JSH Reporter Fall 2014 - Page 11

L ANTI-DEFICIENCYARTICLE 011 RE OSU Earlier this year, however, the Arizona Court of Appeals took back some of the anti-deficiency protection it appeared to provide in Mueller. In BMO Harris Bank v. Wildwood, 234 Ariz. 100, 317 P.3d 641 (App. 2014), the property at issue was a vacant lot upon which the borrower intended to build his residence. The borrower argued that, under Mueller, the mere intent to utilize the property as a residence was sufficient to trigger anti-deficiency protection. The lender argued, conversely, that where construction had not yet begun, the borrower’s intent to build and occupy is irrelevant. The Court agreed with the lender, holding that an owner of vacant land on which construction has not yet begun is not entitled to anti-deficiency protection. The ruling affected thousands of developers/speculators who borrowed money to buy land and build “spec” homes for resale. Under Wildwood, borrowers’ stated intent to ultimately occupy the homes when construction was completed does not trigger statutory protection if construction has not started. But what if construction had just begun when the default occurred? Although concurring opinions are usually not particularly important from a precedential standpoint, the concurring opinion in Wildwood may provide some insight into where the Arizona Court of Appeals may head in the future with regard to the anti-deficiency statute. Specifically, Judge Donn Kessler states in his concurring opinion that the critical question is not whether construction has started, but rather whether the borrower truly intends to complete construction and use the property as a residence. Judge Kessler’s concurring opinion can be interpreted as “borrower friendly” in that, under his view, a borrower who has not started construction would still be entitled to protection if the buyer could convince the judge or jury that he or she intended to build and occupy. It could also be interpreted as “lender friendly,” however, in that Judge Kessler seems to suggest a retreat from the Mueller holding that protection is available once construction starts. Under Judge Kessler’s interpretation of the statute, a borrower who has started construction, but who cannot convince the trier of fact that he or she intended to use the completed structure as a residence, would be denied protection. Such an interpretation, if adopted by a majority of the court, would undercut the statutory protection for developers and speculators that Wildwood created. The borrowers in Wildwood filed a Petition for Review with the Arizona Supreme Court, which, as of the time of this printing, had not yet decided whether to hear the case. Given, however, that the Supreme Court refused to review the Mueller decision a few years ago, a review of the Wildwood decision appears unlikely. ABOUT THE AUTHOR BOB BERK Bob’s practice focuses on commercial/contract litigation, professional liability defense and coverage litigation. He is listed as a Best Lawyer in America for product liability defense and is AV rated. Bob received his law degree from Arizona State University. Contact Bob at 602.263.1781 or rberk@jshfirm.com. “UNDER WILDWOOD, BORROWERS’ STATED INTENT TO ULTIMATELY OCCUPY THE HOMES WHEN CONSTRUCTION WAS COMPLETED DOES NOT TRIGGER STATUTORY PROTECTION IF CONSTRUCTION HAS NOT STARTED.”