A Checklist for Reviewing and Drafting Deeds of Trust

By: Bruce B. May

What follows is a checklist of the matters that must or should be addressed in a Deed of Trust to insure that it complies with Arizona law and addresses the larger issues.  The list does not purport to be complete.  Obviously, there is a host of other issues which should be addressed, e.g. maintenance, insurance, condemnation and environmental issues.  Moreover, the Deed of Trust is often not a “stand alone” document but part of a loan transaction the terms of which must be reflected in its content.  In many transactions, the Deed of Trust is treated as just another standard form, but it is not, and before the borrower signs or lender accepts it, the document should be reviewed by qualified legal counsel.

1. Is the lender subject to statutes regulating mortgage bankers or mortgage brokers
2. If the trustor or beneficiary acts as an agent or trustee, does the Deed of Trust comply with the Blind Trust Act?
3. Is a legal description attached to the Deed of Trust?
4. Is the legal description in proper form for recording?
5. Does the Deed of Trust comply with the requirements from the recording statutes? (a) Proper form of notary? (b) Proper signature? (c) Instrument properly identified in its title and caption? (if applicable, is it referenced as a Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing) (d) Are the form requirements satisfied?
6. Is the trust property conveyed to a trustee?  
7. Is there a granting clause in favor of the trustee for the benefit of the beneficiary?
8. Does the granting clause contain a reference to “power of sale”?
9. Is the trustee qualified to act in that capacity?
10. Does the instrument improperly encumber real property located in other states?  
11. Does the Deed of Trust secure the performance of a contract or contracts? 
12. Are mailing addresses of the trustor, beneficiary and trustee specified in the Deed of Trust?
13. Is the nature of the trustor’s real property interest set forth in the Deed of Trust?
14. Is the trustor also the borrower?  If not, have appropriate pledgor provisions been included in the Deed of Trust?
15. Is there a recitation of the obligations or obligation secured?
16. Are the remedial provisions of the Deed of Trust consistent with Arizona law?  Does it recite that it can take possession or obtain a receiver without demonstrating that security is inadequate.  Are the proceeds of sale distributed properly?
17. Are anti-deficiency provisions applicable?
18. Is there a prohibition of CFD’s?
19. Is an absolute assignment of rents contained in the Deed of Trust?
20. Does the lender intend to obtain, in the Deed of Trust, a security interest in fixtures and personal property?  If so, are UCC Article 9 requirements satisfied?  Is the grant of the security interests in personal property to Beneficiary?  Does it provide that it is effective as a fixture filing?
21. Is the Deed of Trust a construction mortgage?
22. Are events of default set forth?
23. Time of Essence
24. Are there fraudulent conveyance or preference concerns?
25. Are the return address instructions provided?
26. Does the Deed of Trust recite that it is governed by Arizona law?

Kenneth C. Sundlof, Jr. Elected as Chairman of the Board of the Herberger Theater Center

Kenneth C. Sundlof, Jr.

PHOENIX, Ariz. (June 12, 2015) – Jennings, Strouss & Salmon, PLC, a leading Phoenix-based law firm, is pleased to announce that Kenneth C. Sundlof, Jr. has been elected as Chairman of the Board of the Herberger Theater Center. He will serve two-year term.

 

Opened in 1989, the Herberger Theater Center supports and fosters the growth of the arts in Phoenix as a premier performance venue, arts incubator and advocate. The Herberger is also host to several Valley theater and dance companies; and offers three theater venues – Center Stage, Stage West and The Kax Stage - an art gallery, outdoor performance areas, and rentable space for a variety of community events.

 

“I am excited and honored to have the opportunity to serve as the Board Chair,” stated Kenneth C. Sundlof Jr. “The promotion and incubation of artistic expression is vital to our community and to downtown Phoenix. I look forward to working with the Board and staff to further and expand the mission of the theater.”

 

Sundlof has over thirty-five years of extensive experience in the utility industry, including the electric, telecommunications, natural gas, and water sectors. His experience extends to nearly all legal and regulatory needs of utilities and their customers. Sundlof advises clients on litigation and transactional matters, including business negotiations, contracts, procurement, licensing, real estate, banking, construction and insurance.

 

In addition to his involvement with the Herberger Theater Center, Sundlof serves as treasurer of the board of directors for Healthy Mothers Healthy Babies Maricopa. He has been listed in The Best Lawyers in America (2005-2015) in the areas of Energy Law (Public Utility, Transactions), and recognized as a “Top Lawyer” for energy and natural resources by Arizona Business Magazine (2014).

 

About Jennings, Strouss & Salmon, PLC

Jennings, Strouss & Salmon, PLC, has been providing legal counsel for over 70 years through its offices in Phoenix, Peoria, and Yuma, Arizona; and Washington, D.C. The firm's primary areas of practice include agribusiness; bankruptcy, reorganization and creditors’ rights; construction; corporate and securities; employee benefits and pensions; energy; family law and domestic relations; health care; intellectual property; labor and employment; legal ethics; litigation; professional liability defense; real estate; surety and fidelity; tax; and trust and estates. For additional information please visit www.jsslaw.com and follow us on LinkedIn, Facebook and Twitter.

