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 [email protected].
“UNDER WILDWOOD, BORROWERS’
STATED INTENT TO ULTIMATELY
OCCUPY THE HOMES WHEN
CONSTRUCTION WAS COMPLETED
DOES NOT TRIGGER STATUTORY
PROTECTION IF CONSTRUCTION
HAS NOT STARTED.”