Changes in Arizona Anti-Deficiency Law

The Arizona Supreme Court just issued an Opinion in BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, holding that Arizona’s residential anti-deficiency statute, Arizona Revised Statute Section 33-814(G), does not bar a deficiency judgment against an owner of vacant property.  The Court specified that for the anti-deficiency protections to apply, a “dwelling” must have been completed.  The Court’s decision directly overrules a recent Arizona Court of Appeals decision in M&I Marshall Bank v. Mueller
The Mueller decision created great potential for uncertainty and the high Court was unwilling to let that uncertainty stand.  The Mueller court had held that the anti-deficiency statute applied to trust property containing a partially completed home because the borrower intended to live in it upon its completion.  The Mueller Court cited two policy considerations in extending the anti-deficiency protections to an unfinished dwelling: (1) if the statute’s protections turn on whether a structure is occupied, borrowers facing foreclosure would be induced to camp out in unfinished structures so they could claim to be “utilizing” the property as a dwelling; and (2) it seems unfair that a borrower who lives in a completed dwelling for a day would be entitled to anti-deficiency protection, while a homeowner who has yet to move in would not.
The Arizona Supreme Court ruled that neither of these rationales are warranted.  The Court ruled that the first scenario cannot occur given the Court’s holding that there must be a completed structure on the property suitable for dwelling purposes.  And, as to the second policy concern, even the homeowner who has not yet moved into the completed residence would be entitled to anti-deficiency protection under the Court’s interpretation of the statute.
This case helps tighten the anti-deficiency case law one more step and puts to rest the uncertainty that the Mueller case was certain to create.

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