Post Date: 12/18/2012

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Real Estate and Construction Attorney
Eckley & Associates

November 1, 2012

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Most of What You Have Heard From the Bad Boy Banks and Some Uninformed Broker-Educators . . .”Just Ain’t True!”

Introduction: The "Short Sale" Mini-Test

OK.  First, right to the test:

True or False In an Arizona short-sale of a residential property, the borrower is technically liable for the short-fall because the loan is only non-deficient if it is foreclosed, not when it is compromised before closing.  Accordingly, the lender can demand that the debtor to bring extra cash to closing, sign a note or agree to be liable after the sale for the shortfall.

Answer:  FALSE!

True or False?  Since the 2007 Mortgage Debt Forgiveness Relief Act is due to expire December 31, 1012, all owners who wish to short-sale their residential property need to conclude a short sale in 2012 to avoid being taxed on the amount of debt forgiveness.

Answer:  FALSE!

If you answered “True” to either of the above or if you have been advising clients and customers that the above statements are true or if you are an Educator teaching it that way, it’s time for two things:  First, to assure your malpractice premiums are current; and second, to retract those statements as quickly as your fingers or pen can fly.  To this date these mis-statements were an “unfortunate mistake.”  After this article, they will be a “damned lie!”  If you answered “False” to both, welcome to “The Right Side of the Law.”  Your clients and customers will sing your praises. You will grow and prosper. And the only lawyers you will be likely to encounter will be as your customers and clients!

I. Trust Deed and Mortgage Deficiencies:

Lets’ go back to the basics qualifying what makes a real estate loan “deficient” or “non-deficient” in Arizona and then review some important changes and amplifications that the courts have offered in Arizona during 2012.

Start with a general First Rule about Arizona deficiencies and then let’s work from there. 

First Rule:

Most Arizona Trust Deeds and Mortgages taken out to purchase and secured by single-unit or double-unit residential properties fall under the protection of the anti-deficiency statutes and that means there can be no “deficiency” against the debtor in either a short sale, modification, or a foreclosure, however the alleged “deficiency” is disguised by the creditor.

See below for a finer description of what qualifies on the more “fuzzy” cases that compose about 40% of the deals. Also recall that even where there is no deficiency, there can be IRS, credit, employment and other ramifications.  Other than the Mortgage Debt Forgiveness Relief Act and IRC Section 108 discussion, below, more on those other ramifications and this entire subject is covered in other articles that may be found by logging to Eckley & Associates’ web page at and typing the key words into the search engine found there.

More details for the first Rule:  To use as shorthand, there is no such Bank judgment right either under trustee’s or judicial foreclosure, a debt modification or a short sale for a “qualifying” residential loan secured by a trust deed or mortgage on real property that: (1) consists of 2 1/2 acres or less; (2) and is restricted to and utilized for a single-family or dual-family dwelling, and (3) the proceeds of the loan were used to pay all of the purchase price of the property.  See ARS §33-729 and ARS §33-814(g).  (Notably and more specifically for those who like details, for deficiency protection there is no “purchase-money” requirement in A.R.S. § 33-814(g).  It is only relevant in exceedingly rare judicial foreclosures on the companion statute A.R.S. § 33-729(a) which applies to judicial foreclosures of mortgages or deeds of trust foreclosed as a mortgage).

There are three caveats to the above first Rule: 

Some Federally Insured Loans:  Certain loans issued by or guaranteed by the federal government do have “shortfall” liabilities in the event of default. For example: purchase money debts insured to the lender by the GI bill, such as VA-guaranteed loans.  On those, the VA has the right to recoup any guaranty money it pays out directly from the Vet and the Vet can lose eligibility for that and other benefits for s certain time.  The effect can be appealed on a hardship basis to VA, however.  This caveat can also apply to certain federally insured farm loans, as well.  These “caveat debts” are currently a very small percentage of the marketplace, but might get larger as the foreign wars wrap down (if they do) and all the vets come home.

Guarantys:  There are very few times where otherwise non-deficiency loans are personally guaranteed by someone other than the borrower, but they happen, such as where a parent signs a loan guaranty for the home purchase by a child.  Guaranties are usually enforceable even if for a non-deficiency debt which is for the purchase of a qualifying property, as the actual “liability” is considered by the law to be on the separate written Guaranty and not the primary debt.

