I went to a Real Estate continuing education class recently. This particular class was at the Arizona School of Real Estate and Business, and one of the presenters was Bill Gray, who used to own the school.
I can always be sure that if he is around, I’m very likely to learn something interesting. This particular class was no exception, since another one of the presenters was an attorney who I think created Done Deal Solutions’ business model of doing short sale flips. (More on this in a future post)
The class was a sell out, at $50 a seat, and was worth every penny. There were several other presenters, and all were very good. The first presenter was Diane Drain, a foreclosure attorney. Among other things, she talked about a little known portion of the Arizona Revised Statutes which permits anyone to record a notice at the county recorder’s office which has the effect of notifying whoever is specified in the document as to a number of bad things which may later be filed against a property, such as liens, notice of foreclosure, trustee’s sale, conveyance of the property, and the like.
In particular,
ARS 33-809. Request for copies of notice of sale; mailing by trustee; disclosure of information regarding trustee sale
A. A person desiring a copy of a notice of sale under a trust deed, at any time subsequent to the recording of the trust deed and prior to the recording of a notice of sale pursuant thereto, shall record in the office of the county recorder in any county in which part of the trust property is situated a duly acknowledged request for a copy of any such notice of sale. The request shall set forth the name and address of the person or persons requesting a copy of such notice and shall identify the trust deed by setting forth the county, docket or book and page of the recording data thereof and by stating the names of the original parties to such deed, the date the deed was recorded and the legal description of the entire trust property…
So why is this useful? There are several reasons. First, if there is a property you might be interested in buying, and you think the owner might be having problems, you could record this request and get notified when they are really in trouble.
Second, and more important, if you are renting or leasing a property, it might be nice to know that your landlord is about to lose the property. A foreclosure wipes out your lease – and if you weren’t privy to what troubles they were having, your first notice might be the sheriff showing up to evict you.
Finally, as a Real Estate licensee (so only about half of the population of Arizona need worry about this one!) it might be a good idea to file this notice on any listing you have that is for longer than 6 months, especially if it is an absentee owner. The property might go into foreclosure during the listing period. Probably would be something you want to know, if it is your listing.
Filing a Request for Notice is another interesting tool to keep in your arsenal, something which could protect you or your clients (if you are a licensee), and could make a huge difference to your business! the meager recording fee makes it cheap insurance.
--PLH
Friday, March 27, 2009
Thursday, March 26, 2009
Unwavering Tenants—Secure in their Places
Recently I've noticed an imbalance in the "landlord-tenant" mix of my posts; it seems like I’m biased toward the landlord's issues and concerns in leasing disputes. To redress the inequity, this post is for you tenants.
One of the critical portions of reviewing a commercial lease is the need to be careful about what a tenant is being asked to give up, especially in the area of statutory rights. And I've become extra-sensitive to a commercial tenant waiving any defense of the statute of limitations in regard to potential landlord claims. The cutting board is A.R.S. §33-361; there, without notice, a landlord has the right to take possession of the premises when 5 days lapse after the due date for any rent installment--with or without "process." The process referred to there, of course, is a suit for forcible detainer. And that summary proceeding is the subject of this post.
"Forcible detainer" occurs when the tenant remains in the premises after the landlord has demanded possession be turned over (which usually occurs when there’s been a payment default or a material, non-monetary default); but under §33-361, the landlord doesn't have to give a warning or make a demand for physical possession of the premises before filing the detainer lawsuit. Under this statute, forcible detainer seems to arise on day 6 following the date the rent installment due. Forcible detainer is a sticky wicket for a tenant because he or she can assert just one of these three defenses:
1. There's no lease--hence, no landlord-tenant relationship; and, therefore, there's no right-of-possession issue to try before the Superior Court Commissioner.
2. I did too pay rent and comply with the lease! Plaintiff's lying about my default, and I have the proof!
3. The statute of limitations for forcible detainer has run.
4. The non-monetary default asserted by the Landlord is insubstantial, and therefore the tenant cannot be evicted.
Okay, so when does the first defense exist? Not often, but the case to review to understand this is RREEF Mgmt. Co. v. Camex Prods., Inc., 190 Ariz. 75, 79, 945 P.2d 386, 390 (App. 1997). The second defense rarely will be available; no plaintiff would waste lawyer fees to tell a court a tenant didn't pay rent or perform some other lease obligation if it was untrue. The statute of limitations (2 years under A.R.S. §12-542) begins to run, I believe, on "day 6 after the rent due date"; occasionally, though, landlords lay in the weeds for a few years before, using this detainer process, they try to recover possession, back-due rent and attorneys' fees. Why roll this way? Well, there are no substantive defenses permitted the tenant defendant, like offsets or landlord denial of quiet enjoyment, that the tenant can introduce at the trial. Our appellate decisions admonish that defenses (other than those numbered above) aren't supposed to be interposed in the interest of summary adjudication of the landlord’s right to possess the premises under the forcible detainer proceeding, starting with Old Bros. Lumber v. Rushing, 64 Ariz. 199, 205, 167 P.2d 394, 400 (1946).
This can become an ugly business, if the tenant waives her right, at the time she makes the lease, to assert a statute of limitations defense. In a five-year lease term scenario, the plaintiff could sit on its hands if the tenant fails, use minimal efforts to mitigate its loss of rents, and then, at year 4.9, file a detainer action and ask the court to grant a judgment for back rent for the whole period after the tenant’s failure. And the tenant can't raise any defense to the claim for back rent—but could argue that the lease had terminated more than two years before the date the detainer suit was filed. Except, that is, if the tenant waived that defense that the landlord has waited too long to bring his action. Tenants should read their leases carefully to make certain they are not waiving a defense of the statute of limitations for forcible detainer proceedings. While tenants should pay their obligations like anyone else, they also should be able to present any evidence in the proper forum that would excuse some portion of their obligation.
