The Short Sale Seller Advisory is a Resource Provided by the Arizona Association of REALTORS BEFORE PROCEEDING WITH A SHORT SALE

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1 The Short Sale Seller is a Resource Provided by the Arizona Association of REALTORS A short sale is a real estate transaction in which the sales price is insufficient to pay the loan(s) encumbering the property in addition to the costs of sale and the seller is unable to pay the difference. A short sale involves numerous issues as well as legal and financial risks. This is designed to address some of these issues and risks, but does not purport to be comprehensive. BEFORE PROCEEDING WITH A SHORT SALE 1. UNDERSTAND A LENDER S OPTIONS UPON LOAN DEFAULT There are many types of loans that are secured by real property. These may be purchase loans, refinanced loans, home-equity loans, or one of the various other types of loans. The type of loan and type of property will determine what remedies a lender may have if the homeowner fails to make the agreed upon payments. The available remedies, the homeowner s overall current or potential future financial strength, the lender s cost in acquiring the loan and any shared-loss or similar agreement if the loan was acquired by purchase or merger, are some of the many factors that the lender may consider in deciding how to proceed when a loan is in default. For an overview of these issues, go to BE AWARE OF PREDATORY RESCUE SCAMS & SHORT SALE FRAUD Homeowners worried about foreclosure may be susceptible to predatory rescue scams which may cost you money with no results, result in the loss of your home entirely, or involve you in a fraudulent scheme. For more information, go to: or Red Flags of fraudulent schemes include: Guarantees to stop the foreclosure Large upfront fees Instructions not to contact the lender Transfer of title or lease of the property The proposed buyer is an LLC Requests that the homeowner execute a power of attorney The proposed buyer, at the buyer s sole expense, retains a third party to negotiate the short sale for the seller s benefit. 3. REPORT SUSPECTED SCAMS Financial Fraud Enforcement Task Force HUD, in partnership with the Loan Modification Scam Prevention Network Arizona Department of Financial Institutions at or consumeraffairs@azdfi.gov Arizona Attorney General s Office Page 1 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016) Garden Brook Realty, 520 W Sheldon Street Suite 2A Prescott, AZ Phone: Fax: Diann Dede Erceg

2 BEFORE PROCEEDING WITH A SHORT SALE (CONTINUED) 4. CONTACT A FREE HUD-APPROVED HOUSING COUNSELOR OR CONTACT YOUR LENDER DIRECTLY Contact a HUD-approved housing counseling agency online or call (800) or TDD (800) for advice on your options. For additional HUD resources, go to: or Contact the Neighborhood Assistance Corporation of America at Contact the lender directly. To find the lender s contact information, check the loan billing statement, or coupon book. Ask for the lender's home retention department, loss mitigation department, (or other department that handles negotiation of loans in default); explain the situation and find out if the lender is willing to discuss options. 5. UTILIZE FREE SERVICES AVAILABLE TO ARIZONA RESIDENTS Contact the Arizona Foreclosure Helpline at or visit Review the Arizona Foreclosure Prevention Task Force Workbook. This book will help you evaluate your options and provide you with tools to take action. Contact the Lawyer Referral Service in your county where you can consult with an attorney for a small fee for a halfhour consultation. Maricopa County: or (602) Pima County: or (520) Attorneys who are State Bar Real Estate Law Certified Specialists can be located at 7. OBTAIN TAX ADVICE IRS Self Help or contact a local IRS office Attorneys who are State Bar Tax Law Certified Specialists can be located at 8. BE AWARE OF THE CONSEQUENCES OF COMMITTING WASTE Damaging the property or removing fixtures such as sinks, toilets, cabinets, air conditioners, and water heaters may result in liability to the lender for waste. In other words, the lender may be able to sue you for damages if you have physically abused, damaged or destroyed any part of the property. Arizona Department of Housing 6. OBTAIN LEGAL ADVICE An attorney can advise you about your options and legal liability. To find out if you are eligible for free or low cost legal assistance, contact a legal aid organization in your county or one of the organizations listed at Page 2 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016)

3 OPTIONS OTHER THAN SHORT SALE CONSIDER ALL OPTIONS A SHORT SALE MAY NOT BE YOUR BEST COURSE OF ACTION. CONSIDER ALL YOUR OPTIONS BEFORE MAKING A DECISION. 1. LOAN WORKOUT Reinstatement: Paying the total amount owed by a specific date in exchange for the lender agreeing not to foreclose. Forbearance: An agreement to reduce or suspend payments for a short period of time. Repayment Plan: An agreement to resume making monthly payments with a portion of the past due payments each month until they are caught up. Claim Advance/Partial Claim: If the loan is insured, a homeowner may qualify for an interest-free loan from the mortgage guarantor to bring the account current. 2. LOAN MODIFICATION The lender may agree to change the terms of the original loan to make the payments more affordable. For example, missed payments can be added to the existing loan balance, the interest rate may be modified or the loan term extended. Loan modification resources include: Know Your Options: Making Homes Affordable: Homeownership Preservation Foundation: or call HOPE Hotline 3. REFINANCE If the lender will not agree to a loan workout or modification, the homeowner may be able to refinance the loan with another lender. Learn more at 4. DEED-IN-LIEU OF FORECLOSURE The lender may allow a homeowner to give back the property. This option may not be available if there are other liens recorded against the property. Review the Deed in Lieu of Foreclosure FAQ s from HUD at 5. WORK OUT SALE The lender may allow a specific amount of time for the home to be sold and the loan to be paid off. The lender may also allow a buyer to assume the loan to purchase the property even if the loan is non-assumable. 6. BANKRUPTCY If you are considering bankruptcy as an option, consult with an attorney that specializes in bankruptcy cases: Access the Arizona Bankruptcy Court self-help information at or call FORECLOSURE Allowing the lender to foreclose is another option. The counselors at the Arizona Foreclosure Help Line can explain the foreclosure process or call Ultimately, only you and your attorney can decide if foreclosure is the best option for you. Attorneys who are State Bar Real Estate Law Certified Specialists can be located at Ask your attorney about the possibility of a deficiency lawsuit after foreclosure. Assuming all statutory requirements are met, the Arizona anti-deficiency statutes may limit the lender s remedy to foreclosure, even if the amount due to the lender exceeds the value of the property. Also, seek professional tax advice about the consequences of a foreclosure and review the IRS information at Page 3 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016)

