obama administration, which it seems only recently, was looking to help the major banks and servicers find a quick settlement to documented abuses that have been alleged by the AG's for some time now. 

The task force represents the Obama administration’s attempt to address complaints from the "Occupy" part of his constituency that it has simply failed to address the housing crisis or bring banks to account for causing it through subprime home loans that were repackaged and securitzed and sold to investors. Critics correctly point out that the Obama administration's attempts to solve the problem through government-sponsored refinancing programs and gentle begging to the banks, have been ineffective.  This is going to be a campaign issue and if the Obama administration is not going to try to spin, the Republicans certainly will.  It has been over three years since the credit crunch in earnest and the housing market had started its full-force downward spiral, and little has changed.  Not surprising to see yet another attempt by the administration to try and appease another part of the base. 

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Arizona Attorney General Terry Goddard announced that on December 17, 2010, his Office filed a lawsuit against Bank of America and its affiliated companies  alleging violations of the Arizona Consumer Fraud Act and violations of the consent judgment entered in March 2009 between Arizona and the Countrywide companies owned by Bank of America.

The lawsuit, filed in Maricopa County Superior Court, was triggered by hundreds of consumer complaints and follows a year-long investigation into Bank of America’s residential mortgage servicing practices, particularly its loan modification and foreclosure practices.

Goddard stated that Bank of America, the nation’s largest residential mortgage loan servicer, should be leading the way out of the country’s foreclosure crisis. Instead, he said, “Bank of America has been the slowest of all the servicers to ramp up loss mitigation efforts in response to the housing crisis. It has shown callous disregard for the devastating effects its servicing practices have had on individual borrowers and on the economy as a whole.”

The complaint asks the court to hold the defendants in contempt for violating the consent judgment and to order them to pay restitution to eligible consumers and civil penalties, attorneys’ fees, and costs of investigation to the State. It further asks the court to order the defendants to pay up to $25,000 for each violation of the consent judgment and up to $10,000 for each violation of the Arizona Consumer Fraud Act.

Goddard noted that Arizona has been particularly hard hit by the foreclosure crisis, as evidenced by recent reports ranking the state second behind Nevada in foreclosures. Nevada plans to file a similar lawsuit against Bank of America today.

The consent judgment was entered into on March 13, 2009 to resolve the Attorney General’s allegations that Countrywide had engaged in widespread consumer fraud in originating and marketing mortgage loans. In the judgment, Countrywide agreed to develop and implement a loan modification program for certain former Countrywide borrowers in Arizona. Bank of America acquired Countrywide on July 1, 2008 and has assumed responsibility for Countrywide’s compliance with the consent judgment.

The complaint filed today alleges that, since the consent judgment was entered, Bank of America has repeatedly violated the judgment’s provisions related to loan modifications. Instead of providing the relief to which eligible homeowners were entitled, Bank of America has failed to make timely decisions on modification requests and proceeded with foreclosures while modification requests were pending in violation of the agreement.

The complaint also alleges that Bank of America has violated the Consumer Fraud Act by misleading Arizona consumers about its loss mitigation process and programs, including matters such as:
• Whether homeowners must be delinquent on their mortgage payments to be considered for a loan modification.
• How much time it would take to receive a decision from Bank of America on a modification request or a short sale request.
• Whether foreclosure would proceed while a modification or short sale request was pending, or while a homeowner was making trial payments.
• Whether the homeowner had been approved for a loan modification.
• Failure to provide valid reasons why the homeowner was declined for a modification.
• Whether the homeowner would be approved for a permanent modification if the consumer successfully made all trial modification payments.

As a result of Bank of America’s deceptive practices, many homeowners who were already contending with other financial hardships have been led to unnecessarily deplete their dwindling savings in futile attempts to obtain the promised relief and save their homes. Many homeowners who tried to obtain a modification from Bank of America ended up owing more principal on their loans or having less equity (becoming more “underwater”) in their homes. Others gave up their chances to pursue other financial options, such as short sales, while trying to modify their loans with Bank of America. These consumers endured months of frustrating delays, not knowing whether or when they would lose their homes. They called Bank of America and resubmitted their paperwork over and over again in futile efforts to get the help they were promised.

