Horizon, Host: Ted Simons

July 30, 2009


Host: Ted Simons

Foreclosure Law Amendment

  |   Video
  • Recent changes to a state foreclosure law may have unintended consequences. The changes were an attempt to protect banks from financial losses when they foreclose on homes purchased by speculators. Critics say the changes go too far and may cause a new wave of bankruptcies. Tanya Wheeless of the Arizona Bankers Association and Scottsdale-based bankruptcy attorney, Randy Nussbaum discuss the law set to take effect September 30th.
Guests:
  • Tanya Wheeless - Arizona Bankers Association
  • Randy Nussbaum - Scottsdale-based bankruptcy attorney
Category: Business/Economy   |   Keywords: foreclosure, housing,

View Transcript
Ted Simons:
Earlier this month governor Jan Brewer sign add bill amending a decades-old Arizona foreclosure law. The sponsor says the new law is meant to protect community banks from huge financial losses when they foreclose on homes that belong to speculators, but critics say it goes too far and it may in fact lead to a massive wave of bankruptcies. Now the bill's sponsor wants to repeal the law before it goes into effect at the end of September. David Majure has more.

David Majure:
When selling a home in foreclosure, lenders try to recover the full amount of their loan. But in this economy, where home values are way down, they aren't having much luck. And in Arizona, the money lenders get from a foreclosure sale is typically all they're entitled to. Even if the borrower's debt is much more. Let's say a borrower owes $200,000 on his loan. But the house sells for only $150,000. Resulting in a $50,000 deficiency for the lender. In some states, the lender could sue the borrower to recover that amount. But not in Arizona. We have an anti-deficiency law that prohibits those lawsuits, thus protecting homeowners from further financial ruin.

Wendy Briggs:
One of the problems that has really come to light in our new economic scenario where there are a lot of investors out there, is people gaming that system.

David Majure:
In June, representatives of the banking industry told state lawmakers how investors were taking advantage of the law. Claiming to have lived in a foreclosed house to escape responsibility for their debts.

John Fahrendorf, Jr.:
Alleging to have lived in the home or in fact moving into the home for two, three days a week or two, therefore being able to claim it was their home, therefore exempting themselves from any liability other than the property itself.

David Majure:
John Fahrendorf is president of Phoenix-based desert hills bank.

Interviewer:
What has been the impact on your bank?

John Fahrendorf, Jr.:
This what I view as a terrible, terrible loophole has cost little desert hills bank millions of dollars. Millions of dollars. That millions of dollars in losses to us translates into less credit availability to other consumers in the marketplace.

David Majure:
He urged lawmakers to support senate bill 1271, which requires a borrower to live in a home for six consecutive months in order to be protected from foreclosure deficiency lawsuits. The legislature passed the bill, and the governor signed it before critics started making noise.

Tom Farley:
I think it was a mistake. It has many unintended consequences. Especially at a point in our economy where obviously we're suffering, the nation is suffering.

David Majure:
Tom Farley represents the Arizona association of realtors.

Tom Farley:
What I'm mostly concerned about is changing the rules after the fact and the only remedy that many people will be left with is to file bankruptcy. And so we're number two in the nation in foreclosures, and this bill really could make us number one in terms of bankruptcy filings. And that's not good for Arizona's economic recovery.

David Majure:
Farley says the requirement that a borrower live in the house for six straight months affects more than just investors.

Tom Farley:
This bill will draw in people that bought a second home, let's say Flagstaff or up in White Mountains, may have bought a rental property. May have bought a home for a family member.

David Majure:
And many of them would be on the hook for the total amount of debt remaining on their property should their homes go into foreclosure.

John Fahrendorf, Jr.:
The family that's lived in their house for six months, six years, they continue to be protected to the exact same extent they were prior to 1271. They don't have to worry about anything. The speculators, I believe, need to understand that if they sign a contract that says "I promise to pay" that in fact they do that.

Ted Simons:
Joining me now to talk about the new foreclosure antideficiency law is Tanya Wheeless, president and C.E.O. of the Arizona bankers association. And Randy Nussbaum, a Scottsdale-based attorney who specializes in bankruptcy with an emphasis on real estate and foreclosure. Thank you for joining us.

