A fair market valuation is a statutory right under Arizona law after property is sold at a trustee’s sale. Banks have long included language in their loan documents that prospectively waives those rights — but no longer under a new ruling.
During the depths of the Great Recession (2008 – 2010) many borrowers found themselves on the wrong end of a lawsuit filed by a lender that just sold property at a trustee’s sale for a mere pittance. The lenders were attempting to recover the deficiency between the sale and loan amount. Many of these were on “spec” homes built by small developers who never intended on living in them — meaning they were unable to take advantage of the prohibition against deficiency judgments for residential borrowers who utilize their homes. Typically, borrowers would attempt to argue that the sale price was way below even the admittedly depressed market values, and demanded a fair market valuation hearing under A.R.S. § 33-814(A).
The problem? Most borrowers signed boilerplate loans that prospectively waived the right to a fair market valuation hearing. Many judges sided with the lenders, finding that freedom of contract was well established in Arizona; essentially saying that borrowers had the right to a bad deal by prospectively waiving the statutory right to a fair market hearing. Some superior court judges did not agree, and found that public policy trumped freedom of contract.
The Arizona Court’s decision in CSA 13-101 Loop, LLC v. Loop 101, LLC put his issue to rest. The Court determined that the public had an interest in preventing artificial deficiencies and protecting borrowers, and that it weighed heavily against any interest in enforcing the prospective waiver provision.
Unfortunately, this decision was about five years too late for many borrowers. But at least this issue is now resolved in favor of borrowers, and banks may not enforce these ubiquitous provisions. If you see one — insist it be deleted as unenforceable before signing any new loan.
The lawyers at Murphy Cordier PLC are experienced in dealing with these and related real-estate issues, if you find yourself on the wrong end of a dispute with your lender.