“I am filing this lawsuit today because, after years of delay and broken promises, Arizonans should not have to wait any longer to seek redress,” Goddard stated. “Our homeowners and communities need and deserve relief. Bank of America must be held accountable for its deceptive conduct and failed commitments.”

For anyone in the front lines of the foreclosure debacle, this should come as little surprise.  The Attorney's General's lawsuit joins many across the country seeking class-action status, alleging that Bank of America regularly falsely informs borrowers that it did not receive requested information and demands that documents be re-sent.  Bank of America is not exactly alone here.  The entire loan modification "extend and pretend" system is flawed and implicitly intended to allow servicers of loans the opportunity to make more money while stringing people along with the false hope that they will receive a permanant loan modification.

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The Federal Housing Finance Agency, which has served as the conservator of Fannie Mae and Freddie Mac since 2008, is looking to recoup on serious losses that the government sponsored entities have suffered as a result of their heavy purchases of mortgage-backed securities during the hey days of the real estate bubble.  The FHFA has hired Quinn Emanuel Urquhart & Sullivan LLP, a large law firm out of L.A. and has issued sixty-five subpoenas to various banks.  The probe is focused on private-label securities that were originated by mortgage companies, packaged by Wall Street firms, and then sold to investors.  This has the potential to throw open the floodgates of litigation against originators of loans who securitized these loans and sold them to investors like Fannie Mae and Freddie Mac. 

With the financial backing of the US government and a large LA law firm set to push forward, the stage is set for a serious inquiry into the originating and securitization practices of many institutions.  Quoting Joshua Rosner of Graham Fischer & Co, the Wall Street Journal recently reported if the FHFA is successful in proving that loan files didn't meet underwriting standards or that their ownership chain wasn't properly transferred during the securitization process, that could pave the way for other investors to make similar challenges. 

Fannie and Freddie were two of the largest investors in mortgage backed securities during the height of the real estate bubble.  "Those securities were often backed by subprime loans and mortgages that required little or no documentation of borrower incomes, which deteriorated sharply once home prices fell."  Indeed, Fannie and Freddie purchased $227 billion of bonds backed by subprime and other risky loans in 2006 and 2007. 

In the end, they paid the price for trying to keep pace with the returns that investment banks and retail banks were making, all of which led to the financial crisis in 2008.  Once again, the US taxpayer is on the hook for those losses, which the FHFA is now trying to recoup.  However, some analysts are saying that FHFA is going to have a hard time proving that Fannie and Freddie, which "touted their unparalleled mortgage-market expertise," didn't know what they were buying.  Either way, the new associates at Quinn Emanuel are going to have plenty to do in meeting their 2000+ hour billable requirement and the US taxpayer paying dearly for those new associates.

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In one of my prior blog posts (April 6, 2010 - "Tax Lien Foreclosure: Ready, Willing, and Able to Redeem"), I wrote about an unpublished Memorandum Decision from the Arizona Court of Appeals, Division 2 - Leveraged Land, Montgomery, v. Hodges, 2 CA-CV 2009-0057.  In that Decision, the Court overturned a default judgment that a tax lien investor had obtained through service by publication in a newspaper, which restored the owner of record's ability to pay off the delinquent property taxes.  Service by publication is often the only way to notify someone about a pending lawsuit, because in many cases all efforts to personally serve someone prove unsuccessful.  Because service by publication is not the preferred manner of serving defendants, the courts allow a default judgment that is obtained through serving a defendant by publication to be challenged for up to a year after the judgment is obtained. 

In the Leveraged Land case, even though service by publication was warranted, the Court, based on prior precedent, ruled that the owner of record, because he was ready, willing, and able to pay off the tax lien, should be entitled to do so.  Additionally, the Court ruled that the tax lien investor must understand that any default judgment obtained through service by publication is open to attack for up to a year, and the fact that the tax lien investor later decided to sell the property to a third-party before that time period had run was their own fault.

The Arizona Court of Appeals recently issued a written Opinion stemming from the same litigation.  In this set of appeals, the Court was faced with two primary issues on appeal: (1) were Appellants Raven II Holdings, LLC ("Raven"), Hanna 120 Holdings, LLC ("Hanna"), and Bingham Arizona Land, LLC ("Bingham"), the subsequent purchaser of the property from Leveraged Land, LLC,  "bona fide purchasers" of the property that was the subject of the tax lien foreclosure case? and (2) was Leveraged Land entitled to recover all of its attorneys' fees under A.R.S. Section 42-18206. 