Tanya Wheeless:
Thank you.

Randy Nussbaum:
Thank you.

Ted Simons:
Again, targeting investors who don't live in the home and yet walk away. That was the target. Correct?

Tanya Wheeless:
That's right. We wanted to bring the statute back to what we thought the original intent was when it was passed, which was protecting people in the home in which they live. It's only been through a course of court cases that we've seen that expanded to investors, developers, etc.

Ted Simons:
The owner would pay the remaining value of the loan after the foreclosure sale, because that helps the bank get that money back.

Tanya Wheeless:
That's true. But the important thing is to remember that the impact that has not just on the bank but on the community. Many are in community banks where the investors are members of the community. They're impacted when the bank takes a loss. In addition, for every$100,000 that a bank loses, that's a million dollars in new capital -- excuse me, new credit that can't be extended. So these losses impact the bank but that has a greater impact on the community.

Ted Simons:
The idea of going after folks, speculators, especially, who just simply walk away from a gamble that they're not paying for why is that wrong?

Randy Nussbaum:
Ted, the problem is that the idea of addressing this issue is a good idea. We do have a statute that has flaws, but the approach used in senate bill 1271 just is not effective, and unfortunately it was put together by a number of individuals that I don't think fully appreciate the problem and therefore did not address the problem in a proper way. So in response to your comment, I do believe, many experts believe the law needs to be modified, but unfortunately the approach in this case does not accomplish that goal.

Ted Simons:
How would you modify -- in other words, how did you define what a speculator is?

Randy Nussbaum:
Well, first of all, if you're going to amend the law, it's only fundamentally fair that you amend the law so that only new loans are affected. There's an inherent unfairness of having a law in effect, having lenders lend under that law, individuals borrow under that law and be told after the fact, have you relied on the law that's been in effect for decade and decades, and I need to stress every time our courts have had to address this statute, they've consistently found that the statute was intended to protect the very investor that you're talking about. So if you're going to change law, do it prospectively, not retroactively at a fundamental fairness.

Ted Simons:
Does that make sense?

Tanya Wheeless:
Well, I think we change laws all the time. That's what happens at the capitol. And in this scenario I can give a good example, where they're changed on the lender's side. We're not changing anything that is in the contract that was signed. If there's something in the contract that says we promise you for all times we will not come after you for a deficiency, we don't think we've interviewed with that contract. If you were relying on the fact that for 30 years you might have this loan, that state law would never change, we think that was perhaps an unreasonable expectation. Let me put it in the bank perspective. One of the remedies we have is foreclosure. And those laws are routinely changed, most recently by the U.S. Congress who said, now if you foreclose you can do it, but you have to let a renter continue to live there for three months. That wasn't the rule when we made the loan. We didn't anticipate that, but that's a change in the game that we have to live with. So we don't think that there's -- we think it's consistent, and laws change.

Ted Simons:
I know there's a line of thought that says lenders are already protected as we refer to a little bit here. Regarding investors and speculators. Is that protection not enough?

Tanya Wheeless:
No, we don't believe it is. Right now -- and I can tell you it is happening every day in community banks across the state, where they are getting the keys returned with nice letters typed up from their counsel specifying the exact reasons why even though you bought this home and you never had the intent to live in it, and it was an investment, I've been current, I've lived in the home and here are the keys, and you can't make a deficiency judgment. So we think there is inadequate protection right now.

Randy Nussbaum:
Ted, what does -- the bank is suggesting that the problems caused by the investor or the consumer, but if you trace the lending practices in Arizona starting in 2004 and 2005, what are the three reasons the banks are in the condition they're in? Number one, instead of compelling owners to put down a down payment, banks started granting 100% loans, where you can buy a house, put no money down. That was the banks' decision to drum up business. Next, banks for competitive reasons started providing negative amortization loans, in which the borrower would only pay a small percentage of the interest, knowing full well the balance would be accruing every month at the bank's risk. Next, you have a situation where in 2004 and 2005, again, because of competitive pressures, banks start the doing what are known as stated income loans, where a person could borrow a large sum of money without having to prove their financial ability to pay the loan. Now after the fact the banks are coming in and complaining that the very practices that caused this problem should be the responsibility of the consumer.