4 SHORT SALE CONSIDERATIONS IF YOU DECIDE TO PURSUE A SHORT SALE, CONSIDER TAKING THE FOLLOWING ACTIONS 1. CONTACT A QUALIFIED REAL ESTATE PROFESSIONAL Interview several real estate professionals and ask about their experience in short sales, the number of short sale transactions that they have handled, and their education and training in short sales. Review the real estate professional s background and continuing education on the ADRE website at Ask if the real estate professional has obtained a short sale certification, such as the Short Sales and Foreclosure Resource Certification ( SFR ) Find a REALTOR at 2. INVESTIGATE DOCUMENTATION AND ELIGIBILITY Documentation and eligibility criteria for short sales vary depending on specific lender and investor guidelines. Generally, you must prove that you are financially incapable of paying the loan and the lender is convinced that it will fare better by agreeing to a sale for less than the outstanding loan amount than foreclosing. 3. DETERMINE THE AMOUNT OWED ON THE PROPERTY All debt and costs must be factored in before determining whether a short sale is feasible. Consider the delinquent loan, home equity loan or other loans recorded against the property, past due homeowner s association fees, unpaid property taxes and the costs of a sale, such as closing costs, escrow fees and brokerage commissions. If you have more than one loan on the property, be aware that a short sale will generally require the approval of all lenders. 4. DETERMINE THE ESTIMATED FAIR MARKET VALUE OF THE PROPERTY You must prove to the lender that the home is worth less than the unpaid loan balance. Consult a real estate professional or an appraiser for assistance in estimating the value of the property. 5. CONSULT LEGAL COUNSEL The importance of competent legal counsel to help you determine whether a short sale is the best option and to advise you during the short sale process cannot be over emphasized. See the legal resources listed on page 2 or visit 6. UNDERSTAND THAT A SHORT SALE MAY NOT DISCHARGE THE DEBT Even if a lender agrees to a short sale, the lender, the VA, or the FHA may not agree to forgive the debt entirely and may require you to pay the difference as a personal obligation. This outstanding personal obligation could result in a subsequent collection action. For example, a lender may accept the short sale purchase price to release the lien on the property as opposed to agreeing to accept the purchase price as full and final settlement of the debt on the property. Therefore, be certain of the terms of any short sale before making a decision, consult an attorney regarding whether the lender is entitled to pursue a deficiency judgment and obtain any debt forgiveness agreements with the lender in writing. 7. OBTAIN TAX ADVICE A short sale in which the debt is forgiven is a relief of debt and may be treated as income for tax purposes. The Mortgage Forgiveness Tax Relief Act of 2015 created a limited exemption to allow homeowners to pay no taxes on debt forgiveness; however, only cancelled debt used to buy, build or improve a principal residence or refinance debt incurred for those purposes qualifies for this tax exemption. For more information on the tax consequences of debt relief seek professional tax advice and go to 8. BE AWARE OF THE IMPACT ON YOUR CREDIT SCORE The impact of a short sale on your credit score depends upon a variety of factors, including late or missed payments. A short sale may appear on your credit report as pre-foreclosure redemption, paid in full for less than full balance or other similar term. 9. UNDERSTAND THAT THERE MAY BE A WAITING PERIOD BEFORE YOU CAN BUY ANOTHER HOME Your ability to qualify for a loan to purchase another home after a short sale will likely be impacted by a short sale and there may be a waiting period before you can purchase another home. Page 4 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016)

5 SHORT SALE CONSIDERATIONS (CONTINUED) 10. HOME AFFORDABLE FORECLOSURE ALTERNATIVE (HAFA) PROGRAM The HAFA program was designed to give homeowners different alternatives to a foreclosure, which include incentives for completing a short sale. For more information on the options available, visit the HAFA program website To find out which option you may be eligible for, go to To find out if your mortgage company participates in the HAFA program, go to REVIEW THE ARIZONA ASSOCIATION OF REALTORS (AAR) SHORT SALE FORMS AAR has developed the following contract forms to assist you in a short sale transaction. Review these contract forms and any other forms you are asked to sign, so that you thoroughly understand your rights and obligations. Short Sale Addendum to the Listing Contract Short Sale Addendum to the Arizona REALTORS Residential Resale Sale Purchase Contract For More Information, visit AAR s Consumer Foreclosure Assistance Links: Page 5 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016)

6 SELLER ACKNOWLEDGMENT Seller acknowledges receipt of all six pages of this and further acknowledges that there may be other issues of concern not listed herein. The information in this is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer. Short Sale Seller A Resource for Real Estate Consumers Provided by the ^ SELLER SIGNATURE SAMPLE DATE ^ SELLER SIGNATURE SAMPLE DATE Page 6 of 6 Arizona Department of Real Estate Short Sale Seller (March 2016)

7 The Tenant is a Resource Provided by the Arizona Association of REALTORS Residential Rentals are required to comply with the Arizona Residential Landlord/Tenant Act: Verification of Ownership Prior to executing a lease agreement or conveying any money, tenants should independently verify the owner of the property and confirm that they are contracting with the owner of record. If a person other than the owner signs the lease agreement, tenants should verify that the third party has authority to act on the owner's behalf. Information regarding property ownership Prior to executing a lease agreement or conveying any money, tenants should independently verify the owner of the property following: COMMON DOCUMENTS A TENANT SHOULD REVIEW 1. Residential Lease Agreement Tenants should protect themselves by taking the time to read the residential lease agreement and understand their legal rights and obligations before they enter into a lease agreement. Click to view a sample of the agreement: 2. Residential Lease Owner s Property Disclosure Statement (RLOPDS) Many landlords provide a RLOPDS. This document poses a variety of questions for the owner to answer about the property and its condition. The property manager/broker is not responsible for verifying the accuracy of the items on the RLOPDS; therefore, a tenant should carefully review the RLOPDS and verify those statements of concern. Click to view a sample of the RLOPDS Homeowners Association (HOA) Governing Documents If CC&Rs are recorded against the property, the tenant agrees to follow the CC&Rs. It is essential that the tenant review and agree to these restrictions prior to leasing a property. The Arizona Department of Real Estate (ADRE) advises: Read the deed restrictions, also called CC&Rs (covenants, conditions and restrictions). You might find some of the CC&Rs are very strict. In addition to CC&Rs, HOAs may be governed by Articles of Incorporation, Bylaws, Rules and Regulations, and often architectural control standards. Read and understand these documents. Also, be aware that some HOAs impose fees. Tenants with questions about their rights and remedies regarding homeowners associations or community associations should read the information provided at or Chapters 16 and 18 of the Arizona Revised Statues Title 33: 4. Lead-based Paint Disclosure Form If the home was built prior to 1978, the landlord must provide the tenant with a lead-based paint disclosure form. Information about lead-based paint may be obtained at Arizona Department of Real Estate: or 5. Move-in/Move-out Inspection The importance of inspecting the property at the time of moving in cannot be over-emphasized. The tenant is encouraged to fill out a move-in/move-out checklist to identify material defects in the property within the stated timeframe. A sample of AAR s Movein/Move-out Condition Checklist can be viewed at: Tenants should keep a copy of the checklist for their records and may also want to take photographs of any damage observed at the time of move-in. Page 1 of 4 Arizona Association of REALTORS Tenant (March 2016)

8 COMMON DOCUMENTS AND DISCLOSURES 1. Notice Unless otherwise agreed, all notices shall be sent registered or certified mail, or personally delivered. A.R.S Repairs and Property Condition Pursuant to Arizona law, the landlord is generally responsible for ensuring that all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other facilities and appliances, including elevators, supplied or required supplied by him be in good and safe working order and condition. A.R.S It is the landlord s responsibility to make sure that necessary repairs are made to keep the property in a fit and livable condition. It is the tenant s responsibility to notify the landlord of any/all necessary repairs. Following proper notice, the landlord has five days to make any repairs that materially affect the health and safety of the tenant(s) and 10 days to make any other requested repairs. NOTE: Pursuant to A.R.S (C), the landlord and tenant of a single family residence may agree in writing, supported by adequate consideration, that the tenant will perform the the landlord s duties to maintain a fit premises and perform specified repairs. 3. Access to the Property by Landlord or Landlord s Representative Unless the tenant requests repairs in writing, the landlord must give the tenant at least two days notice to enter the property, during reasonable hours, to make repairs, conduct inspections, have services completed or exhibit the property to prospective purchasers and tenants. The landlord has the right to immediately enter the premises in the event of an emergency or by court order. A.R.S Deposits/Fees The lease agreement should specify which deposits/fees are refundable and which are not. A landlord is not permitted to demand refundable security in an amount in excess of one and one-half month's rent. During the term of the lease, the tenant's security deposit should be held by the landlord or in a broker's trust account (disclosed in writing). At the end of the lease all refundable deposits shall be refunded to the tenant pursuant to A.R.S (G). The landlord can subtract unpaid rent or repair costs from the security deposit. Within 14 business days after termination of the tenancy and delivery of possession and demand by the tenant, the tenant is entitled to receive an itemized list of any/all security deposit deductions together with the amount due and payable to the tenant. A.R.S (D). 5. Termination of the Lease Unless the parties desire for the lease agreement to continue, written notice of intent not to renew the lease agreement shall be issued pursuant to the terms of the lease. If the lease continues on a month-to-month basis, absent prior written agreement, either the lease owner or the tenant may terminate by providing 30-days written notice prior to the periodic rental date (i.e. the date on which rent is due) per A.R.S (B). If the tenant vacates the property before the lease expires, they can still be held responsible for damages, including, but not limited to, monthly rent. A holdover tenant is someone who stays in the lease property after the express term of the lease has expired. The landlord can choose to evict a holdover tenant or allow the tenant to continue living in the property on a month-to-month basis under the terms and conditions of the lease agreement. 6. Foreclosure The landlord shall not allow the property to become the subject of a trustee's sale and doing so may place the landlord in breach of the lease agreement. Nonetheless, a landlord s failure to pay the mortgage does not eliminate the tenant s obligation to pay rent. To avoid breaching the lease, the tenant should continue paying rent to the landlord up to the date on which the foreclosure is completed. 7. Insurance Tenants are strongly encouraged to obtain renter s insurance for their benefit. Pursuant to some lease agreements, certain pets may require additional insurance coverage. Tenants are encouraged to contact an insurance professional concerning additional coverage that may be required Fair Housing & Disability Laws The Fair Housing Act prohibits discrimination based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and disability. Visit HUD s Fair Housing/Equal Opportunity website at: For information on the Americans with Disabilities Act, visit Page 2 of 4 Arizona Association of REALTORS Tenant (March 2016)