Wait, you ask—didn’t you say there’s only three defenses? Then what about item no. 4 above? Okay, that’s the defense available as a result of this Arizona Supreme Court decision. Foundation sent Loehmann's a bill for its common area proportionate share; Loehmann's claimed it was too high; Foundation explained that another tenant had moved out, increasing Loehmann's percentage of common area; so Loehmann's sent payment, but three days later than the last landlord demand letter specified. Foundation used the text of A.R.S. § 33-361(A) to assert that the law allows for termination and repossession upon any breach. Commercial landlords will not be allowed to repossess for any breach, no matter how trivial, said the court, because a lease is not only a contract but also a conveyance, with modern legal trends viewing it more as the latter. Common law sought to stabilize economic development by not allowing repossession for trivial breaches. The Arizona legislature surely didn't mean to allow repossession for any minor breach--complicated, modern transactions make it almost impossible not to commit some minor breach along the way. Got it? Think that the Court Commissioner with 25 detainer actions on her afternoon’s docket is up for a tenant’s analysis of how Foundation Development Corp. v. Loehmann's, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), applies to her facts? Tenants—yield not your defenses!
-MNW
One of the critical portions of reviewing a commercial lease is the need to be careful about what a tenant is being asked to give up, especially in the area of statutory rights. And I've become extra-sensitive to a commercial tenant waiving any defense of the statute of limitations in regard to potential landlord claims. The cutting board is A.R.S. §33-361; there, without notice, a landlord has the right to take possession of the premises when 5 days lapse after the due date for any rent installment--with or without "process." The process referred to there, of course, is a suit for forcible detainer. And that summary proceeding is the subject of this post.
"Forcible detainer" occurs when the tenant remains in the premises after the landlord has demanded possession be turned over (which usually occurs when there’s been a payment default or a material, non-monetary default); but under §33-361, the landlord doesn't have to give a warning or make a demand for physical possession of the premises before filing the detainer lawsuit. Under this statute, forcible detainer seems to arise on day 6 following the date the rent installment due. Forcible detainer is a sticky wicket for a tenant because he or she can assert just one of these three defenses:
1. There's no lease--hence, no landlord-tenant relationship; and, therefore, there's no right-of-possession issue to try before the Superior Court Commissioner.
2. I did too pay rent and comply with the lease! Plaintiff's lying about my default, and I have the proof!
3. The statute of limitations for forcible detainer has run.
4. The non-monetary default asserted by the Landlord is insubstantial, and therefore the tenant cannot be evicted.
Okay, so when does the first defense exist? Not often, but the case to review to understand this is RREEF Mgmt. Co. v. Camex Prods., Inc., 190 Ariz. 75, 79, 945 P.2d 386, 390 (App. 1997). The second defense rarely will be available; no plaintiff would waste lawyer fees to tell a court a tenant didn't pay rent or perform some other lease obligation if it was untrue. The statute of limitations (2 years under A.R.S. §12-542) begins to run, I believe, on "day 6 after the rent due date"; occasionally, though, landlords lay in the weeds for a few years before, using this detainer process, they try to recover possession, back-due rent and attorneys' fees. Why roll this way? Well, there are no substantive defenses permitted the tenant defendant, like offsets or landlord denial of quiet enjoyment, that the tenant can introduce at the trial. Our appellate decisions admonish that defenses (other than those numbered above) aren't supposed to be interposed in the interest of summary adjudication of the landlord’s right to possess the premises under the forcible detainer proceeding, starting with Old Bros. Lumber v. Rushing, 64 Ariz. 199, 205, 167 P.2d 394, 400 (1946).
This can become an ugly business, if the tenant waives her right, at the time she makes the lease, to assert a statute of limitations defense. In a five-year lease term scenario, the plaintiff could sit on its hands if the tenant fails, use minimal efforts to mitigate its loss of rents, and then, at year 4.9, file a detainer action and ask the court to grant a judgment for back rent for the whole period after the tenant’s failure. And the tenant can't raise any defense to the claim for back rent—but could argue that the lease had terminated more than two years before the date the detainer suit was filed. Except, that is, if the tenant waived that defense that the landlord has waited too long to bring his action. Tenants should read their leases carefully to make certain they are not waiving a defense of the statute of limitations for forcible detainer proceedings. While tenants should pay their obligations like anyone else, they also should be able to present any evidence in the proper forum that would excuse some portion of their obligation.
Wait, you ask—didn’t you say there’s only three defenses? Then what about item no. 4 above? Okay, that’s the defense available as a result of this Arizona Supreme Court decision. Foundation sent Loehmann's a bill for its common area proportionate share; Loehmann's claimed it was too high; Foundation explained that another tenant had moved out, increasing Loehmann's percentage of common area; so Loehmann's sent payment, but three days later than the last landlord demand letter specified. Foundation used the text of A.R.S. § 33-361(A) to assert that the law allows for termination and repossession upon any breach. Commercial landlords will not be allowed to repossess for any breach, no matter how trivial, said the court, because a lease is not only a contract but also a conveyance, with modern legal trends viewing it more as the latter. Common law sought to stabilize economic development by not allowing repossession for trivial breaches. The Arizona legislature surely didn't mean to allow repossession for any minor breach--complicated, modern transactions make it almost impossible not to commit some minor breach along the way. Got it? Think that the Court Commissioner with 25 detainer actions on her afternoon’s docket is up for a tenant’s analysis of how Foundation Development Corp. v. Loehmann's, Inc., 163 Ariz. 438, 788 P.2d 1189 (1990), applies to her facts? Tenants—yield not your defenses!
-MNW
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