Arizona State Legislator Jack Harper (R, Surprise) is Chairman of the State House Ways and Means Committee. And he has some really good friends that he takes good care of - the Arizona Bankers Association (ABA). You see, 40 years ago in 1971 the ABA got what they thought was a sweet deal: Arizona became a "deed of trust" state. The change, sought by the banks, meant lenders could foreclose on a property simply by giving notice and then taking possession 91 days later. The banks no longer had to go through bothersome, time consuming process of going to court. Once a borrower is in default of ANY of the terms of the Deed of Trust ("mortgage"), the owner of that Deed simply publishes a legal notice of that default in a public newspaper and 91 days later they get the Sheriff's office to throw anyone living on the property out on the street and take possession. In exchange the ABA made the small sacrifice of limiting lenders to seizing the property as their only remedy for default - i.e., they can't go after the borrower to make up any deficit between the sales price of the repossessed property and the balance on the mortgage/Deed of Trust. But now the Arizona Bankers Association has decided it's time to change the rules in the middle of the game, and their boy Jack Harper aims to please and do it for them.
Back in the good old days of 1971, the banks made a "sucker's sacrifice" in limited themselves to repossession of the property to satisfy a default. Back then, mortgages regularly required a minimum 20% down - a down payment less than that required an insurance policy paid in full by the borrower that guaranteed the loan to the bank. And residential real estate was one of the most solid investments in America. Home ownership was the middle class's pathway to a secure future and retirement. But the banks underestimated their own ability to destroy the American dream. In their rush to originate zero down mortgages to people with poor credit, in their stampede to earn fees from underwriting gimmicky introductory low interest/low payment mortgages to speculators who clearly couldn't afford them and were counting on being able to flip the property for a quick profit before it all came due, the banks managed to screw themselves in addition to the rest of the country. With as many as one-third of all mortgages "under water", too many people are simply walking away, leaving the banks with properties worth only half to two-thirds of the amount of the mortgage. So they figure it's time to change the rules in the middle of the game. Rep. Jack Harper will introduce a bill in the next legislative session, which begins in January, to allow banks to seize any other assets of borrowers who walk away from their "underwater" mortgages.
Ok, but why do I call this the "Stick it Granny Law"??? Well, it's no secret that Arizona has a much higher rate of retirees than most other states. And I wasn't aware of this proposed change in the rules until I read a Letter to the Editor from retiree Gail Ruther in today's (Tucson) Arizona Daily Star. It's rather touching:
No one willingly walks away from their home. Circumstances play a major role in that difficult decision. Your credit is ruined. There is the embarrassment of failing to live up to your financial obligation.
I know. I am there. I am 68 years old. When my husband died in August, I lost his pension and the combined Social Security payment actually decreased my benefit by another $500. I cannot sell or even maintain my home.
Thanks to the deregulation debacle of the 2000s, my retirement account lost 60 percent. I am living on the reduced principal. I've got about 60 months left.
But Harper wants to be sure the bank can get a pound of flesh even when I'm bones.
Retired, widowed and angry, Oro Valley
Ms. Ruther writes that she can't afford to maintain or sell her home. Under current law she can just walk away, find a smaller, affordable place in which to live, keep her possessions and life savings and enjoy some semblance of the retirement that she and her late husband obviously planned and saved for in so much of their lives.
But no, Arizona Republican legislator Jack Harper and the Arizona Bankers Association say that is far too generous. When Ms. Ruther and her late husband signed their mortgage/Deed of Trust papers both they and the bank knew the only thing securing that loan was the home. But now they say "so sorry, we changed our mind" and want to change the rules, retroactively. They want to be able to take Ms. Ruther's home, sell it at auction, and then to make up any difference in the loan amount and sales price they want to take her car, her furniture, and any other personal property and sell it to the highest bidder. Still a little short? Then they'll seize her retirement account, her life savings, and grab her purse and take any money in it. Oops! Still a bit short? Then they garnish her Social Security and any other income. She'll be a homeless, helpless 68 year old woman, but hey, at least the bank isn't out anything. With any luck she'll end up in a homeless shelter, living off the charity of those with a bit more of a heart and soul than Republican Jack Harper. Hopefully she's in good health, as she won't have any money for co-pays or treatment or prescriptions Medicare won't cover. And she doesn't mention any children. Sorry, Republican Governor Jan Brewer, who recently signed into law huge tax breaks for corporations, says we're broke and childless adults are no longer eligible for the states AHCCCS Medicare system.
Arizona is rapidly becoming a very ugly place in which to live.