9 ADDITIONAL INFORMATION 1. Pests Bedbugs: Bedbug infestation is on the rise in Arizona and nationally. For more information on rights and obligations with respect to bedbugs visit the following websites at or Scorpions: Information on scorpions may be found at 2. Swimming Pools and Spas Barriers: Each city and county has its own swimming pool barrier ordinance and tenants should investigate and comply with all applicable state, county and municipal pool regulations. Pool barrier contact information for Arizona cities and counties may be found at: The Arizona Department of Health Services Private Pool Safety notice may be found at The state law on swimming pools is located at 3. Sex Offenders The presence of a sex offender in the vicinity of the property is not a fact that the landlord or broker is required to disclose. Since June 1996, Arizona has maintained a registry and community notification program for convicted sex offenders. This information may be accessed at: or through the National Sex Offender Public Website at: Prior to June 1996, registration was not required and only the higher-risk sex offenders are on the website. ADDITIONAL RESOURCES Links to state agencies, city and county websites: Arizona Tenant s Rights and Responsibilities Handbook: Arizona Department of Real Estate Consumer Information: Find a REALTOR : For information on indoor environmental concerns, the EPA has a host of resource materials and pamphlets which are available here. For crime statistics in all Arizona cities go to: click on the city/town and search for crime statistics. Tenants may find that children cannot attend the school nearest to the property and may even be transported to another community. For information about Arizona s schools visit: U.S. Department of Housing and Urban Development Housing Choice Vouchers Fact Sheet can be found at the following site: Information regarding Section 8 programs available through the Arizona Public Housing Authority can be found at: Maps for military airports can be found at Maps for many of the public airports can be found at: Page 3 of 4 Arizona Association of REALTORS Tenant (March 2016)

10 TENANT ACKNOWLEDGMENT Tenant acknowledges receipt of all four pages of this advisory. Tenant further acknowledges that there may be other disclosure issues of concern not listed in this advisory. Tenant is responsible for making all necessary inquiries and consulting the appropriate persons or entities prior to the leasing of any property. Tenant A Resource for Real Estate Consumers The information in this advisory is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer or other professional representative. TENANT SIGNATURE DATE TENANT SIGNATURE DATE Page 4 of 4 Arizona Association of REALTORS Tenant (March 2016)

11 TO ENSURE THAT YOU HAVE THE MOST UP-TO-DATE BUYER ADVISORY, PLEASE CHECK Garden Brook Realty, 520 W Sheldon Street Suite 2A Prescott, AZ Phone: Fax: Diann Dede Erceg Produced with zipform by ziplogix, Fifteen Mile Road, Fraser, Michigan

12 A Resource for Real Estate Consumers Provided by the Arizona Association of REALTORS and the Arizona Department of Real Estate A real estate agent is vital to the purchase of real property and can provide a variety of services in locating a property, negotiating the sale, and advising the buyer. A real estate agent is generally not qualified to discover defects or evaluate the physical condition of property; however, a real estate agent can assist a buyer in finding qualified inspectors and provide the buyer with documents and other resources containing vital information about a prospective property. This is designed to make the purchase of real property as smooth as possible. Some of the more common issues that a buyer may decide to investigate or verify concerning a property purchase are summarized in this. Included in this are: 1. Common documents a buyer should review; 2. Physical conditions in the property the buyer should investigate; and 3. Conditions affecting the surrounding area that the buyer should investigate. In addition, a buyer must communicate to the real estate agents in the transaction any special concerns the buyer may have about the property or surrounding area, whether or not those issues are addressed in this. { } REMINDER: This is supplemental to obtaining professional property inspections. Professional property inspections are absolutely essential: there is no practical substitute for a professional inspection as a measure to discover and investigate defects or shortcomings in a property. Page 1 of 13 Arizona Department of Real Estate Buyer (August 2017) Garden Brook Realty, 520 W Sheldon Street Suite 2A Prescott, AZ Phone: Fax: Diann Dede Erceg

13 Table of Contents SECTION 1 COMMON DOCUMENTS A BUYER SHOULD REVIEW 3 Purchase Contract 3 MLS Printout 3 The Subdivision Disclosure Report (Public Report) 3 Seller s Property Disclosure Statement (SPDS) 3 Covenants, Conditions and Restrictions (CC&Rs) 4 Homeowner s Association (HOA) Governing Documents HOA Disclosures Community Facilities District Title Report or Title Commitment Loan Information & Documents Home Warranty Policy Affidavit of Disclosure 5 Lead-Based Paint Disclosure Form 5 Professional Inspection Report 5 County Assessors/Tax Records 5 Termites and Other Wood Destroying Insects and Organisms 5 Foreign Investment in Real Property Tax Act (FIRPTA) SECTION 2 COMMON PHYSICAL CONDITIONS IN THE PROPERTY A BUYER SHOULD INVESTIGATE 6 Repairs, Remodeling and 7 Water/Well Issues 8 Indoor Environmental Concerns New Construction Square Footage Roof Swimming Pools and Spas (Barriers) Septic and Other On-Site Wastewater Treatment Facilities Sewer (Adjudications, CAGRDs) Soil Problems Previous Fire/Flood Pests (Scorpions, Bed bugs, Roof Rats, Termites & Bark Beetles) Endangered & Threatened Species Deaths & Felonies on the Property SECTION 3 CONDITIONS AFFECTING THE AREA SURROUNDING THE PROPERTY THE BUYER SHOULD INVESTIGATE (Mold, Chinese Drywall, Radon Gas & Carbon Monoxide, Drug labs, Other) Property Boundaries Flood Insurance / Flood Plain Status Insurance (Claims History) Other Property Conditions (Plumbing, Cooling/Heating, Electrical systems) 9 Environmental Concerns 10 Freeway Construction 10 Military and Public Airports (Environmentally Sensitive Land Ordinance) Electromagnetic Fields Superfund Sites & Traffic Conditions Crime Statistics Sex Offenders Forested Areas SECTION 4 OTHER METHODS TO GETTING INFORMATION ABOUT A PROPERTY 11 Talk to the Neighbors 11 Drive around the Neighborhood SECTION 5 RESOURCES Zoning/Planning/ Neighborhood Services Schools City Profile Report 12 Market Conditions 12 Additional Information Services: NATIONAL ASSOCIATION OF 12 Fair Housing & Disability Laws REALTORS, Arizona Government, Arizona Department of 12 Wire Fraud BUYER ACKNOWLEDGMENT p Google Earth Real Estate, and Arizona Association of REALTORS Page 2 of 13 Arizona Department of Real Estate Buyer (August 2017)