 

The firm’s affiliate, B3 Strategies, assists clients with lobbying and public policy strategy at the local, state, and federal levels. For more information please visit www.b3strategies.com.

 

~JSS~

 

Contact:  Dawn O. Anderson | danderson@jsslaw.com| 602.495.2806

Understanding Cumulative v. Non-Cumulative CAM Caps in Commercial Leases

 

Alan P. Christenson

Commercial leases for shopping centers and office buildings will often require the tenant to pay a share of common area maintenance (CAM) expenses, which are also frequently referred to as operating expenses. Tenants generally want to put a cap on CAM expenses, which leads to negotiations as to whether this cap will be cumulative or non-cumulative. So, what is the difference between cumulative and non-cumulative CAM caps?

 

Cumulative Caps
Landlords prefer cumulative caps, as they want maximum flexibility in deciding what costs will benefit their shopping center or office building. A cumulative cap sets a ceiling on the annual increases in CAM expenses that can be passed on to a tenant. The “cumulative” nature of this cap allows the landlord to recover any unused increases from prior years. For example, let’s say that the landlord and tenant agree to a 5% cumulative cap. If CAM expenses increase by 2% in year 1, then the tenant would pay the 2% increase. If CAM expenses increase by 10% in year 2, then the tenant would pay an 8% increase. This is because, in addition to the 5% cap, the landlord can recover the 3% increase that went unused in year 1.

 

Non-Cumulative Caps
Tenants prefer non-cumulative caps, as they want to budget and avoid unexpected increases in CAM expenses. A non-cumulative cap sets a ceiling on annual increases in CAM expenses and does not allow the landlord to recover any unused increases from prior years. For example, if the landlord and tenant agree to a 5% non-cumulative cap in the example above, the tenant would pay the 2% increase in year one and just a 5% increase in year 2.

 

During lease negotiations, landlords and tenants should pay close attention to whether the other party is proposing a cumulative or non-cumulative cap. The parties should also be careful to understand the other factors that go into negotiating a CAM cap, such as determining what costs will be included and excluded from the cap. The failure to do so can make a big difference down the road.

Small Business Real Estate Series, Part II: Commercial Lease Negotiations

By David Brnilovich

Part I of the Small Business Real Estate Series focused on the due diligence a small business owner should conduct when evaluating commercial locations. Once you have decided on the location that best suits the needs of your business and budget, the next phase is to negotiate the commercial lease. Even if you, as Tenant, employ the assistance of a leasing agent, you are ultimately responsible for complying with the terms of the lease. It is important to ensure you are entering into a lease that you fully understand and is acceptable. It is possible to have the landlord’s leasing agent represent you as well. You will be required to sign an agency agreement, and the leasing agent will have duties to both you and the landlord. The implications of dual agency will be the subject of a future discussion in this series. This discussion will assume the tenant is employing his or her own leasing agent for the negotiation.

At the beginning of the negotiation process, you will receive a lot of information from either the landlord or its leasing agent. Although much of the information will be general in nature, there will also be information a prospective tenant should consider carefully before entering into a lease. It is important that you keep very good notes about the specific representations being made by the landlord and its leasing agent, and have them incorporated into the lease. As a general rule, any verbal statements or representations made by the landlord or its agent prior to the signing of the lease are not enforceable. If the statements and representations are important, they must be part of the lease. Should a conflict arise and end up in court, judges are not likely to consider verbal statements made during lease negotiations that are not expressly set forth in the signed lease agreement. No matter how harsh the terms of the commercial lease, the courts will enforce the lease regardless of whether the tenant believes he or she is being treated unfairly.

It is up to you and your leasing agent to try and negotiate the terms of the lease. The landlord will draft a lease that favors its own interests, not yours. Be aware of the “standard” pre-printed form presented by landlord’s agent as the “accepted“ industry form. It requires as much careful review as the form the landlord has prepared for its own use. Be sure you can live with the terms of the lease. If you feel strongly that something is not right, and the landlord is unwilling to be accommodating, do not sign the lease. It is better to walk away than be intimidated into signing an agreement you are not comfortable with.

Commercial leases are typically extensive, including dozens of pages of terms with numerous exhibits, addenda, rules and regulations. They may also include sign criteria and “work letters” with a schedule of improvements for the landlord and the tenant to complete. It is critical that you read and understand each and every term and condition of the lease, its exhibits, addenda, and other provisions, such as subordination, attornment, insurance, subrogation, relocation, indemnity, waivers and remedies. It is important that you understand the potential consequences of every section of the lease. Otherwise, you may have a rude awakening should there be an issue with the landlord down the road. Also, landlords and tenants tend to file away the lease agreement and ignore it until it is up for renewal or an issue arises. It is always a good idea to review your lease often and ensure both you and the landlord are in compliance.

Given the complexity of commercial leases, many terms of which cannot be understood without expert assistance, it is wise to seek legal advice from an experienced real estate attorney to ensure your interests are represented fairly in the agreement before it is signed.

The next topic of the Small Business Real Estate Series is the continuing personal guarantee, which is one of the most important, yet least understood, attachments to a commercial lease.