Ted Simons:
The concept of covering for bad loans is out there. That's a criticism. How do you respond?

Tanya Wheeless:
I think two points in response to Randy. First, you would be hard pressed to find a community bank that made those types of loans, number one. Number two, we still think that the person who is in the best control of what can I afford, what can I do as a borrower going forward? Is the borrower. So I don't know that because you had a product out there that had a negative amortization, unless someone didn't understand that, we still think that there's a good old thing as, I'll do what I say I'm going to do, I'll pay my debt. And it's important to remember that most Arizonans right now are doing that. They're working hard and they're struggling to pay their debt.

Ted Simons:
At the bottom line, again, over here we're seeing maybe covering for bad loans, but over here we're saying, what about responsibility? What about living up to the agreement?

Randy Nussbaum:
My response is two responses. First of all, if you're going to now change the law -- and this law is not just a statute, the courts have consistently upheld it, you tell the investors and the banks from this day forward the rules are different. Second of all, what you need to do is drop the statute that addresses the problem in a coherent and comprehensive way. I believe Tanya will agree that senate bill 1271 does not serve that purpose.

Ted Simons:
Where was all this criticism when this senate bill was being vetted? Why did this thing get through?

Randy Nussbaum:
Well, the research I've done has led me to believe that the timing was such and the way it was presented was that it wasn't publicized. Actually, most members of the public didn't even know this issue was before the senate at the time until after the fact. The moment this bill got publicized and it was going to become effective in September, there was an uproar. What's interesting, it's not just from consumers or investors, it's across the board. When you have a statute that creates this type of uproar, you know there's a fundamental problem with it. For example, you've got the verbiage saying you've got to have a certificate of okay pansy. The criticism is well found because a lot of cities don't grant that, it noose bearing on whether the loan should be recoursed or not. More importantly, you've got the six-month residency requirement and that's not defined as to when you have to live there for six months.

Ted Simons:
I want to give you the last word. Go ahead.

Tanya Wheeless:
The bill was vetted, it was vetted properly. It was done in a one-month period because every senate bill that was passed into law was done in that period. We want to take this back to the original intent and nothing more, Ted. We believe that 1271 protects homeowners in their home, Randy is correct, I think there are unintended consequences, but I want to make clear, it was absolutely intended to remove investors and speculators from this statute.

Ted Simons:
We'll stop it there. Good discussion. Thanks for joining us.

Tanya Wheeless:
Thank you.

Legislative Update

  |   Video
  • Arizona Capitol Times reporter Jim Small talks about the legislature’s latest budget breakdown. Governor Jan Brewer and Republican legislative leaders have agreed to a new budget plan, but they continue to struggle to find enough votes to pass it.
Guests:
  • Jim Small - Arizona Capitol Times
Category: Government

View Transcript
Ted Simons:
Tonight on "Horizon," the sponsor of a new foreclosure law now wants the law repeals before it goes into effect. Find out why. And find out if lawmakers have the votes they need to pass their latest budget plan. That's next on "Horizon." Good evening, and welcome to "Horizon." I'm Ted Simons. Yesterday it appeared lawmakers were well on their way to passing a budget. But then something got in the way. Not enough votes. Here now with the latest is Jim Small of the Arizona Capitol Times. Good to see you again. That's pretty much it, wasn't it?

Jim Small:
That pretty much explains it. They got everything ready, they held a press conference with the governor saying we've got a deal in place, if we could get these bills through, she'll sign it, and this whole thing will move forward. We won't have a repeat of last month, where things were vetoed, and everything kind of fell apart three hours after that press conference, and the senate came on and suddenly adjourned and caught everyone by surprise and went home for the evening.

Ted Simons:
Who is holding out and why?

Jim Small:
It looks like there's a couple of conservative Republicans in the senate. Jack Harper from surprise, and Pamela Gorman from anthem are the names most people are talking about as far as being the two kind of holdouts. You've already got one Republican senator, Ron Gould from Lake Havasu who is not going to be in support of this plan which includes tax increase proposal. He's not going to support that no matter what. They have another from Scottsdale who hurt herself the other day and she's laid up, she's immobilized so she's very unlikely to come down to the capitol to vote on something with only 18 Republicans in the senate, that basically is your entire margin of error. So they need to get every other Republican, so senator Harper, senator Gorman are opposed to the tax increase proposal, and as it stands right now leadership over there is continued to work them over as they have yesterday and they have pretty much all day today.