14 Section 1 COMMON DOCUMENTS A BUYER SHOULD REVIEW The documents listed below may not be relevant in every transaction, nor is the list exhaustive. Unless otherwise stated, the real estate broker has not independently verified the information contained in these documents. 1 Purchase Contract Buyers should protect themselves by taking the time to read the real estate purchase contract and understand their legal rights and obligations before they submit an offer to buy a property. (AAR Sample Residential Resale Purchase Contract) 2 MLS Printout A listing is a contractual agreement between the seller and the listing broker and may authorize the broker to submit information to the Multiple Listing Service (MLS). The MLS printout is similar to an advertisement. Neither the listing agreement nor the printout is a part of the purchase contract between the buyer and seller. The information in the MLS printout was probably secured from the seller, the builder, or a governmental agency, and could be inaccurate, incomplete or an approximation. Therefore, the buyer should verify any important information contained in the MLS. 3 The Subdivision Disclosure Report (Public Report) A Subdivision Disclosure Report (Public Report) is intended to point out material information about a subdivision. Subdividers (any person who offers for sale or lease six or more lots in a subdivision or who causes land to be divided into a subdivision) are required to give buyers a Public Report. Read the Public Report before signing any contract to purchase property in a subdivision. Although some of the information may become outdated, subsequent buyers can also benefit from reviewing the Public Report. Public Reports dating from January 1, 1997, are available on the Arizona Department of Real Estate (ADRE) website. (ADRE Search Developments) (ADRE Property Buyer s Checklist) ADRE does not verify the information in the Public Report. Therefore, the Report could be inaccurate so it should be verified by the buyer. 4 Seller s Property Disclosure Statement (SPDS) Most sellers provide a SPDS. This document poses a variety of questions for the seller to answer about the property and its condition. The real estate broker is not responsible for verifying the accuracy of the items on the SPDS; therefore, a buyer should carefully review the SPDS and verify those statements of concern. (AAR Sample SPDS) (ADRE Property Buyer s Checklist) 5 Covenants, Conditions and Restrictions (CC&Rs) The CC&Rs are recorded against the property and generally empower a homeowner s association to control certain aspects of property use within the development. By purchasing a property in such a development, the buyer agrees to be bound by the CC&Rs. The association, the property owners as a whole, and individual property owners can enforce the contract. It is essential that the buyer review and agree to these restrictions prior to purchasing a property. (ADRE Property Buyer s Checklist) ADRE ADVISES: Read the deed restrictions, also called CC&Rs (covenants, conditions and restrictions). You might find some of the CC&Rs are very strict. Buyers should consult legal counsel if uncertain of the application of particular provisions in the CC&Rs. Page 3 of 13 Arizona Department of Real Estate Buyer (August 2017)

15 6 Homeowners Association (HOA) Governing Documents In addition to CC&Rs, HOAs may be governed by Articles of Incorporation, Bylaws, Rules and Regulations, and often architectural control standards. Read and understand these documents. Also, be aware that some HOAs impose fees that must be paid when the property is sold, so ask if the purchase of the property will result in any fees. Condominium and planned community HOAs are regulated by Arizona statutes. They are not under the jurisdiction of the Department of Real Estate (ADRE). Nonetheless, the Arizona s Homeowner's Association Dispute Process is administered by the ADRE. and (Chapter 16 and 18 of the Arizona Revised Statutes-Title 33) (ADRE HOA Information) (Homeowners Association Dispute Process) 7 HOA Disclosures If purchasing a resale home in a condominium or planned community, the seller (if fewer than 50 units in the community) or the HOA (if there are 50 or more units) must provide the buyer with a disclosure containing a variety of information. (A.R.S ) (A.R.S ) 8 Community Facilities District The Arizona Community Facilities District Act allows for the formation of a community facilities district (CFD) by a municipality or county for the purpose of constructing or acquiring a public infrastructure. It is important when purchasing property to determine whether it falls within the boundaries of a CFD as this may result in an additional tax burden upon the owner. While the presence of a CFD may be noted on the Residential Seller s Property Disclosure Statement, prospective buyers can further investigate the issue by contacting the treasurer s office or assessor s office for the county in which the property is located. 9 Title Report or Title Commitment The title report or commitment contains important information and is provided to the buyer by the title/escrow company or agent. This report or commitment lists documents that are exceptions to the title insurance (Schedule B Exceptions). Schedule B Exceptions may include encumbrances, easements, and liens against the property, some of which may affect the use of the property, such as a future addition or swimming pool. Make sure you receive and review all of the listed documents. Questions about the title commitment and Schedule B documents may be answered by the title or escrow officer, legal counsel, or a surveyor. (American Land Title Association) (Arizona Department of Insurance) 10 Loan Information and Documents Unless a buyer is paying cash, the buyer must qualify for a loan in order to complete the purchase. A buyer should complete a loan application with a lender before making an offer on a property if at all possible and, if not, immediately after making an offer. It will be the buyer s responsibility to deposit any down payment and ensure that the buyer s lender deposits the remainder of the purchase price into escrow prior to the close of escrow date. Therefore, make sure you get all requested documentation to your lender as soon as possible. (Your Home Loan Toolkit - Consumer Financial Protection Bureau) (HUD) (Mortgage Bankers Association) (National Association of Mortgage Brokers- Consumer Info) 11 Home Warranty Policy A home warranty [policy] is a service contract that typically covers the repair and/or replacement costs of home appliances and major systems such as heating, cooling, plumbing, and possibly other components of a home that fail due to normal usage and age. Coverage varies depending on the policy. Be aware that pre-existing property conditions are generally not covered. A home warranty may be part of the sale of the home. If so, buyers should thoroughly read the home warranty contract to understand coverage, limitations, exclusions, and costs associated with the policy. Page 4 of 13 Arizona Department of Real Estate Buyer (August 2017)

16 12 Affidavit of Disclosure If the buyer is purchasing five or fewer parcels of land (whether improved or vacant), other than subdivided land, in an unincorporated area of a county, the seller must furnish the buyer with an Affidavit of Disclosure. (AAR Sample Affidavit of Disclosure) Apache: Coconino: Graham: La Paz: Cochise: Gila: Greenlee: Maricopa: 13 Lead-Based Paint Disclosure Form If the home was built prior to 1978, the seller must provide the buyer with a lead-based paint disclosure form. Buyer is further advised to use certified contractors to perform renovation, repair or painting projects that disturb lead-based paint in residential properties built before 1978 and to follow specific work practices to prevent lead contamination. (EPA) (ADRE Lead Based Paint Information) 14 Professional Inspection Report The importance of having a property inspected by a professional inspector cannot be over-emphasized. An inspection is a visual physical examination, performed for a fee, designed to identify material defects in the property. The inspector will generally provide the buyer with a report detailing information about the property s condition. The buyer should carefully review this report with the inspector and ask the inspector about any item of concern. Pay attention to the scope of the inspection and any portions of the property excluded from the inspection. (BTR Home Inspector Standards) (Additional Information) 15 County Assessors/Tax Records The county assessor s records contain a variety of valuable information, including the assessed value of the property for tax purposes and some of the physical aspects of the property, such as the reported square footage. The date built information in the assessor s records can be either the actual or effective/weighted age if the residence has been remodeled. All information on the site should be verified for accuracy. 17 Mohave: Pima: Santa Cruz: Yuma: Navajo: Pinal: Yavapai: 16 Termites and Other Wood Destroying Insects and Organisms Termites are commonly found in some parts o Arizona. The Office of Pest Management (OPM) regulates pest inspectors and can provide the buyer with information regarding past termite treatments on a property. (Office of Pest Management-General Information) (Obtain a Termite History Report on a Property) (What You Should Know about Wood-Destroying Insect Inspection Reports) Foreign Investment in Real Property Tax Act (FIRPTA) Foreign Investment in Real Property Tax Act (FIRPTA) may impact the purchase of property if the legal owner(s) of the property are foreign persons or nonresident aliens pursuant to FIRPTA. If so, consult a tax advisor as mandatory withholding may apply. (I.R.S. FIRPTA Definitions) (I.R.S. FIRPTA Information) FIRPTA Video) (I.R.S. Page 5 of 13 Arizona Department of Real Estate Buyer (August 2017)