Waste: The non-deficiency rule in Arizona will not allow the debtor to waste the property by such things as his own bad maintenance, by vandalism of him or others or uninsured losses before the foreclosure sale.  It is called “voluntary waste” – damage to the property by the borrower that reduces the value of the property – and it gives the lender the right to collect damages in the amount of the diminished value.  See A.R.S. 33-729(B).

More details on the First Rule:

Refinances: This bar against deficiencies includes any refinances of such a qualifying loan as where, for instance, the original qualifying loan was later refinanced to obtain a lower interest rate. The new qualifying loan is treated the same as the old qualifying one as long as all of the proceeds of the refinance were used to pay what was originally a qualifying loan.  Second mortgages that match the above “qualifying” description also bar deficiency judgments and the order in which they are secured does not matter.  They can be second, thirds, tenths, but as long as the proceeds of them were used to pay off a qualifying loan, the refinancing loan is also non-deficient.  See Bank One v. Beauvais, 188 Ariz. 245, 937 P.2d 809 (App. 1997), in which the court held that an extension, renewal, and/or refinancing of a purchase-money loan retained the character as a purchase-money loan, and therefore was subject to the same general non-deficiency treatment as a purchase money loan.  This also applies to second trust deeds or mortgages if they were "purchase money" and were for residential property as noted above. See Mid-Kansas Federal Savings and Loan Ass'n v. Dynamic Development Corp., 167 Ariz. 122, 804 P.2d 1310 (1991) and clearly applies to loans that call themselves “HELOCS,” as the loan title does not matter to the law—the law looks only at how it was used.  If it was used to purchase qualifying property or a refinance of a loan used to purchase qualified property, it does not matter what it is called—no deficiencies. Loan funds not part of the original closing later borrowed and used to reinvest in the home such as to upgrade it or put in landscaping, a pool, improve or upgrade the home are generally not purchase money debts and would likewise give the creditor in most cases the right to sue directly on the debt or foreclose and take a deficiency, but only for that portion of the loan that was not for purchase money.  See the Legal Changes, below.  See also the Eckley & Associates website at for more reading.

Here is another general Rule:

The following are the deficiency-type debts where the above rule does not apply:  If your debt is secured by commercial, business or agricultural property, is a tri-plex or greater, a business, bare land or an asset other than land, is a loan that was not used in whole to purchase or to refinance the purchase of qualifying residential property, then it is one upon which Arizona law would normally allow a request for additional consideration if it was modified or in a short sale or if it was judicially collected by the Bank in a legal fashion for a deficiency, unless the loan or modification itself contained a clause that stated that it was “without recourse”.  In the case of “blended” loans, where only part of it was used to purchase qualifying residential property or refinance a qualifying loan on residential property, then as to the part that was not so used, additional consideration in a short sale or modification up to that amount could be requested and a foreclosure deficiency could be sought on that portion.

The next general Rule: 

The creditors and banks cannot make the laws otherwise or force a borrower to agree otherwise

Where there is no deficiency due by law, the creditor and Banks have no legal grounds (including asking the debtor to waive the law) on which to collect additional money from the borrower, to demand that the borrower sign a promissory note for the difference or agree to “remain liable” for the difference or other concessions, all of which has long been barred in Arizona by the Arizona case of Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988) and which has been reaffirmed by a number of 2012 cases discussed, below.

What happens if the Bank insists on violating the deficiency laws?  The Banks routinely use modification and short sale events to “extort” the debtor into simply paying or agreeing to extended liability the debtor simply does not have.  If this occurs, it is an unlawful debt collection practice by the creditor and it can be prosecuted by the borrower against the creditor for damages.  The creditor cannot even lawfully refuse to modify or approve a short sale on a debt that otherwise qualifies under the law as having no deficiency right and which otherwise qualifies under the federal work-out Guidelines.  Aside from such a practice being a fairly obvious violation of the federal Unlawful Debt Collection Practices Act, 15 USC 1692 (the lender is threatening a collection right or remedy it does not legally have), it could very well be a felony for a lender to demand money for a non-deficiency loan or to insist or imply that it has the right to do so as a precondition to approving a modification or short sale under ARS § 13-2320 (the creditor is making a misrepresentations in connection with the processing or collection of a residential debt, which is a Class 4 felony). The creditor also thereby violates the federal law set forth in Section 215 (a) (2) of 18 USC, Part 1, Chapt. 11 (requesting or accepting a benefit as an influence or reward in connection with approving the modification or short sale).  This federal law also calls for fines against the lender or institution for up to 3 times the amount of the “incentive” it wanted paid or $1M, whichever is greater, and 30 years of federal imprisonment against those with the lender or its collection arms who attempted it.  If the borrower finds himself in this position, he needs legal counsel, immediately, and should not sign these unlawful agreements.  Moreover, you should not let your clients or customers sign these attempted “end runs around the law” or do these fraudulent deals.  It makes you an aider and abettor, a fraud and a criminal, as well!  Whoever tells you differently – bank, broker, educator, even another lawyer – is a conspirator to a violation of civil and criminal law and dead wrong!