Ted Simons:
So senate president Burns can perhaps replace folks on the apropos committee, move it to another committee, but the fact is, no matter what happens even if it gets out after committee they doesn't have the full votes.

Jim Small:
Right. That's kind of one of the things everyone is looking at. OK, the bills can't go out of committee because senators Gould, Gorman and Harper are all on the committee. So if you've got three no votes out of seven Republicans you're in trouble. They're going to line up with the democrats and the bills will go down. So you could move it a month ago when they had the same problem, they moved the bill to the education committee, passed them out, and I think we all remember what happened there. The tax increase proposal still didn't go anywhere. And it's really the problem they have now. Sure, they can get it out of another committee, but that's only gets you one step closer to the showdown.

Ted Simons:
The governor, we're hearing some reports the governor now and maybe some leadership pitching woo to democrats. How much?

Jim Small:
The governor has been talking to some democrat lawmakers this week. I don't know what's been said or what's been offered. Certainly we haven't been ability to -- we've been scouring Democratic hallways looking for those democrats that are supporting this plan. We haven't been able to find them. Their leaders say they haven't been able to find them either. If people -- if democrats are cutting deals with the governor, it hasn't been evident yet. Frankly F. they had enough to cut the deals to make up the difference for senators Harper and Gorman, I think we'd see this thing move into the floor.

Ted Simons:
I was going to say, it would seem as though democrats would be pretty upset about the whole turn of events. They thought they had something working with leadership, and it sounds as if leadership was working something else.

Jim Small:
Yeah, they are. They're very upset with the way these negotiations were handled. For the past month, three weeks, they were working hand in hand with the Republican leadership. And it was the first time all year they've been involved with the budget process, they met for three weeks, they were supposed to have a meeting on Tuesday to come back. They said they were only about $500 million apart. They showed up at the meet can and the Republican leadership said, by the way, we've been working with the governor. So we've got a deal in the works with her, sorry, we're going to go ahead and pursue that the time being. The democrats were angry, held a press conference a couple days ago, and this -- right now they're kind of on the sidelines looking in. And in one respect in this -- if this deal falls apart, they're going to the -- they'll be in the cat bird seat because the Republicans won't have any choice but to come back to them. I spoke with the house minority leader yesterday; he said if they come back we're starting at zero. All the work we did is all out the window. We go back to where we were and our members are angry that they're going to be less willing to make the compromises.

Ted Simons:
It sounds like a harder bargain. To be clear, this package that was moving and now it's stalled, you're talking three years of a sales tax hike, one cent, one cent and the third year a half cent. And you've got spending limits to '09 levels, something like that.

Jim Small:
About $10.2 billion. Those would be on the same ballot question. So voters, if this were to pass, would it go on the ballot sometime in November. They would get the choice, do we want to raise taxes and at the same time implement a spending cap, and the idea with that is to show voters that the money won't be collect and used to grow government. It's going to be used to pay for things currently on the books.

Ted Simons:
Another part of the package includes suspending the voter protection act, again for three years, which means for three years you can monkey around with it any way you want?

Jim Small:
Yeah. It's kind of an odd component. It's a three-year constitutional amendment. Which -- I don't think anyone has ever seen before. And, yes, you would be able to go through anything that was approved by voters that has money component to it that's been approved since 1998, lawmakers could dip into the funds. So you're looking -- some of the things, the funds that they might take money from would be clean elections fund, first things first, which is the 80 cent tobacco tax that was pass add couple years ago. Things like that that have stockpiled the money that they can't touch.

Ted Simons:
And again, just to be clear, there are tax cuts that would go into effect after three years, after the sales tax should it be enacted and should it be approved by voters, the sales tax, the individual and corporate income taxes would then kick in after three years. Do those things kick in if the sales tax is turned down by voters?