17 Section 2 COMMON PHYSICAL CONDITIONS IN THE PROPERTY A BUYER SHOULD INVESTIGATE Because every buyer and every property is different, the physical property conditions requiring investigation will vary. 1 Repairs, Remodeling and New Construction The seller may have made repairs or added a room to the property. The buyer should feel comfortable that the work was properly done or have an expert evaluate the work. Request copies of permits, invoices or other documentation regarding the work performed. (Before You Hire a Contractor Tips) (National Association of of Remodeling Industry Greater Phoenix Chapter) (National Association of Remodeling Industry Southern Arizona) (City of Phoenix Building Permit Records) 2 Square Footage Square footage on the MLS printout or as listed by the county assessor s records is often only an estimate and generally should not be relied upon for the exact square footage in a property. An appraiser or architect can measure the property s size to verify the square footage. If the square footage is important, you should have it confirmed by one of these experts during the inspection period in a resale transaction and prior to executing a contract in a new home transaction. (AZFI - Arizona Board of Appraisers Directory) 3 Roof If the roof is 10 years old or older, a roof inspection by a licensed roofing contractor is highly recommended. (Arizona Roofing Contractors Association) 4 Swimming Pools and Spas 5 If the property has a pool or a spa, the home inspector may exclude the pool or spa from the general inspection so an inspection by a pool or spa company may be necessary. The Arizona REALTORS Residential Purchase Contract provides guidance for the buyer to investigate all applicable state, county, and municipal Swimming Pool Barrier regulations and acknowledge receipt of the Arizona Department of Health Services approved private pool safety notice. The state requirements contained in the notice may be superseded by local swimming pool barrier ordinances that are equal to or more restrictive than the state requirements. (AAR) (A.R.S Swimming Pool Enclosures) Septic and Other On-Site Wastewater Treatment Facilities If the home is not connected to a public sewer, it is probably served by an on-site wastewater treatment facility (conventional septic or alternative system). A qualified inspector must inspect any such facility within six months prior to transfer of ownership. For information on current inspection and transfer of ownership requirements, contact the specific county environmental/health agency where the property is located or the Arizona Department of Environmental Quality (ADEQ). (ADEQ AZ Statewide Inspection Program) (File a Notice of Transfer Online) (Before You Hire a Contractor Tips) Page 6 of 13 Arizona Department of Real Estate Buyer (August 2017)

18 6 Sewer 7 Even if the listing or SPDS indicates that the property is connected to the city sewer, a plumber, home inspector, or other professional should verify it. Some counties and cities can perform this test as well. Water/Well Issues You should investigate the availability and quality of the water to the property. or (Wells & Assured/Adequate Water Information) Adjudications: Arizona is undertaking several Stream Adjudications, which are court proceedings to determine the extent and priority of water rights in an entire river system. For information regarding water uses and watersheds affected by these adjudications, and the forms upon sale of the property, visit the Department of Water Resources online. (Department of Water Resources Adjudications) Additionally, the Verde Valley Water Users assists members in matters pertaining to the Gila River System Adjudication. (Verde Valley Water Users Association) CAGRDs: The Central Arizona Groundwater Replenishment District (CAGRD) functions to replenish groundwater used by its members, individual subdivisions and service areas of member water providers. Homeowners in a CAGRD pay an annual assessment fee which is collected through the county property tax process based on the amount of groundwater served to member homes. (Central Arizona Ground Water Replenishment District) 8 Soil Problems The soil in some areas of Arizona has clay-like tendencies, sometimes referred to as expansive soil. Other areas are subject to fissure, subsidence and other soil conditions. Properties built on such soils may experience significant movement causing a major problem. If it has been disclosed that the property is subject to any such soil conditions or if the buyer has any concerns about the soil condition or observes evidence of cracking, the buyer should secure an independent assessment of the property and its structural integrity by a licensed, bonded, and insured professional engineer. (ADRE Overview of Arizona Soils) (AZGS Natural Hazards Viewer) (Arizona s Swelling & Shrinking Soils) 9 Previous Fire/Flood (Area Maps) (Information on Land Subsidence & Earth Fissures) (State Certified Engineers & Firms) If it is disclosed there has been a fire or flood on the property, a qualified inspector should be hired to advise you regarding any possible future problems as a result of the fire or flood damage and/or any subsequent repairs. For example, if the property was not properly cleaned after a flood, mold issues may result. Your insurance agent may be able to assist you in obtaining information regarding fire, flood, or other past damage to the property. 10 Pests Cockroaches, rattlesnakes, black widow spiders, scorpions, termites and other pests are common in parts of Arizona. Fortunately, most pests can be controlled with pesticides. Scorpions: Scorpions, on the other hand, may be difficult to eliminate. If the buyer has any concerns or if the SPDS indicates the seller has seen scorpions or other pests on the property, seek the advice of a pest control company. Bed bugs: Infestations are on the rise in Arizona and nationally. Roof Rats: Roof Rats have been reported in some areas by Maricopa County Environmental Services. Termites: Consumer Information available from the Office of Pest Management (OPM). Bark Beetles: OPM reports the presence of bark beetles in some forested areas. Page 7 of 13 Arizona Department of Real Estate Buyer (August 2017)

19 (Information on Scorpions) (Information on Bed Bugs) Them Out) (Maricopa County Roof Rats) (Termite Information) Information) 11 Endangered & Threatened Species Certain areas in the state may have issues related to federally listed endangered or threatened species that may affect land uses. Further information may be obtained on the U.S. Fish and Wildlife website or by contacting the appropriate planning/development service department. (Arizona Ecological Services) (Arizona Endangered Species) 12 Deaths and Felonies on the Properties Arizona law states that sellers and real estate licensees have no liability for failure to disclose to a buyer that the property was ever the site of a natural death, suicide, murder or felony. This information is often difficult to uncover; however, the local law enforcement agency may be able to identify incidents related to a property address. (A.R.S ) (Bed Bugs: Get Them Out and Keep (Bark Beetle 13 Indoor Environmental Concerns Mold: Mold has always been with us, and it is a rare property that does not have some mold. However, over the past few years a certain kind of mold has been identified as a possible contributor to illnesses. Allergic individuals may experience symptoms related to mold. The Arizona Department of Health Services, Office of Environmental Health, states: If you can see mold, or if there is an earthy or musty odor, you can assume you have a mold problem. Imported Drywall: There have been reports of problematic drywall, produced in China, used in Arizona homes. Residents in homes with problem drywall report health issues such as respiratory irritation, and other problems such as copper corrosion and sulfur odors. Visit the Consumer Product Safety Commission website for more information. Radon Gas and Carbon Monoxide: Radon gas and carbon monoxide poisoning are two of the more common and potentially serious indoor air quality (IAQ) concerns. Both of these concerns can be addressed by the home inspector, usually for an additional fee. For information on radon levels in the state, visit Arizona Radiation Regulatory Agency online. Drug labs: Residual contamination arising from the illicit manufacture of methamphetamine and other drugs carried out in clandestine drug laboratories presents a serious risk of harm to human and environmental health. Other: For information on other indoor environmental concerns, the EPA has a host of resource materials and pamphlets online. (Indoor Air Quality) (EPA) (Publications & Resources) (Mold Information) (Drywall Information Center) (About Radon) (Asbestos Information) (Voluntary Guidelines for Methamphetamine) (EPA Formaldehyde Information) 14 Property Boundaries If the property boundaries are of concern, a survey may be warranted. For example, a survey may be advisable if there is an obvious use of property by others, i.e., a well-worn path across a property and/or parked cars on the property or fences or structures of adjacent property owners that appear to be built on the property. For more information, visit the Arizona Professional Land Surveyors online. A search for surveyors may be found online at the Board of Technical Registration. (AZ Professional Land Surveyors) (AZ BTR Land Surveyors) Page 8 of 13 Arizona Department of Real Estate Buyer (August2017)