More on “Waivers” of Rights:  A little more on the Banks demanding that the borrower sign “waivers” or onerous new terms as a condition of approving a modification or a short sale—the simple fact is that a lender cannot mandate that a borrower waive a protection given him by law.

The antideficiency laws have given debt protection rights to consumers as a matter of public policy.  No contract or agreement can waive public law for the protection of a consumer class so that the consumer can be victimized by the very acts the public has prohibited. It is void from birth.  State Trust Co. v. Sheldon, 68 VT. 259, 35 Atl. 177.

In Forbach v. Steinfeld, 34 Ariz. 519, 273 P. 6 (1928), the Supreme Court analyzed what constitutes a statute “enacted to protect the public” at large.  The Court was asked to address whether or not the statutes of limitations applicable to claims based upon contract could be waived peremptorily.   The Court quoted Moxley v. Ragan, 10 Bush (Ky.) 159, in reference to exemption laws saying in pertinent part that “the law in its wisdom for the protection of the poor and needy, has said the certain property shall not be liable for debt(s), not so much to relieve the debtor as to protect his family against such improvident acts as would reduce them to want.” Id. at 526. The Court then stated:

“The wise man of old has well said, ‘the borrower is the servant to the lender’ and the debtor, when he applies to the creditor for favors, is always under a certain amount of moral duress.” If the (lender) has the right to demand a waiver of statutory rights he will almost certainly do it, and the (borrower) generally is in no position to protect himself. For this reason the law, in order to give the debtor effectively the protection which the public policy of the state says is his privilege must deny him the right of binding himself to surrender it.” Id.

The long and short of it:  The Bank’s attempt to pressure the debtor to waive a non-deficiency right given to protect him and the public at-large by statute is unlawful and any agreement allegedly accomplishing that is void from the get-go.

See more on by logging to Eckley & Associates, P.C.'s website at: and typing “Bank bribe” in the search engine.

The Deficiency Laws After the Courts Re-Examined them in 2012:
Where are We Now? Some Changes!

And now for what the Courts did to the above in 2012.  That happened?  In a nutshell, the above anti-deficiency protections were likely even expanded for the consumer.

The two most significant cases that have come down in 2012 are M & I Bank vs. Mueller, No. 1 CA–CV 10–0804 (Ariz. App. December 27, 2011), appealed to the Supreme Court for reconsideration, denied in 2012, and Helvetica Servicing vs. Pasquan, No. 1 CA–CV 10-0418  (Ariz. App, March 20, 2012).   These are interesting cases and since they are the latest on the issue in about 24 years of silence and probably expand and in some cases contract the non-deficiency protection, they should be discussed a bit.

In Mueller, most notably, the non-deficiency protection afforded by ARS §33-729 and ARS §33-814(g) summarized above was extended even to partially-built homes—perhaps even bare residential land on which the borrower “intended” to build, but never did, which is likely a considerable expansion of the formerly understood non-deficiency protection.  In Mueller, the borrowers obtained a plot of vacant land in Arizona. About a year later they obtained a loan from M&I Bank to construct a single family residence on the property for their own use. To secure the loan the borrowers provided a promissory note secured by a deed of trust to M&I and construction began in 2007. Several months later, the borrowers discovered that the contractor was behind schedule and much of the construction already completed was defective. The borrowers sought advances on the loans from M&I to remedy the defects, but M&I refused. The borrowers then abandoned the property and defaulted on the note. In September of 2009 M&I instituted a non-judicial foreclosure pursuant to the private right of sale on the trust deed and sold the property at a trustee’s foreclosure auction at a price less than what was then remaining due on the note. Subsequently, M&I sued the borrowers for the deficiency, the difference between the appraised value and the amount the borrowers’ still owed. The borrowers defended in the trial court by arguing even though the home was never finished being built and even though it was never utilized as a residence as would normally be the case to qualify for non-deficiency protection, that they had intended and sought to do so and since the home was foreclosed upon by trustee’s sale, there was no deficiency under ARS §33-814(g), accordingly barring M&I from seeking a deficiency by the anti-deficiency statutes.   The trial court agreed and the decision as appealed.