U.S. Supreme Court Questions Abercrombie & Fitch’s “Look Policy”



By: Kami M. Hoskins

On June 1, 2015, the Supreme Court of the United States (“SCOTUS”) issued its decision reversing the Tenth Circuit’s award of summary judgment in favor of Abercrombie & Fitch Stores, Inc. in the closely watched employment discrimination case.  Title VII of the Civil Rights Act of 1964 as amended (“Title VII”) provides for two types of religious discrimination in employment claims: (i) disparate treatment, also known as “intentional discrimination”; and (ii) disparate impact.  In the opinion written by Justice Scalia and joined by six other justices, the SCOTUS clarified the scope of a disparate treatment claim under Title VII, based on an employer’s failure to accommodate an applicant’s religious practice.  The SCOTUS determined that an employer may not make an applicant’s religious practice, known to the employer or otherwise, a factor in employment decisions.  The decision is a cautionary tale for employers who maintain dress code policies.

 

The Equal Employment Opportunity Commission (“EEOC”) sued Abercrombie on behalf of Samantha Elauf, a practicing Muslim, who applied for a position in an Abercrombie store and was denied the position because she wore a headscarf.  Abercrombie maintains a “Look Policy” for its employees with the intent of projecting a certain image in its stores.  The Look Policy prohibits employees from wearing “caps” (a term that is not defined by the policy) because they are too informal for the company’s preferred image.

 

The assistant manager who interviewed Elauf determined Elauf was qualified to be hired, but she was concerned that Elauf’s headscarf would violate the Look Policy.  Ultimately, Abercrombie’s district manager concluded that the headscarf and all other headwear (religious or otherwise) violated the policy, and he directed the assistant manager not to hire Elauf.

 

At issue before the SCOTUS was whether an applicant must have informed an employer of her need for a religious practice accommodation to establish a “disparate treatment” claim under Title VII.  The District Court entered summary judgment in favor of the EEOC, and the Tenth Circuit reversed.  The Tenth Circuit concluded that usually an employer cannot be held liable under Title VII for failing to accommodate a religious practice until the applicant or employee provides the employer with “actual knowledge” of her need for an accommodation. 

 

The SCOTUS disagreed and emphasized that the employer’s motive behind its employment decision is the central issue, not its knowledge about the applicant’s need for an accommodation.  It stated, “an employer who acts with the motive of avoiding an accommodation may violate Title VII even if he has no more than an unsubstantiated suspicion that accommodation would be needed.”  The Court further clarified that Title VII does not demand “mere neutrality” with respect to religious practices, but instead it gives such practices “favored treatment”, which affirmatively obligates employers not to fail to hire or to discharge an individual because of her religious observance and practice.  The SCOTUS remanded the case back to the Tenth Circuit to consider, among other things, the issue of Abercrombie’s motive in not hiring Elauf.

 

The decision raises big questions about the enforcement of dress code policies.  Employers should review their employment policies and their enforcement of those policies to ensure they comply with Title VII.  Employers may also consider seeking the assistance of employment attorneys who can help navigate these complex issues.

 

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Kami M. Hoskins is an Arizona native dedicated to creating and implementing effective resolutions to complex legal issues for a variety of clients. She focuses her practice on two primary areas: 1) Bankruptcy, Reorganization and Creditors’ Rights Law; and 2) Labor and Employment. Ms. Hoskins is also the Chair of Jennings, Strouss & Salmon’s Diversity Action Committee, and she helps lead the firm’s diversity and inclusion strategic initiatives.

 

Guarantors, Unlike Borrowers, Can Waive Antideficiency Protections

By Kerry A. Hodges

Two years ago, in Parkway Bank & Trust Co. v. Zivkovic, the Arizona Court of Appeals held that borrowers cannot prospectively waive Arizona’s antideficiency protections.  In doing so, however, the Court expressly declined to consider whether guarantors receive similar protection.

On May 28, 2015, the Arizona Court of Appeals answered this decades-old question in Arizona Bank & Trust v. James R. Barrons Trust, et al., holding that guarantors, unlike borrowers, can waive the antideficiency protections of A.R.S. § 33-814(G).  The decision is consistent with the stated purpose of Arizona’s antideficiency statutes—“to protect ‘homeowners’ from deficiency judgments,” not guarantors of business loans, Long v. Corbet, and brings further clarity to the real-estate lending industry.

But questions remain.  For example, what about guarantors who haven’t waived antideficiency protections?  Can lenders pursue deficiency judgments against them?  Barrons Trust doesn’t answer those questions.  In its analysis, the Barrons Trust court assumed, without deciding, that guarantors qualify for antideficiency protections under A.R.S. § 33-814(G).  And what about the “resident guarantor” scenario, i.e., where an LLC acts as borrower, but its sole member (or members) guarantee the loan to the LLC and then reside in the house that serves as the collateral for the loan?  Barrons Trust doesn’t address this potential scenario.  Would it make a difference?  In light of these and other unanswered questions, there is little doubt that Arizona’s antideficiency statutes, and the cases interpreting them, will continue to generate litigation in the years to come.