Mortgage foreclosures (which, in Arizona, are known as trustee’s sales) were a hot button topic during the pandemic, primarily due to the moratorium on mortgage foreclosures. With the foreclosure moratorium having expired on 06/30/2022, it’s a good time for community associations to revisit this important topic.

A trustee’s sale occurs when a trustor (i.e., borrower) falls behind on payments due under a deed of trust (i.e., mortgage) and the trustee (i.e., lender) institutes foreclosure proceedings.

The performance of the housing market, and the performance of the overall economy, can have a significant impact on community associations – particularly, in regard to a community’s collection strategy. As we all know, with rising interest rates, the nationwide housing market, including Arizona, has seen a decline. As a result of the downward trending housing market and expiration of the foreclosure moratorium, we expect for trustee’s sales (including pre-moratorium trustee’s sales and new trustee’s sales) to likely increase significantly over the next few years.

The explanation behind our expectations is straightforward:

(Down housing market → Decreased home values) +
(Down Economy  Lower Income and Increased Unemployment) =
Decreased Property Equity/Decreased Ability to Pay Mortgage → Trustee’s Sale

How can your community use this information to its advantage?

  1. Start collection proceedings early, including considering recording a lien when an owner falls 60 days behind on assessments;
  2. Have your attorney perform due diligence to determine the optimal collection strategy;
  3. If you receive notice of a trustee’s sale, contact your attorney to ensure that the sale is properly monitored;
  4. Possible results of a trustee’s sale include (1) postponement; (2) cancellation; (3) property reverts to the beneficiary (i.e., the lender takes ownership); or (4) property sells to a third party at the trustee’s sale;
  5. If the property sells to a third party and excess proceeds are generated (i.e. the property sells for more than what is owed to the beneficiary), excess proceeds may be generated and the Association may have a claim to those excess proceeds;
  6. If the beneficiary (i.e., lender) or a third party takes ownership pursuant to a trustee’s sale, they take the property free and clear of the Association’s lien and they are only responsible for assessments from the date of ownership.

When an account is turned over to Mulcahy Law Firm, P.C. for collection action, our firm conducts thorough due diligence on the owner(s) and the property within the Association. This due diligence includes, but is not limited to: research with the county assessor’s office, recorder’s office, treasurer’s office, equity evaluation and analysis (i.e. research to determine outstanding deed of trust/mortgage and estimated value of property), court docket including research regarding possible bankruptcy, social media exploration and additional fact-finding to locate possible employment of owner(s), and research with Arizona Corporation Commission, when applicable. This due diligence allows us have a very good idea of who we are pursuing at the time our initial correspondence is sent.

Please feel free to contact Mulcahy Law Firm, PC, for a detailed analysis of your past due accounts and/or to monitor any trustee’s sales within your community.