On appeal to the  Arizona Court of Appeals, the  Court agreed  with borrowers and the trial court and held that under the statute and prior case law it is consistently held that there are three elements within A.R.S. § 33-814(g) which a borrower must meet to qualify for the anti-deficiency protections: (1) the property must be 2 ½ acres or less in size; (2) the property must be “limited to and utilized for either a single one-family or a single two-family dwelling”; and (3) the property must be sold pursuant to the trustee’s power of sale.  As noted, above, there is no “purchase-money” requirement in A.R.S. § 33-814(g), governing trustee’s sales and M&I elected to proceed by trustee’s sale and therefore the Court said, the “purchase-money” character of the loan when M&I foreclosed it by trustee’s sale and no deficiency is thus allowable.

The real issue according to the Court in Mueller  and the crux of it that likely expanded anti-deficiency protections as prior understood by most lawyers concerned how the second element, above, which required the property to be “limited to and utilized for” a single one-family dwelling,” was to be determined. According to the Court, whether the property is “utilized” as a dwelling has more to do with whether the borrower intended to occupy it, not the specific act of, for instance, having it at such a stage that one could spend at least one night inside or, if completed, that one actually did spend a night inside it.  That test was felt too arbitrary.  It was the borrower’s substantive “intent” to complete to occupy it that governed.

Thus, it appears that the Court in Arizona is likely to apply a three-part test to determine whether or not a deficiency can be had from the trustee’s foreclosure of a construction or like loan.  From the Mueller decision, if a property otherwise qualifies for protection but is not being resided in, it will still be given anti-deficiency protection unless it fails all of the following tests: 1) the dwelling is unfinished; 2) the dwelling has never been lived in; and 3) the owner has no intent to occupy the home.  If there is nointent to occupy the home by the homeowner, there will be no protection. Absent that, it appears that there will be protections provided to the homeowner.

In Helvetica, the Court has likely cut back on Arizona’s long-settled anti-deficiency rules. It is probable that the Appeals Court was not even aware that it was creating new law when it set out, as it states in the opinion,  to “better define”  or “finish” the questions left after the Bank One v. Beauvais case, 188 Ariz. 245, 934 P.2d 809 (App.1997).  Without being asked to by the parties, the Helvetica Court set out to define the deficiency statuses of certain refinances, but ended up making a rule that rewrites both original purchase loan and refinances from the core by excluding from the definition of “purchase money” any sums not paid directly to buy or refinance the property.

Prior to Helvetica the legal opinion shared widely in Arizona was that a loan which contained both funds which were used to buy or refinance the purchase of a home andfunds used for other purposes (a “blend”) was still a “non-deficiency” loan. The guiding non-deficiency statute describes a non-deficiency loan as being one in which "all of part" of the loan proceeds were used to purchase a qualifying residential property and, thus, there could be a “blended” loan containing some money for purchase, some not, and yet the entire loan would fall under the non-deficiency rules.  The lead Arizona Supreme Court case of Baker vs. Gardner made no such distinction, either, lumping it all as a non-deficient balance.   See also Bank One vs. Beauvais, Id. at 247, 934 P.2d at 811.

Ignoring outright or “distinguishing” the foregoing law as being somehow “inapplicable,” the Helvetica Court, while saying that it was no changing the law on “blended” residential debt, in fact did change that in a way that was a significant retreat in the consumer protections of the last 20-plus years.  It held that the loan funds that did not go to purchase the property or to refinancing the purchase of the property were somehow to be segregated in a collection action on the loan so that the part that was not used for purchase (takeout money) would be subject to a deficiency judgment that could be collected from the borrower.  The Court concluded that the debt and note is somehow now to be “bifurcated” and “traced” between pure purchase money, which is non-deficient, and everything else, which is not.  Notably the Court does not explain how a single debt and single note can be split like that.  For instance, are payments made by the borrower to be applied first to the non-deficiency balance and then to the deficient balance, or vice versa, or are payments applied on a pro-rata basis between the balances?  In a foreclosure, are proceeds from a foreclosure sale to be applied first to the deficient part or the non-deficient?  In what order is an insurance or condemnation loss proceeds applied?  In what order is a PMI payoff applied?  In a mortgage modification?  In a pay down from HAMP I or II settlement proceeds?  Must the bank and borrower really run two balances on a single debt for its entire life?  If this is the case, isn’t a fairly vigorous advance consumer disclosure explaining this booby-trap mandated as a burden the lender in order to avoid consumer predation (obviously that was never done by the lenders)?  How does this “bifurcated balance” need to be underwritten?  Appraised?  Rated in the secondary market?  How does it fit IRC 108 reporting—does it sidestep the IRC 108 phantom gain exemption for “non-deficiency discharges of debt?”  No one knows, but the consumer watchword now is “beware of blends” either as one is borrowing or as one is modifying or short-selling.  It will take years more to see how this unfolds and possibly more, as the “blended” mortgage is now perhaps 10% of the market and the fact is that most of the debtors this deep in defaulted debt are insolvent anyway, and not worth the chasing.

