Anti-Deficiency Protection

In a recent court decision, the Arizona Court of Appeals expanded the anti-deficiency protection of Arizona law to the shock and chagrin of the Arizona lending community.

To qualify for the protections afforded by Arizona’s anti-deficiency statutes, a property must be “utilized for either a single one-family or single two-family dwelling.” Last month the court decided that one of  the anti-deficiency statutes applies even though the defendants never occupied (utilized) the dwelling. Their intention to personally occupy it upon completion of construction, was enough to distinguish it from a prior (Mid-Kansas) case that required actual utilization of the property. In the new case, the bank  loaned money for the construction of a residence.  The property owners told the bank that they would need more money to complete the construction but the bank refused and conducted a trustee sale.  In Mid-Kansas the properties were characterized as “commercial residential properties” that were held for “eventual resale as dwellings….”  The distinguishing feature in the new case, was that the property owners intended to occupy the property upon completion; they were not developers but intended to be owner-occupants.  Though the Supreme Court in Mid-Kansas held that the “identity of the mortgagor as either a homeowner or developer is irrelevant”, the court in the recent case stated that it is relevant to the determination of whether the property will be utilized for a single-family home.

We would not be surprised if the lender seeks review of this decision in the Arizona Supreme Court so we will keep an eye on its progress through the courts.

A lesson to be learned is that even when the language of the statute is seemingly clear, a judge can have his/her own interpretation that differs based on other factors like legislative intent, other court rulings, or slight differences in facts.

Mindful of this lesson, people dealing with distressed property should seek competent legal counsel.  In the past three years, our firm has consulted with 150 or more clients providing them and their realtors with some degree of certainty as to how to proceed and where the pitfalls may be. After all, Our Business is Your Peace of Mind^®.

Written by Attorney Irving Hymson, ih@hgplaw.com

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