The Arizona Court of Appeals in Phoenix recently ruled in Independent Mortgage Company v. Alaburda, that Arizona’s anti-deficiency law (A.R.S. Section 33-814(G)) protects a borrower who has a fractional interest in a vacation home.
The Alaburdas purchased a 1/10th fractional interest in a single-family residential condo in the exclusive Villas at Seven Canyons in Sedona. Independent Mortgage financed the Alaburda’s purchase and took a note for $321,750, secured by a deed of trust on the 1/10th interest in the property. The Alaburdas were only allowed to use the property for 28 days each year for vacation purposes.
Well, the Alaburdas defaulted on the note and a trustee’s sale was held on their 1/10th interest and Independent Mortgage took back the interest on a credit bid of $285,000. It then filed a deficiency action against the Alaburdas, alleging a deficiency of $57,884. The Alaburdas filed a motion for summary judgment arguing that they were protected by A.R.S. Section 33-814(G) – Arizona’s anti-deficiency law for deeds of trust, against any deficiency claim.
Independent filed a cross-motion for summary judgment arguing that partial ownership in a vacation home cannot be characterized as a single family dwelling; therefore, no anti-deficiency protection existed for the Alaburdas.
The Court of Appeals upheld the trial court’s granting of summary judgment in favor of the Alaburdas, finding they were not liable for any deficiency. The Court of Appeals, relying on past Arizona decisions in this realm (Pinetop Properties and Mid Kansas), held that the Alaburdas used the property as a single family vacation home; and thus, met the broad requirement under the anti-deficiency laws that the property "is limited to and utilized for either a single one-family or a single two-family dwelling." The Court rejected Independent’s narrow definition of "dwelling," finding that the Alaburda’s sporadic use of the property did not limit the application of the anti-deficiency protections.
The Court also rejected Independent’s argument that because the Alaburdas did not own the property as tenants in common and they were not entitled to continuous and total use of the property. The Court ruled that the definition of "trust property" includes any interest in real property. Further, the Court ruled that A.R.S. Section 33-814(G) does not limit its protection to only those that own all of the trust property described in the deed of trust. To rule otherwise would have cast doubt on the protections afforded condominium owners (as in the Pinetop decision). The Court was not going to go that direction.
This is another in the long string of factually distinguishable cases that are testing Arizona’s broad application of the anti-deficiency statutes. It is clear that many more cases are on their way up the legal chain.