Probably the most notable development after this case is that the lenders have tended to ignore it and have not attempted to jump into the accounting nightmare of allocating amortization between the two alleged balances in the few occasions where they might exist in a single loan.  The bottom line is that, functionally, the anti-deficiency laws in Arizona remain one of the most consumer-protective in the country!  Nothing has changed that!  And when the Banks feloniously ignore these protections and attempt to get the consumer to “waive” them, the victimized consumer has a number of civil and criminal remedies against the Bank (and there are lots of hungry lawyers out there who would like to press them)!

II.  Expiration of the 2007 Mortgage Debt Relief Act:

Now for the dis-information or mis-information about the taxation of debt forgiveness circling around out there:

IRS and Tax Ramifications:

The “Phantom Gain” Rule:  As backwards as it sounds, IRS and local Revenue Services can tax certain actual losses as implied gains and that includes actual losses on one’s real estate and other debts and investments.   For many years IRC 108 of the Internal Revenue Code has taxed the debtor upon real estate debt that a creditor has forgiven (such as by a modification, short-sale, foreclosure, a deed-in-lieu or other write-down or write-off by the lender) on the debtor’s real estate trust deed or mortgage debt.  The rule applies to other debts, as well, but real estate debt is the focus here.  The economic reasoning behind this is the concept that being relieved from a lawful debt is the same as the taxpayer receiving beneficial gain equal to the amount that is being relieved.

The Exceptions to the Rule:  IRC 108 has always had three main exceptions to the application of the “phantom gain” taxation rule, above.  First, the “gain” rule does not apply if the loan being forgiven has no personal recourse (is a non-deficiency loan as seen above) as a matter of state law.  Second, the “gain” rule does not apply if the taxpayer is insolvent at the time it is forgiven.  Third, if the taxpayer is in bankruptcy at the time of the debt relief, the “gain” rule also does not apply. 

Arizona Fits Under the Exceptions:  Accordingly and as been seen under the Arizona non-deficiency laws discussed, above, under IRC 108, 90% of all residential mortgage debt in Arizona is excluded from the “phantom gain” rule under the first exception, above because in Arizona there is no “personal recourse” for mortgage debt on which the lender could not sue and therefore “forgiving it” as a personal debt is of no “gain” or taxable “benefit” to the debtor.And that is 90% of the residential debt out there in Arizona.  Obviously, even for those debts which are recourse (tri-plexes, commercial property, HELOCS where money was actually taken out, etc.) if the debtor is on hard times at the time the debt is forgiven, he is likely insolvent or in bankruptcy, anyway, and that excludes the debtor under the last two exceptions to the rule, above, in any event, even if the debt was with recourse.  IRC 108 and its above exceptions has protected Arizona debtors from this “phantom gain” rule for decades before 2007 and it is not expiring on December 31, 2012.  It will continue its protections for decades after that. This point is important because many bad banks, ill-motivated short-sale brokers and very ignorant educators out there are spewing this disinformation (and in some cases the flat lie) that all of this ends in 2012 and that in 2013 all debt forgiveness is taxable.  They would profit from a short course in how IRC 108 actually works….and probably a long, long course in integrity, as they are categorically and unequivocally dead wrong.

