9/21/2013 4:25:00 PM Court: Arizonans can keep foreclosed home during appeals process
Howard Fischer Capitol Media Services
PHOENIX -- Arizonans who lose title to their homes in foreclosure actions are legally entitled to stay while they appeal, the state Court of Appeals has ruled.
In a precedent-setting decision, the judges rejected arguments by a bank that once it gets title to the property it can automatically evict the owners.
Instead, the judges said that title to the property and eviction are two separate legal issues. More to the point, they ruled that property owners are entitled to the same protections as tenants who appeal an eviction in a landlord-tenant dispute.
The ruling is not a license for those who default on their mortgages to remain indefinitely and without cost. The homeowners seeking to remain have to post a bond.
But an attorney for the couple involved in this case that should equal no more than each month's market rent. And that, he said, is most likely to be less than the mortgage payments that the owners could not meet.
The case involves Michael and Jennifer Grady who in 2008 executed a promissory note secured by a deed of trust on their home. The property went into default and last year Tri-City National Bank purchased the property at a trustee's sale and received a deed for the property.
When the couple refused to vacate the property, the bank brought an eviction action against them in Maricopa County Superior Court. The couple objected, raising several issues dealing with the underlying sale of their interest in the property under the deed of trust.
When court Commissioner Michael Barth ruled in favor of the bank, the couple sought to stay their eviction while they appealed. But Barth said state laws and court rules on eviction allowing someone to remain apply only in landlord-tenant disputes.
Judge Patricia Norris, writing for the appellate court, said that's not true.
She said the Arizona Supreme Court, in a 1982 decision, concluded that tenants who are fighting an eviction are "entitled to possession pending appeal.' The only condition, Norris said, is the tenants have to post a bond "sufficient to cover rental value and all damages, costs and rent.'
Norris acknowledged that the Gradys are not tenants in the same sense as fighting with a landlord. Instead she said they are "tenants at sufferance,' a term applied when someone who at one time had lawful possession of a property refuses to vacate after that interest is terminated.
But Norris said that, ultimately, that makes no difference.
She said Arizona's eviction statutes, which date from territorial days, has always authorized eviction actions against "a tenant at will or by sufferance ... who wrongfully retains possession.' She also said a 1913 law spelled out procedures for a stay.
And Norris said the Legislature expanded when eviction actions can be filed two years after that 1982 ruling to specifically include incidents where a property is sold at foreclosure.
"It would be illogical, and contrary to the purpose of that expansion, to ... carve out different rules for stays,' Norris wrote.
The appellate court sent the case back to Barth to decide what bond would be appropriate. A hearing is set for this coming week.
Attorney Kyle Kinney, who represents the couple, acknowledged that the decision could be used by homeowners who are simply dragging their feet. But he said that is not the case here.
He said the Gradys filed a claim in federal court under Truth in Lending statutes saying that the lender did not disclose to them everything that is required under that statute.
"If certain disclosures aren't made, then the homeowner has a right to rescind the deed of trust,' Kinney said.
"That deed of trust is the document that gives the bank the right to foreclose if there's a default of payment,' he explained. "And so if you rescind the deed of trust, there's no right of foreclosure.'
Kinney said the federal court did not side with his clients. But he said the couple has other legal issues that he believes could undermine the bank's foreclosure, which is why the Gradys want to remain in the house as long as they can.
One, he said, is a requirement in Arizona law that lenders, before a notice of foreclosure, must send a letter to homeowners explaining their options.