A "bona fide purchaser" is used to refer to one who purchases property for value with notice.  Regarding the issue of whether Raven, Hanna, and Bingham were "bona fide purchasers," the Court held that because Leveraged Land properly recorded the Treasurer's Deed and the Default Judgment was attached to it, all subsequent purchasers were given "constructive notice" that the Default Judgment was subject to legal challenge, and "the risk of disruptions to any subsequent conveyances of the foreclose property fell squarely on" Leveraged Land and its successors.

Leveraged Land appealed the trial court's award to it of attorney's fees in the amount of $1,500.00. The trial court ruled that the amount of attorney's fees that Leveraged Land requested was "unreasonable," though it provided no basis for such a determination.  Leveraged Land argued on appeal that such an award was arbitrary and had no reasonable basis, especially when it had already been determined by the Court of Appeals that service was done correctly, thus entitling Leveraged Land to recovery of its fees if the owner of record later redeemed, which is what Hodges did in this case.  Hodges, who was permitted to redeem the tax lien, argued that Leveraged Land was not entitled to attorney's fees it incurred in opposing his redemption.  The Court ruled that, over a dissenting opinion, a plain reading of A.R.S. 42-18206 leads to the conclusion that Leveraged Land is entitled to recover its attorney's fees even if it was eventually unsuccessful in its appeal on the issue of whether Hodges was entitled to redeem the tax lien.  The Court of Appeals, ruling that the trial court had abused its discretion, has remanded the case back to the trial court for a determination of the amount of attorney's fees that Leveraged Land is entitled to.

One has to wonder just how much the subject property was worth in order to justify the level of expenditures in the underlying case, which resulted in three different appeals.  In the end, the Court of Appeals made it clear that A.R.S. Section 42-18206 is unambiguous and permits a party to recover its attorney's fees if the owner of record redeems a tax lien after proper service of process, and will leave it to the trial courts to determine what fees are "reasonable."  

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The Arizona legislature, probably with some good ol' vested interest prodding, provides a nice little mechanism to insulate tax lien investors from some of their down-side risk.  Under A.R.S. Section 42-18206, any person who redeems a tax lien after they have been personally served with a complaint seeking to foreclose their right to redeem then becomes responsible for the costs and reasonable attorney's fees that the investor instituting the action incurred.  Sometimes it is very difficult to get the owner of record or any other interested party in a given parcel, subject to a tax lien,  personally served.  Indeed, sometimes it is not possible to effect personal service in the way we normally think of people getting served - a process server handing the lawsuit to the person - because they are evading service or cannot be located despite diligent efforts.  Consequently, a person sometimes must be served by publishing a copy of the summons in a newspaper for four weeks in the county that the person is believed to live in and the property is located. 

In Richie v. Salvatore Gatto Partners, Division I of the Arizona Court of Appeals faced the legal question of whether an award of attorney's fees and costs under A.R.S. Section 42-18206 may be triggered by initiating service of process via publication or is available only after completion of the publication process under the Arizona Rules of Civil Procedure.

The appeals court ruled that the entitlement to an award under the statute requires completion of service.  The court reasoned that because the redemption occurred before the conditions to perfect service by publication were met, service of process was not actually complete.  Merely initiating service, but not completing service was not sufficient for an award of fees.   

I find it hard to believe that the trial court ruled the other way on this one.  It seems pretty clear that you need to actually complete service before you are entitled to fees. 

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University of Arizona College of Law Professor Brent T. White has stirred quite a bit of controversy over his recent article in the Arizona Legal Studies entitled "Underwater and Not Walking Away: Shame, Fear and the Social Management of the Housing Crisis."  

His basic thesis is that despite the increasing number of homeowners walking away from their underwater mortgages, most homeowners continue to try and hold on to their homes even when it does not make economic sense to do so.  He suggests that homeowners choose to try and hold on to their homes to avoid the shame and guilt of foreclosure and because of the  "exaggerated anxiety" over the perceived consequences of a foreclosure created by "social control agents."  In short, he believes that underwater homeowners (in Arizona and California) are not knowingly making bad choices, they just can not "cognitively grasp" that they would be better off financially by simply walking away.  At the end of the day, argues White, many more underwater homeowners should be walking away from their mortgage obligations. 