Jim Small:
Yeah. If the legislature approves the budget bill, yes, they would. Basically they've tied these things together, so these Republican lawmakers who don't like the idea of the tax increase get to vote on one bill that has a tax increase ballot referral and at the same time income tax cuts for a couple years down the road. You could absolutely have a situation where this thing goes to the ballot and fails, and then in a couple years you have $400 million in income taxes that come off the books.

Ted Simons:
All right. Where do we stand right now?

Jim Small:
Right now we stand kind of waiting to see what's going to happen in the senate. It's really a matter of whether they can get the votes. If they get the votes, they're going to move as quickly as they and can you'll see the house and senate start to take bills to the floor and vote on them ASAP. If not, I think it's just a matter of when does leadership decide to cut bait and this deal will be finally dead?

Ted Simons:
Jim, good stuff. Thanks for joining us.

Jim Small:
Thank you.

Nick Cave Art Exhibit

  |   Video
  • We’ll take you on a tour of “Meet Me at the Center of the Earth,” a new exhibit at the Scottsdale Museum of Contemporary art featuring the work of artist Nick Cave.
Category: The Arts

View Transcript
Ted Simons:
"Meet Me at the Center of the Earth" is a new art exhibit at the Scottsdale museum of contemporary art. It's a traveling exhibition that showcases sculptured art in unique form of full body costumes. Nadine Arroyo Rodriguez introduces us to the works of artist Nick Cave.

Nadine Arroyo Rodriguez:
Pieces of art that celebrates culture and explores traditions and history with vibrant colors. Unique materials, and distinctive movements and sounds. These are the works of Nick Cave. The nationally recognized artist most notable for his unique sculptures of full-body costumes. The Scottsdale museum of contemporary art showcases the Nick Cave collection in an exhibition called "Meet Me at the Center of the Earth." The costumes are made of scavenged materials ranging from buttons, beads, and toys, to old sweaters, purses, and even human hair. The costumes are named for the sounds each makes when they are worn. Cave transforms discarded objects into works of art.

Nick Cave:
I think it this work has conviction. I think it has what I feel. It has what I believe in.

Nadine Arroyo Rodriguez:
Cave's art was inspired by the beating of Rodney king. The African-American male beaten by L.A. police officers during the 1992 L.A. riots. Cave recalls that day as the moment he reflected on who he was as a black man, and how the widely televised incident made him feel. He was so moved; he decided to create a sculpture and chose to use twigs lying in the park as the material. The piece was initially created with twigs as a symbol of a hard shield fighting back cave's own feelings of being devalued and discarded. But it turned out to be a super human like costume he could actually wear.

Nick Cave:
When I completed it, I thought, oh, my god, I can wear this thing. And so when I put it on, you know, my entire life changed at that point. Because then there was the sound suit. And so it's never been the same. It was that incident that sort of triggered and really sort of made me realize that I wanted to be an artist with a conscience.

Nadine Arroyo Rodriguez:
Among artists, Cave is called a Shaman. Siberian word for one who knows. It's used to describe indigenous persons who practice medicine. And connect to the spiritual aspect of a people. Cave says his sound suits are a means for him to connect to what has happened in the past and who we are today. The collection served as a vehicle for a spiritual journey to connect with others at the center of the earth.

Nick Cave:
It's really about sort of removing one's identity. It doesn't matter. What matters is that it exists and it is another. It's something other than what we know.

Nadine Arroyo Rodriguez:
This is the first time the sound suit's exhibition is showcased in Arizona, and the second of a nationwide seven-stop tour. For the Scottsdale museum of contemporary art, Nick Cave's exhibition is an opportunity for valley art enthusiasts to experience a new wave of contemporary fine art.

Claire Schneider:
What we've done is bring really great art to town, and this is art that deals with the same issues other contemporary art deals with. Using materials and different kinds of material to make new art you've never seen before. And it deals with the issues of transformation and identity, and living in today's world and responding to that.

Nadine Arroyo Rodriguez:
Cave encourages those who visit the exhibition, including children, to imagine themselves in the sound suits dancing and being empowered by their own imagination.

Ted Simons:
That's it for now. I'm Ted Simons. Thanks for joining us. You have a great evening.

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