The 2007 Mortgage Debt Forgiveness Tax Relief Act:  In 2007 the federal Mortgage Debt Forgiveness Tax Relief Actwas temporarily tacked to IRC 108.  It was aimed at adding more IRC 108 exclusions to relieve taxes for those debtors who fit none of the three above long-standing IRC 108 exceptions and to equalize those states where mortgage debt was non-deficient with those where it was deficient (42 states have some form of more extended residential debt deficiency in whole or part).  The Act simply added additional temporary exclusions into IRC 108 as follows (1) it made whether the loan balance excused was recourse or non-recourse irrelevant, as long as the loan was all used to purchase or refinance the property or fix it up, (2) it allowed the new exclusion only to residential debt forgiven only up to $2 million, and (3) it applied these extra exclusions only to single family dwellings, and (4) it expired on December 31, 2012If the Act expires, the loss will not be not be significant to Arizona, as the law returns then to what IRC 108 was before 2007 and as seen, above, that version resulted in no “phantom gains”, either. Very few Arizonans ever fit the Act’s additions in the first place.

Other Tax Matters, Including Losses:  There are other tax ramifications of debt and property adjustments, some even “positive”, that neither IRC 108 nor the Act cover and are set forth elsewhere in the tax Code. For example, losses of some properties to debt by the taxpayer can also generate tax-deductible losses for the taxpayer.  Some adjustments can generate gains from other sections of the Code such that recognized under the “mortgage-over-basis” or the recapture rules for business or investment use.  But these have more to do with taxes generally and the financial structure of the taxpayer specifically and neither IRC 108 nor the Act changed any of that

Residency:  In addition, no countries outside the U.S. and not every state or local revenue department follows the Federal IRC 108 rules and the application of the rule at the local tax level may vary by the non-U.S. or non-Arizona tax residency of the taxpayer, not necessarily where the property is located.  The taxpayer should check with the Revenue Departments for the state, county and city of tax-residency for rules there.  See Eckley & Associates website at for information about working with and attracting foreign investors.

How Reported to Revenue Services:  IRC 108 "phantom income" will be reported to IRS and other revenue authorities by the lender automatically through a 1099-A or 1099-C (though the taxpayer is also responsible to include it in his returns whether or not reported).  However the creditor couches it in the 1099 can, if wrong, be contested on the debtor’s final returns as being” mis-cast.” IRS Form 982 must be filed to claim any relief from phantom income for which the taxpayer might be eligible, in addition to other normal tax offsets where that relief is not available.  These rules, form numbers and other applications are subject to change. 

Other States:  There are other states (about 6-8), such as California, which also have their own set of anti-deficiency laws and also may lose less than a major market perk when the Act expires, but in those the broker and consumer should seek local counsel.

The Best General Rule for the Taxpayer:  See a CPA or an attorney familiar with the tax rules before concluding any deal.  Not only is the real estate broker not a good source, it is not even lawful under the broker’s licensure for the broker to give legal or tax opinions.

The Best General Rule for the Broker Working with Clients and Customers in Debt Hardship:   Getting a professional opinion on the legal or tax status of a deal is, indeed, a “material matter” needing disclosure in writing to the client or customer.  The proper disclosure is to advise them that there are legal and tax ramifications to their deal and send them to the CPA or lawyer, but avoid giving that legal or tax opinion, themselves.  Be “the source of the source, but not the source.”

But the All-Encompassing Rule is at the Very Least:

Don’t hustle the client or customer to do a modification or short sale deal in 2012 with the flat-out fib that the “protected time” for debt forgiveness ends with the December 31, 2012 expiration of the Mortgage Forgiveness Debt Relief Act of 2007! Not unless they are one of those 10% or less it might make a difference to and even then get their lawyer or CPA to determine that.  The protection doesn’t expire for the other 90% or more in Arizona.  IRC 108, which has no expiration, carries almost all Arizonans well after that and deeply into the foreseeable future!


The National Associations of Realtors® and  organizations that actualize future claims for E & O underwriters have concluded that mis-advice regarding consumer loan modifications and short sales will be the main causes of broker malpractice claims in 2013 and for years beyond as duped consumers discover what was done to them.  Most brokers E & O policies exclude coverage for professional activities outside of the scope of real estate licensure and most states make it clear that legal and tax advice is not inside the scope of licensure.  That’s a “kiss-the-license-goodbye” licensure ding.  But moreover and dramatically, wrongfully giving legal and tax advice under licensure is only the tip of the liability iceberg.  The already bleak story of licensure violation gets worse when the “advice” was also legal and tax mis-advice, to boot!

Then we are at the “kiss-the-license-and-the-family-assets-goodbye” stage!  I hear Brazil is nice this time of year…

‘Nuff said!