20 15 Flood Insurance/Flood Plain Status Your mortgage lender may require you to purchase flood insurance in connection with your purchase of the property. The National Flood Insurance Program provides for the availability of flood insurance and established flood insurance policy premiums based on the risk of flooding in the area where properties are located. Changes to the federal law (The Biggert- Waters Flood Insurance Reform Act of 2012 and the Homeowner Flood Insurance Affordability Act of 2014, in particular) will result in changes to flood insurance premiums that are likely to be higher, and in the future may be substantially higher, than premiums paid for flood insurance prior to or at the time of sale of the property. As a result, purchasers of property should not rely on the premiums paid for flood insurance on the property previously as an indication of the premiums that will apply after completion of the purchase. In considering purchase of the property you should consult with one or more carriers of flood insurance for a better understanding of flood insurance coverage, current and anticipated future flood insurance premiums, whether the prior owner s policy may be assumed by a subsequent purchase of the property, and other matters related to the purchase of flood insurance for the property. If community floodplain information is not available for a specific property, and in order to obtain flood insurance, it may be necessary to have an elevation survey and obtain an elevation certificate. This is necessary to determine a property's insurability and premium rate. You may also wish to contact the Federal Emergency Management Agency (FEMA) for Section 3 CONDITIONS AFFECTING THE AREA SURROUNDING THE PROPERTY THE BUYER SHOULD INVESTIGATE Every property is unique; therefore, important conditions vary. 16 more information about flood insurance as it relates to the property. (Flood Map Service Center) (Elevation Certificates: Who Needs Them and Why - fact sheet) (AZ Flood & Debris) (Maricopa County Flood Control District-Services) (Tucson Flood Information) Other Arizona Counties: Consult County Websites. Insurance (Claims History) Many factors affect the availability and cost of homeowner s insurance. Property owners may request a five-year claims history from their insurance company, an insurance support organization or consumer reporting agency. (AZ Department of Insurance) (Home Seller s Disclosure Report) 17 Other Property Conditions Plumbing: Check functionality. Cooling/Heating: Make sure the cooling and heating systems are adequate. Electrical Systems: Check for function and safety. Environmental Concerns It is often very difficult to identify environmental hazards. The Arizona Department of Environmental Quality (ADEQ) website contains environmental information regarding the locations of open and closed landfills (Solid Waste Facilities), wildfire information, as well as air and water quality information (and more). (ADEQ) (ADEQ-Solid Waste Facilities) (Wildfire Information) Page 9 of 13 Arizona Department of Real Estate Buyer (August 2017)

21 1 Environmentally Sensitive Land Ordinance: Approximately two-thirds of the City of Scottsdale is affected by the Environmentally Sensitive Land Ordinance (ESLO), which requires some areas on private property be retained in their natural state and designated as National Area Open Space (NAOS). (Environmentally Sensitive Land Ordinance) (Natural Area Open Space) 2 Electromagnetic Fields For information on electromagnetic fields, and whether they pose a health risk to you or your family, visit the National Institute of Environmental Health Sciences website. (National Institute of Environmental Health Sciences) 3 Superfund Sites There are numerous sites in Arizona where the soil and groundwater have been contaminated by improper disposal of contaminants. Maps may be viewed on ADEQ s website to see if a property is in an area designated by the ADEQ as requiring cleanup. (ADEQ) (EPA), (Spanish) 4 Freeway Construction and Traffic Conditions Although the existence of a freeway near the property may provide highly desirable access, sometimes it contributes to undesirable noise. To search for roadway construction and planning, visit the Arizona Department of Transportation (ADOT) website. (ADOT) (Statewide Projects) (Traffic Conditions Alerts) 5 Crime Statistics Crime statistics, an imperfect measurement at best, provide some indication of the level of criminal activity in an area. (Phoenix Crime Statistics) (Tucson Crime Stats) (Crime Statistics All Arizona Cities) 6 Sex Offenders Since June 1996, Arizona has maintained a registry and community notification program for convicted sex offenders. Prior to June 1996, registration was not required, and only the higher-risk sex offenders are on the website. The presence of a sex offender in the vicinity of the property is not a fact that the seller or real estate broker is required to disclose. (Registered Sex Offenders and Community Notification) (National Sex Offender Public Site) 7 Forested Areas Life in a forested area has unique benefits and concerns. Contact county/city fire authority for more information on issues particular to a community. or (Protecting Your Property from Wildfire) (Arizona Fire Wise Communities) 8 Military and Public Airports The legislature has mandated the identification of areas in the immediate vicinity of military and public airports that are susceptible to a certain level of noise from aircraft. The boundaries of these areas have been plotted on maps that are useful in determining if a property falls within one of these areas. The maps for military and public airports may be accessed on the Arizona Department of Real Estate (ADRE) website. Additionally, the boundaries of military and public airports in Maricopa County may be viewed on the county website. These maps are intended to show the area subject to a preponderance of airport-related noise from a given airport. Periodic over-flights that may contribute to noise cannot usually be determined from these maps. Vacant land or lots may be for sale within areas of high noise or accident potential zones. Because the zoning of these lots may conflict with the buyer s ability to develop the property, the buyer should verify whether development is prohibited. Page 10 of 13 Arizona Department of Real Estate Buyer (August 2017)

22 Zoning regulations for these areas, may be found at A.R.S (ADRE - Maps of Military Airports & Boundaries) (ADRE - Maps of Pubic Airports & Boundaries) 9 Zoning/Planning/Neighborhood Services Information may be found on community websites. (Phoenix) (Tucson) (Other Cities and Towns) 10 Schools Although there is no substitute for an on-site visit to the school to talk with principals and teachers, there is a significant amount of information about Arizona s schools on the Internet. Visit the Arizona Department of Education website for more information. (Arizona Department of Education) 11 ADRE ADVISES: Call the school district serving the subdivision to determine whether nearby schools are accepting new students. Some school districts, especially in the northwest part of the greater Phoenix area, have placed a cap on enrollment. You may find that your children cannot attend the school nearest you and may even be transported to another community. (ADRE) City Profile Report Information on demographics, finances and other factors are drawn from an array of sources, such as U.S. Census Bureau, Bureau of Labor, Internal Revenue Service, Federal Bureau of Investigation, and the National Oceanic and Atmospheric Administration and may be viewed on Homefair s Website. (City Profile Report) Section 4 OTHER METHODS OF GETTING INFORMATION ABOUT A PROPERTY Talk to the Neighbors Neighbors can provide a wealth of information. Buyers should always talk to the surrounding residents about the neighborhood and the history of the property the buyer is considering for purchase. Drive around the Neighborhood Buyers should always drive around the neighborhood, preferably on different days at several different times of the day and evening, to investigate the surrounding area. Investigate your Surroundings: Google Earth is an additional method to investigate the surrounding area: Page 11 of 13 Arizona Department of Real Estate Buyer (August 2017)

23 Section 5 RESOURCES Market Conditions The real estate market is cyclical and real estate values go up and down. The financial market also changes, affecting the terms on which a lender will agree to loan money on real property. It is impossible to accurately predict what the real estate or financial market conditions will be at any given time. The ultimate decision on the price a buyer is willing to pay and the price a seller is willing to accept for a specific property rests solely with the individual buyer or seller. The parties to a real estate transaction must decide on what price and terms they are willing to buy or sell in light of market conditions, their own financial resources and their own unique circumstances. The parties must, upon careful deliberation, decide how much risk they are willing to assume in a transaction. Any waiver of contingencies, rights or warranties in the Contract may have adverse consequences. Buyer and seller acknowledge that they understand these risks. Buyer and Seller assume all responsibility should the return on investment, tax consequences, credit effects, or financing terms not meet their expectations. The parties understand and agree that the Broker(s) do not provide advice on property as an investment. Broker(s) are not qualified to provide financial, legal, or tax advice regarding a real estate transaction. Therefore, Broker(s) make no representation regarding the above items. Buyer and seller are advised to obtain professional tax and legal advice regarding the advisability of entering into this transaction. (AAR - Sample Forms) color, national origin, religion, sex, familial status (including children under the age of 18 living with people securing custody of children under the age of 18), and handicap (disability). (US Government HUD) (Americans with Disabilities Act) Wire Fraud Beware of wiring instructions sent via . Cyber criminals may hack accounts and send s with fake wiring instructions. You should independently confirm wiring instructions in person or via a telephone call to a trusted and verified phone number prior to wiring any money. (FTC & NAR - Protect your mortgage closing from scammers (CFPB- Buying a home? Watch out for mortgage closing scams Additional Information NATIONAL ASSOCIATION OF REALTORS (NAR) NAR S Ten Steps To Homeownership Home Closing Information about Arizona Government, State Agencies, City & County Websites Arizona Department of Real Estate Consumer Information Arizona Association of REALTORS Fair Housing & Disability Laws The Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings based on race, Page 12 of 13 Arizona Department of Real Estate Buyer (August 2017)

