Since the downturn in the Arizona real estate market and increase in the number of loan defaults and foreclosures, lenders and borrowers have fought over the interpretation of Arizona’s so-called anti-deficiency statutes.
Arizona has two anti-deficiency statutes, each of which applies to a different type of foreclosure. ARS § 33-814 applies to foreclosures by trustee sale (non-judicial foreclosure). The other statute, ARS § 33-729, applies to judicial foreclosures (foreclosures ordered by a judge after a lawsuit is filed).
Both statutes have the identical requirements for property to qualify for deficiency protection. The property covered by the mortgage or deed of trust must be “two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling.”
In a trustee sale, it does not matter whether the loan proceeds were used to acquire the property or for some other use. In a judicial foreclosure, however, even if the type of property qualifies, there is still only deficiency protection if the mortgage or deed of trust was “given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price.” In other words, the deed of trust or mortgage has to have been given to secure a “purchase money loan.”
You can learn more about Arizona’s anti-deficiency statutes by reading my article and watching my video presentation, but BEWARE, the statutes were amended in several respects with respect to loans originated after December 31, 2014. More on that in another article.
Disputes between lenders and borrowers have involved, for example, (1) what is a dwelling? (2) does a dwelling have to be someone’s primary residence? (3) what is a purchase money loan? (4) does a construction loan qualify as a purchase money loan? and (5) can an incomplete dwelling still be considered “limited to and utilized for either a single one-family or single two-family dwelling?” This post focuses on the last issue, recently addressed by the Arizona Supreme Court.