As a justification for his thesis, White suggests that the "norms governing homeowner behavior stand in sharp contrast to norms governing lenders, who seek to maximize profits or minimize losses irrespective of concerns of morality or social responsibility. This norm asymmetry leads to distributional inequalities in which individual homeowners shoulder a disproportionate burden from the housing collapse."  

White argues that there are costs associated with walking away, but they are not outweighed by the financial benefits of a "strategic default."  While White's thesis is controversial, as it applies to Arizona borrowers, he is correct.  Arizona's anti-deficiency laws are incredibly broad and protect the large majority of borrowers who are now trying to keep pace with a subdivision home that is severely underwater.  Arizona's anti-deficiency statute (A.R.S. Section 33-814(G)) prevents lenders from pursuing a deficiency (the difference between the amount owed by the borrower and the price bid at a trustee's sale) against the borrower.  While a borrower's credit rating will undoubtedly take a severe beating from a foreclosure and the borrower may have to wait several years to obtain a federally guaranteed loan, for many underwater borrowers, the calculus leads to the undeniable conclusion that walking away makes the most financial sense. 

As for the moral aspect of walking away, White reasons that the overriding message to borrowers is that they have a moral responsibility to pay off their obligation.  White counters this message by pointing out that lenders are operating amorally according to market norms and could have acted to protect themselves by following prudent underwriting practices.  White's final point is that  "it is time to take morals out of the picture and search for an equitable solution to the negative equity problem."  While White is correct in many respects, had lenders and borrowers employed a stronger sense of morals when it came to underwriting and borrowing, we might not have experienced such a severe market bubble and attendant bust. 

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It seems that the small glimmer of hope that everyone is hoping for in the housing market is not likely to come anytime soon.  Mathew Padilla has posted an excellent blog article discussing that the discussion of another wave of foreclosure implies that the current wave has already receded.  Sam Khater, a senior economist with First American CoreLogic has stated: “To say there is a second wave implies the (current) wave has receded . . . I don’t see that the wave has receded.”

Call it what you will, the next foreclosure wave to hit will largely involve Pay Option ARMs.  Pay Option ARMs are adjustable rate mortgages on which the interest rate adjusts monthly and the payment adjusts annually, with borrowers offered options on how large a payment they will make. The options include interest-only, and a "minimum" payment that is usually less than the interest-only payment. The minimum payment option results in a growing loan balance, termed "negative amortization."  As Long and Foster's Ron Sitrin recently commented: because these loans "had negative amortization for so long, they can't refinance out of them and they cannot sell them because the loans are worth more than the properties themselves."

For the most part the expensive gated communities have avoided the impact of the current foreclosure wave, but its job loss consequences are coming home to roost in the upper income brackets.  This graph puts the Pay Option ARM problem in stark terms: 

As a recent post on Dr. Housing Bubble stated: "The Pay Option ARM is one of the most poorly construed mortgage product ever to face this planet. It was a pathetic attempt to allow a larger majority of Americans to have a piece of the great American credit ponzi scheme."  How's that for upbeat? 

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On May 20, 2009, President Obama signed into law Senate Bill 896, also known as the "Helping Families Save Their Homes Act of 2009."  Section 702 of that Act - the "Protecting Tenants at Foreclosure Act" is very broad in scope and affects the ability of the new owner of certain foreclosure property (including Section 8 properties) to take immediate possession of that property. 

The new Act has effectively mandated a tenant-friendly "non-disturbance clause", common in commercial leases, into the residential landlord-tenant world.  The Act now requires landlords to provide tenants residing in foreclosed residential properties to be provided 90 days advance notice to vacate the property.  However, except where the purchaser intends to occupy a given property as the primary residence, the terms of any bona fide lease remains in effect.

A lease or tenancy must meet the following requirements to be a bona fide lease: (1) The tenant cannot be the mortgagor or the child, spouse, or parent of the mortgagor; (2) The lease or tenancy must be the result of an arms-length transaction, and; (3) The rent required under the lease cannot be substantially less than fair market rent for the property or the rent is subsidized by a Federal, State or local subsidy. 