24 BUYER ACKNOWLEDGMENT Buyer acknowledges receipt of all 13 pages of this. Buyer further acknowledges that there may be other disclosure issues of concern not listed in this. Buyer is responsible for making all necessary inquiries and consulting the appropriate persons or entities prior to the purchase of any property. The information in this is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer or other professional representative. ^ BUYER SIGNATURE DATE ^ BUYER SIGNATURE DATE Page 13 of 13 Arizona Department of Real Estate Buyer (August 2017)

25 The Lease Owner s is a resource provided by the Arizona Association of REALTORS Residential Rentals are required to comply with the Arizona Residential Landlord/Tenant Act: OWNER S RESPONSIBILITIES AND STATUTORY REQUIREMENTS 1. AFFIDAVIT OF LEGAL CLASS CORRECTION If a parcel of property is used as a rental unit and identified by the county assessor as a class three property pursuant to A.R.S , the owner must notify the assessor of the rental use of the property or be subject to a civil penalty prescribed by A.R.S The lease owner must also register with the assessor in the county where the property is located in the manner set forth in A.R.S (A) NOTIFICATION OF ARIZONA RESIDENTIAL RENTAL PROPERTY Pursuant to A.R.S (B), an out-of-state owner of residential rental property must designate and record with the county assessor a statutory agent who lives in this state and who will accept legal service on behalf of the owner. A person who fails to comply with any provision of this section shall be assessed a civil penalty of $1,000, plus an additional $100 for each month after the date of the original violation until compliance occurs. NOTE: If the owner is required to register the rental property with the county assessor and fails to do so, the city or town may impose a civil penalty payable to the city or town in the amount of $150 per day for each day of violation, and the city or town may impose enhanced inspections and enforcement measures on the property BUSINESS LICENSE Some cities require the owner to have a separate business license prior to engaging in any type of business activity. It is the owner s responsibility to apply for and pay any fees associated with obtaining this license. If the property is being professionally managed, the lease owner should discuss this topic with their property manager FOREIGN LEASE OWNERS RESIDING OUTSIDE OF THE UNITED STATES Foreign lease owners must secure an Individual Taxpayer Identification Number (ITIN). Unless the foreign lease owner files a Form W-8ECI with their property management company, the property manager must withhold 30% of the gross rental proceeds for the property owned by the foreign lease owner. It is strongly recommended that foreign lease owners retain the services of a CPA and/or IRS Certified Acceptance Agent to ensure compliance with applicable IRS rules and regulations TRANSACTION PRIVILEGE TAX Transaction Privilege Tax (TPT) is charged by some cities on the owner s rental income. This TPT, or rental tax, is the responsibility of the lease owner but may be collected from the tenant with the rent if permitted by the lease agreement. The tax is filed by the lease owner or the property management company on either a monthly or quarterly basis. The filing period is determined by the applicable city and the tax rate is anywhere from 1.5% - 3% of the monthly rent. In addition, some cities collect their own privilege taxes; others choose the Arizona Department of Revenue to collect the taxes for them. In some cases, it is the owner s responsibility to apply for this license if the property management company does not have a master license for that city. After the city or state receives the owner s application, a license will be issued and mailed to the owner. Failure to pay the applicable sales tax could result in a penalty or fine by the city or town. For more information on the Transaction Privilege Tax go to: Page 1 of 6 Arizona Association of REALTORS Lease Owner s (March 2016) Garden Brook Realty, 520 W Sheldon Street Suite 2A Prescott, AZ Phone: Fax: Diann Dede Erceg

26 COMMON DOCUMENTS AND DISCLOSURES 1. RESIDENTIAL LEASE AGREEMENT Owners should protect themselves by taking the time to read the residential lease agreement and understand their legal rights and obligations before they enter into a lease agreement. A sample Arizona Association of REALTORS (AAR) lease agreement can be found at: Upon move in, a lease owner must furnish the tenant with a signed copy of the lease. A.R.S (C). 2. LEAD-BASED PAINT DISCLOSURE FORM If the home was built prior to 1978, the lease owner must provide the tenant with a lead-based paint disclosure form. Information about lead-based paint may be obtained at: or The Arizona Department of Real Estate (ADRE) advises: Read the deed restrictions, also called CC&Rs (covenants, conditions and restrictions). You might find some of the CC&Rs are very strict. In addition to CC&Rs, HOAs may be governed by Articles of Incorporation, Bylaws, Rules and Regulations, and often architectural control standards. Read and understand these documents. Also, be aware that some HOAs may impose fees and require the lease owner to register the tenant. If a lease owner has questions about their rights and remedies regarding homeowners associations or community associations, additional information can be found at: or 3. PROPERTY MANAGEMENT AGREEMENT Lease owners electing to retain the services of a property manager should secure the retention by way of a written property management agreement that complies with the requirements set forth in A.R.S A sample copy of AAR s Property Management Agreement can found at: 4. DISCLOSURES The owner must disclose in writing all material (important) facts regarding the property, including all physical, environmental, and other conditions that affect the property and any violations of applicable building, zoning, fire, health, and safety codes. Failure to make legally required disclosures may result in civil liability. Changes in any disclosures previously made must be promptly conveyed. Although no specific form is required, the Residential Lease Owner s Property Disclosure Statement (RLOPDS) can assist a lease owner in complying with their disclosure obligations. By way of this form, the lease owner answers a variety of questions about the property and its condition. Once completed, a copy of the disclosure form is given to prospective tenants. The property manager/broker is not responsible for verifying the accuracy of the items on the RLOPDS so it is important for the lease owner to accurately complete this form to the best of their knowledge. A sample RLOPDS can be found at: 5. HOMEOWNERS ASSOCIATION (HOA) GOVERNING DOCUMENTS If CC&Rs are recorded against the property, it is essential that the owner review and agree to any restrictions prior to leasing a property. Chapters 16 and 18 of the Arizona Revised Statutes - Title MOVE-IN/MOVE-OUT INSPECTION Upon move in, a lease owner must furnish the tenant with a movein form upon which the tenant can specify any existing damage to. the property, along with a written notification to the tenant that the tenant may be present at the move-out inspection. Upon request by the tenant, the lease owner shall notify the tenant when the move-out inspection will occur. A.R.S (C). Lease owners should keep a copy of the completed move-in form for their records and may also want to take photographs of the property at the time of move-in to document its condition. A sample of AAR s Move-in/Move-out Condition Checklist can be viewed at: 7. SWIMMING POOLS & SPAS Each city and county has its own swimming pool barrier ordinance and a lease owner should investigate and comply with all applicable state, county and municipal pool regulations. Pool barrier contact information for Arizona cities and counties may be found at: The Arizona Department of Health Services Private Pool Safety notice may be found at: The state law on swimming pools is located at: Page 2 of 6 Arizona Association of REALTORS Lease Owner s (March 2016)

