ANTI-DEFICIENCYARTICLE
010
ECL
OR
F
ARIZONA COURT OF APPEALS
EXPANDS, THEN NARROWS,
ANTI-DEFICIENCY
PROTECTION
AUTHOR: Bob Berk
EMAIL: [email protected] BIO: jshfirm.com/robertrberk
Like many states, Arizona protects homeowners from the
“double whammy” of losing their homes to foreclosure and
then facing liability for the balance owed on their mortgage
loans. A.R.S. § 33-814(g) provides that “If trust property of two
and one-half acres or less which is limited to and utilized for
either a single one-family or a single two-family dwelling is
sold pursuant to the trustee’s power of sale, no action may
be maintained to recover any difference between the amount
obtained by sale and the amount of the indebtedness.”
When the real estate market was appreciating, foreclosures
were rare and there were relatively few cases interpreting
Arizona’s anti-deficiency statute. In recent years, however,
as home values plummeted and many homeowners found
themselves “underwater,” the interpretation of the statute has
become increasingly important. Over the past few years, the
Arizona Court of Appeals has clarified when anti-deficiency
protection is, and is not, available.
As quoted above, the statute provides that for anti-deficiency
protection to apply, the property must be “utilized” for a
residence. Lenders historically argued that property was
not “utilized” for a residence until and unless the home was
completed and the borrower actually resided in it. Borrowers,
conversely, argued that the mere intent to reside in a home
was sufficient to trigger protection, and that even if actual
occupancy was required, temporary occupancy—even for a
single night—was enough. Incredibly, many borrowers who
elected to walk away from construction loans while their
homes were still under construction, filmed themselves “living”
(often with a cot and a hotplate) in the incomplete structures
before defaulting on their loans. In M&I Marshall & Isley
Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011), the
Arizona Court of Appeals held that the Arizona anti-deficiency
statute protects borrowers who start, but do not complete,
construction of a single-family home before defaulting on their
loan. In other words, the Court held that “utilized” for, as used
in the statute, includes “intent to utilize.”