This is a watershed change in the law and now provides residential tenants protections that, though common in commercial leases, rarely have been seen in the residential context.  It also brings the law a small step closer to the long-past English feudal system of attornment, whereby a a new landlord had to obtain the consent of the tenant before becoming the new landlord.  Such a system was abolished in 1705, but it is clear that the pendulum is swinging towards tenant protections.  In light of the massive foreclosure wave that has swept this country, it is not surprising to see such a change.  A lot of unsuspecting tenants were left holding the bag after their landlord lost the property to foreclosure.  For what it is worth though, such a change is temporary.  The Act sunsets at the end of 2012. 
 

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As the foreclosure wave has grown into a tsunami-like crisis, advocacy groups such as the Association of Community Organizations for Reform Now (ACORN) have taken to the streets in campaigns to lobby legislators about implementing new regulations that will help stem the foreclosure crisis and curtail predatory lending.  When I left the Pima County courthouse yesterday, there was an ACORN protest taking place at the same time that a Trustee's Sale was going on.  An interesting contrast between ACORN's bullhorn calls to action and the trustee calling out bids. 

Unquestionably, the foreclosure epidemic has resulted in some very impassioned debate as to whether and how the government should act.  Rick Santelli's recent rant highlights just how impassioned this debate has become.  While Santelli's rant has garnered much of the media hype, Stuart Varney's recent interview with ACORN's Bertha Lewis demonstrates just how zealous some people have become at the prospect of the government aiding struggling homeowners, who many view as irresponsible.  Varney was incredulous at ACORN's suggestion that people on the verge of foreclosure should stay in their homes.

As always, the foreclosure epidemic is far more nuanced than many of the talking heads are willing to discuss.  Predatory lending certainly was in force and many people were not informed of what they were getting into.  Likewise, many, many people bought far more home than they could ever afford.  Only time will tell whether massive government intervention or the force of the market will prevail. 

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RealtyTrac just released its 2008 U.S. Foreclosure Market Report, which reported that there were a total of 3,157,806 foreclosure filings (default notices, auction sale notices, and bank repossessions) on 2,330,483 properties during 2008.  That was an 81 percent increase over 2007 and a 225 percent increase over 2006.  To get a feel for the breadth and scope of just how serious the foreclosure Juggernaut is, take a look at this map to see just how hard hit certain parts of the country were in 2008.

Arizona reported the third highest foreclosure rate of all states in 2008.  4.49 percent of all housing units in Arizona received at least one foreclosure filing during the year.  Indeed, 116,911 properties in Arizona received a foreclosure filing, which also put Arizona third for total foreclosure filings.  Amazingly, foreclosure activity in Arizona during 2008 increased 203 percent from 2007 and 665 percent from 2006.  That last percentage far surpasses the two top foreclosure activity states - California (412 percent increase since 2006) and Florida (412 percent increase since 2006).  

Not surprisingly, Pinal and Maricopa County were particularly hard hit.  The Phoenix metropolitan area reported 97,684 foreclosure filings in 2008, an increase of 220.77 percent from 2007.  That put the Phoenix metropolitan area fifth on the top 100 metropolitan areas, which is fairly consistent with its metropolitan population ranking.  The Tucson metropolitan area reported 9,043 foreclosure filings in 2008, an increase of 113.33 percent.  The Tucson metropolitan area ranked 37th on the top 100 metropolitan areas, which is again fairly close to the Tucson metropolitan population ranking. 

The burn-off of the Arizona housing bubble seems to be gaining momentum faster than the meteoric rise in real estate prices.  For example, take a look at the graph of median home prices in Phoenix between 1989 and 2009.  Look at the incredible bell curve between about 2005 and 2008.  The scary thing that some commentators are noting, is that while the bell curve has basically been erased and median prices are near 2004 levels, the current inventory of homes is far greater than 2004 levels, not to mention, it is much more difficult to qualify now.  Looks like we may not hit a bottom for a while yet.  The bubbly hangover may be more painful than the euphoria of the upswing, eh? 

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So a borrower defaults under a promissory note and the deed of trust.  Normally, the lender in that circumstance will exercise the power of sale clause in the deed of trust and begin the foreclosure process by noticing a trustee's sale.  However, the lender may also choose to call the note due and accelerate the entire amount and proceed with a judicial foreclosure.  Most lenders choose to go the trustee's sale route because it is faster and cheaper than a judicial foreclosure. 