27 LEASE OWNER S RIGHTS AND OBLIGATIONS 1. NOTICE Unless otherwise agreed, all notices shall be sent registered or certified mail, or personally delivered. A.R.S FAIR HOUSING & DISABILITY LAWS The Fair Housing Act prohibits discrimination in the sale, rental, and financing of dwellings based on race, color, national origin, religion, sex, familial status (including children under the age of 18 living with parents or legal custodians, pregnant women, and people securing custody of children under the age of 18), and handicap (disability). Visit HUD s Fair Housing/Equal Opportunity website at: or For information on the Americans with Disabilities Act, or to file a complaint, visit and 3. QUALIFYING THE TENANT The lease owner is encouraged to screen prospective tenants in a variety of different ways, including credit, criminal history, employment and rental history. A sample of AAR s Application for Occupancy can be found at: 4. DEPOSITS & FEES The lease agreement should specify which deposits/fees are refundable and which are not. A lease owner is not permitted to demand security, including prepaid rent, in an amount in excess of one and one-half month s rent. However, a tenant is not prohibited from voluntarily paying more than one and one-half month s rent in advance. During the term of the lease the lease owner or lease owner s agent should hold the security deposit for the tenant. At the end of the lease all refundable deposits shall be refunded to the tenant pursuant to A.R.S (G). The lease owner can subtract unpaid rent or repair costs from the security deposit. Within 14 business days after termination of the tenancy, delivery of possession and demand by the tenant, the tenant is entitled to receive an itemized list of any/all security deposit deductions together with the amount due and payable to the tenant. A.R.S (D). 5. REPAIRS & PROPERTY CONDITION Pursuant to Arizona law, the lease owner is generally responsible for ensuring that all electrical, plumbing, sanitary, heating, ventilating, air-conditioning and other good and safe working order and condition. A.R.S It is the lease owner s responsibility to make sure that necessary repairs are made to keep the property in a fit and livable condition. Following notice, the lease owner has five days to make any repairs that materially affect the health and safety of the tenant(s) and 10 days to make any other requested repairs. NOTE: Pursuant to A.R.S (C), the lease owner and tenant may agree in writing, supported by adequate consideration, that the tenant will perform the lease owner s duties to maintain a fit premises and perform specified repairs. 6. ACCESS TO THE PROPERTY BY LEASE OWNER OR LEASE OWNER S REPRESENTATIVE Unless the tenant requests repairs in writing, the lease owner must give the tenant at least two days notice to enter the property during reasonable hours to make repairs, conduct inspections, have services completed or exhibit the property to prospective purchasers and tenants. The lease owner has the right to immediately enter the property in the event of an emergency or by court order. A.R.S TERMINATION OF THE LEASE Unless the parties desire for the lease agreement to continue, written notice of intent not to renew the lease agreement shall be issued pursuant to the terms of the lease. If the lease continues on a month-to-month basis, absent prior written agreement, either the lease owner or the tenant may terminate by providing 30-days written notice prior to the periodic rental date (i.e. the date on which rent is due) per A.R.S (B). A holdover tenant is someone who stays in the leased property after the express term of the lease has expired. The lease owner can choose to evict a holdover tenant or allow the tenant to continue living in the property on a month-to-month basis under the terms and conditions of the lease agreement. 8. FORECLOSURE The lease owner shall not allow the property to become the subject of a trustee's sale and doing so may place the lease owner in breach of the lease agreement and subject them to civil liability. Within five (5) business days after receipt of a notice of trustee s sale, the lease owner shall provide the tenant with written notice. A.R.S (B). A failure by the lease owner to pay the mortgage does not eliminate the tenant s obligation to pay rent. Page 3 of 6 Arizona Association of REALTORS Lease Owner s (March 2016)

28 LEASE OWNER S RIGHTS AND OBLIGATIONS (CONTINUED) 9. INSURANCE Lease owners are encouraged to contact their property insurance carrier prior to leasing to discuss appropriate coverage. ADDITIONAL RESOURCES INFORMATION ABOUT ARIZONA GOVERNMENT Links to state agencies: ARIZONA DEPARTMENT OF REAL ESTATE Consumer Information: ARIZONA ASSOCIATION OF REALTORS Find a REALTOR : ENVIRONMENTAL CONCERNS For information on indoor environmental concerns, the EPA has a host of resource materials and pamphlets available at SECTION 8 HOUSING Information regarding Section 8 programs available through the Arizona Public Housing Authority can be found at: or DRUG LABS Until remediation has been completed in the manner set forth in A.R.S (E), meth labs and other dangerous drug labs are prohibited from being rented or leased. A list of unremediated properties can be found at: Page 4 of 6 Arizona Association of REALTORS Lease Owner s (March 2016)

29 TOP 10 QUESTIONS YOU SHOULD ASK WHEN CONSIDERING HAVING YOUR PROPERTY PROFESSIONALLY MANAGED 1. Does the property manager possess an Arizona real estate license as required by Arizona law? Generally speaking, individuals acting as residential leasing agents or on-site managers of residential rental property, who are performing residential leasing activities on residential income property at more than one location during the period of the agents' or on-site managers' regular workday, are required to maintain an Arizona real estate license. A.R.S Does the brokerage with whom the property manager is affiliated permit its agents to engage in property management services? Not all brokerages permit agents to engage in property management services and an agent should not perform property management activity without their broker's knowledge and consent. 3. Does the brokerage with whom the property manager is affiliated maintain a property management trust account, and if so, is the account held with an FDIC insured institution? Arizona statute requires that all property management accounts be designated as trust accounts and that a broker's trust account is required for all of the owner's monies, except if the owner directs the broker to deposit the monies into the owner's account. A.R.S Does the brokerage with whom the property manager is affiliated utilize a written property management agreement that complies with the requirements set forth in A.R.S ? Arizona statute mandates the material terms and conditions that are to be set forth in all property management agreements. A.R.S Does the property manager maintain written tenant screening criteria that meet with your approval? Property managers screen prospective tenants in a variety of different ways, including credit, criminal history, employment and rental history. You will want to ensure that your property manager screens applicants in a manner you deem sufficient. 6. How often and by what method does the property manager pay you and what account reconciliation methods are utilized by the property manager? Terms of this nature should be set forth in detail in your written property management agreement and should meet with your approval. 7. Does the property manager maintain a written plan to market the property to potential tenants, and if so, does that plan meet with your approval? Property managers market rental properties to prospective tenants in a variety of different ways. You will therefore want to ensure that your property manager has a plan in place to secure tenants and that the plan meets with your approval. 8. Does the property manager maintain a written plan for addressing repairs and what level of approval/supervision, if any, do you maintain over the manner in which repairs are made? You and the property manager should agree in writing to what degree the property manager will assist you in the employment and supervision of contractors. The parties should further agree in writing whether you have the right to pre-approve expenditures in excess of an agreed upon sum of money. 9. How does the property manager handle repairs in excess of $1,000, and if the property manager hires contractors to address those repairs, are the contractors licensed by the Arizona Registrar of Contractors? Generally speaking, Arizona statute requires that any person engaging in any work or operation on one undertaking or project by one or more contracts, for which the aggregate contract price, including labor, materials and all other items (but excluding any electrical fixture or appliance that was designed by the manufacturer, that is unaltered) is $1,000 or more, hold an Arizona contractor's license. A.R.S Under what circumstances are you permitted to terminate the property management agreement? Property management agreements must specify a beginning and ending date and contain cancellation provisions that are agreeable to both parties. If the property management agreement contains an automatic renewal provision, the property management firm must send the lease owner a reminder notice at least 30-days before the renewal date. A.R.S Page 5 of 6 Arizona Association of REALTORS Lease Owner s (March 2016)

30 Lease owner acknowledges receipt of all six pages of this advisory. Lease owner further acknowledges that there may be other disclosure issues of concern not listed in this advisory. Lease owner is responsible for making all necessary inquiries and consulting the appropriate persons or entities prior to the leasing of any property. Lease Owner's A Resource for Real Estate Consumers Provided by the The information in this advisory is provided with the understanding that it is not intended as legal or other professional services or advice. These materials have been prepared for general informational purposes only. The information and links contained herein may not be updated or revised for accuracy. If you have any additional questions or need advice, please contact your own lawyer or other professional representative. LEASE OWNER SIGNATURE SAMPLE DATE LEASE OWNER SIGNATURE SAMPLE DATE Page 6 of 6 Arizona Association of REALTORS Lease Owner s (March 2016)