JSH Reporter Fall 2014 - Page 10

ANTI-DEFICIENCYARTICLE 010 ECL OR F ARIZONA COURT OF APPEALS EXPANDS, THEN NARROWS, ANTI-DEFICIENCY PROTECTION AUTHOR: Bob Berk EMAIL: rberk@jshfirm.com 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.”