What I recently discovered, is that many attorneys do not know about a borrower's statutory right of reinstatement and how that right applies in the context of both a trustee's sale and a judicial foreclosure.  Under Arizona Revised Statute Section 33-813(A), the trustor under a deed of trust (borrower) may reinstate (or cure the default under the promissory note) by paying the lender "the entire amount then due . . ., other than the portion of the principal as would not then be due had no default occurred . . ."  In other words, the borrower only needs to come up with the amount he or she is in default, not the entire amount due under the promissory note.  Nonetheless, many lenders' attorneys seem to believe that if the lender calls the promissory note due and exercises its right to accelerate the promissory note, the borrower must immediately pay the entire amount owed under the promissory note in order to cure the default, not just the defaulted amount. 

However, in Chapparral Development v. RMED Intern, 170 Ariz. 309, 823 P.2d 1317 (App. 1991), the Arizona Court of Appeals ruled that under A.R.S. Section 33-813(A), a trustor has an absolute right to reinstatement whether a lender chooses to foreclose by means of trustee's sale or a judicial foreclosure.  The difference being, if a lender chooses to pursue judicial foreclosure, a borrower's statutory right of reinstatement is cut off once the lender files the judicial foreclosure action and the borrower will have to pay the entire amount owed on the promissory note.  On the other hand, in the context of a trustee's sale, the borrower can reinstate up until 5:00 p.m. the day before the date of the trustee's sale.  But once the trustee's sale has been held, that right of reinstatement is extinguished.

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Under Arizona Revised Statutes Section 42-18202, a tax lien investor who wants foreclose the right of a property owner to redeem a tax lien is required, among other things, to send a notice of intent to file a foreclosure action by certified mail to the owner of record.

In 2005, the Arizona legislature amended Section 42-18202 by adding subsection C, which states: "If the purchaser fails to send the notice required by this section, the purchaser is considered to have substantially failed to comply with this section. A court shall not enter any action to foreclose the right to redeem under this article until the purchaser sends the notice required by this section."

A recent case from the Arizona Court of Appeals - DuPont v. Reuter - addressed the issue of what it means to substantially fail to comply with Section 42-18202.  In DuPont, the tax lien holder sent the owner of record the required statutory notice of intent to foreclose, but failed to send the notice by certified mail.  The tax lien holder subsequently obtained a default judgment and a Treasurer's Deed.  The trial court later ordered that the Coconino County Treasurer cancel the issued Treasurer's Deed. 

The Court of Appeals reversed the trial court's orders and the judgment, holding that the requirement to serve the notice of intent to foreclose by certified mail was not jurisdictional.  Relying on Section 42-18101(B), the Court of Appeals reasoned that an insubstantial failure to comply with each and every element of the tax lien and foreclosure statutes does not preclude a tax lien holder's ability to foreclose.  In the end, the Court of Appeals held that sending a notice of intent to foreclose by regular mail instead of certified mail was an "insubstantial failure" and did not automatically void the judgment and the issued Treasurer's Deed.

In contrast to the recent Court of Appeals decision in Roberts v. Roberts, here, the Court of Appeals seems to have grasped that the stated objective of the tax lien statutes is to secure the payment of unpaid delinquent taxes by preserving and enhancing the marketability of tax liens and Treasurer's Deeds, which is essential to the maintenance of county government. 

The DuPont case frankly amazes me.  Here you have a property owner that was willing to pay what likely amounted to tens of thousands of dollars to an attorney to fight for a property that the same owner had effectively forgotten about.  The property owner in DuPont admittedly received notice that the tax lien owners were going to foreclose on the property.  However, instead of paying off her back taxes, the property owner was willing to fight out the issue of whether she should have received notice by certified mail instead of regular mail.  This woman had been delinquent on her property taxes for over thirteen years, and the delinquent taxes totaled some $240,000.  Coconino County certainly could have put that money to good use.  In the end, the property owner in the DuPont case, like property owners generally, have to take some level of responsibility in the care and ownership of property, which includes paying property taxes.  The legislature has clearly codified a system in which an insubstantial failure to strictly follow the tax lien foreclosure rules will not prevent a tax lien investor from obtaining a Treasurer's Deed to any given property.

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