Free Arizona State Statutes on Foreclosure Process Essay Sample
A foreclosure is a situation where a homeowner is unable to make payments on the mortgage taken for acquisition of a property which forces the lender to take the possession of the property and sell as stipulated in the mortgage agreement. The foreclosure process involves the legal proceedings initiated by the lender in order to take possession of the property pledged as collateral securing the defaulted loan. There are some states which practice strict foreclosure that allows lenders to reclaim the property by simply declaring that the borrower has defaulted. However, several states require the lender to file a foreclosure suit and obtain a ruling that allows them to take possession of the property. In this essay we examine the Arizona State Statutes on the foreclosure process.
The Arizona State Legislature has title 33 containing legislation on the property. Under this legislation, chapter 6 contains the mortgage legislations. Furthermore, this chapter has legislation on foreclosures contained in article 2 and is broken into several sections. The first section of this legislation is that a foreclosure can only be made through a court action notwithstanding any mortgage agreement. This means that the lender should first file a foreclosure suit which should be heard and determined. The second sections states that in a situation where both an action on debt and a foreclosure are brought before the court then the plaintiff should choose one of them and the other shall be dismissed. This means that the courts allow only one action and as such an election must be made (Arizona State Legislature, 2007).
The third section provides for the right of junior lien holder upon foreclosure action by a senior lien holder. This means the junior lien holder shall be entitled to his interests in the property and the senior holder may pay the amounts secured including the interest so as to continue with the action. The next section provides for situations where the state is party to the foreclosure actions. This clause clearly provides for the state being made party to an action whenever it claims any estate, interest in or lien. Moreover, this clause states that whenever the state is made defendant then the summons and complaints must be served the attorney general who investigates and gives the verdict whether it is worthy for the state to hold or release such a property from such a lien (Arizona State Legislature, 2007).
The fifth section of the legislation provides for the judgment of foreclosure, its contents and the sale of the property. This means that the court should clearly state the facts of foreclosure by determining all the amounts due as well as means of debt recovery by the plaintiff. Also, the statutes provide for redemption of property by payment to the officer directed under foreclosure judgment to sell the property. Moreover, provides for sale under execution, the actions to be taken in the event of deficiency, order of liens and writ of possession. This section ensures that the selling execution meets judgment conditions (Arizona State Legislature, 2007).
The eighth section of the foreclosure indicates that the county recorder should record that a mortgage is foreclosed and judgment satisfied. In addition, there is a statute providing for the limitation of liability on the purchase money mortgage. The final statute of Arizona on the foreclosure emphasizes on the limitation on deficiency judgment on the mortgage or deed of trust as collateral for consumer goods (Arizona State Legislature, 2007). All these statutes under the Arizona legislature have served in protecting the rights of both the lender as well as the borrower. These statutes are very important in the determination of foreclosure actions.
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Title and Lien Theories
Title theory state is defined as a state that provides the lender some legal title to the property. Thus the borrower will have the equitable rights whereas the mortgagee will possess legal rights on the property. Therefore the title theory entitles the lender the right to possession as well as the right to collect rent on the property (Jennings, 2007). Under the title theory, the borrower can gain full ownership of the property only upon the completion of the mortgage debt repayment.
Lien theory state is defined as a state that entitles the lender only to the lien on the property and as such is not entitled to possession nor rent collection unless in the event of a foreclosure action. This theory has the borrower holding the title of the property with full right to collect rent (Jennings, 2007).
There is a difference between the two theories which is basically on the title ownership. In title theory, the mortgagor does not actually posses the title to the property until the debt is retired. The mortgagee gives the mortgagor a deed to the property shortly. However, after the borrower signs the mortgage contract the lender takes back the title. The mortgagee will hold the title to the property as security until all mortgage debt payments are cleared. Throughout the period of debt the mortgagor has the right to utility of the property but the lender will only deliver the deed back to the borrower after the total loan repayment. As for lien theory, the borrower possesses the title to the property during the debt period. The borrower assures the lender to submit all payments and the debt becomes a lien on the property with the deed being kept by the buyer. The seller's lien is eliminated once the debt payments have been cleared. Foreclosure actions in a lien theory state might be challenging for the mortgagee than in a title theory state because the buyer is holding title to the property (Gadow, 2000).
The advantage for a title theory is that the lender is the deed holder of mortgaged property. Disadvantage for a title theory is that it is not until full settlement of the mortgage debt the mortgagor becomes the property owner. Advantage for a lien theory is that a borrower receives the title documents immediately. A disadvantage for a lien theory is that the lender only receives a lien on the property with no right of possession but has to foreclose the lien and dispose the property if the buyer defaults the repayment.
Arizona operates as a title theory state. The property title ownership remains with the lender until payment is settled in full for the mortgage. Normally, foreclosure is a non-judicial remedy under the title theory. The document that indicates the title is normally referred to as a deed of trust. However, in Arizona it is also called a trust deed. Moreover, Arizona law allows mortgages to serve as liens upon real property and for judicial foreclosures to occur through the courts. Since the great power of sale provisions in trust deeds is a quicker means to effectuate foreclosure, it becomes the primary vehicle to foreclose (Foreclosure.com, 2010).
The Federal Housing Administration (FHA) and the Veteran Administration (VA) loans are two different loans which assist the people in the United States to own their homes. The two have a common purpose of assisting people own their own homes but differ in their programs. The FHA was created in 1934 but the VA was created in 1944. The FHA loan is guaranteed by the Federal Housing Administration which is a branch of government. However, the VA loan is guaranteed by Veteran Administration which is a subdivision of Department of Veterans Affairs. Everybody qualifies for FHA loans but only veterans who are still in service or have been discharged qualify for VA loans. The other difference is out of value restriction in which FHA allows 96% financing but VA allows 100% financing. Moreover, FHA loans come with flexible rates whereas VA loans come with fixed rates (Difference Between, 2010).
The four types of mortgages that we compare and contrast are Adjustable Rate Mortgage (ARM), Graduated Payment Mortgage (GPM), Growing Equity Mortgage (GEM) and Balloon Mortgage. ARMs are mortgages whose interests fluctuate with the economy and undergo continuous adjustment over time. They are riskier with its initial rates lower than fixed mortgages (Devine & Schroeder, 2008). GPMs are loans in which their payments increase at a preset rate during the initial years and later stabilize at agreed contractual rate. The balloon mortgages are offered by the property sellers at flexible terms which could not be obtained by buyers at financial institutions (Kollen & Kollen-Rice, 2003). GEMs are loans that allow the borrower to accelerate payments by making increased amounts of principle and interest (Cortesi, 2003). The following matrix table shows summarized comparisons and differences of these mortgages.