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Arizona's anti-deficiency statute does not apply to vacant lots

A case decided on Jan. 16, 2014 in the Court of Appeals of Arizona provides some guidance upon Arizona's so-called anti-deficiency law. In BMO Harris Bank v. Wildwood Creek Ranch LLC, a bank after a foreclosure brought a suit against certain borrowers to obtain a deficiency judgment on what was called an unimproved lot.

At the trial court the borrowers claimed that their intent to build a home upon the property would protect them from any deficiency judgment. The trial court cited Arizona Revised Statute § 33-814(G). On the other hand, the appeals court felt that this statute did not apply to vacant land and therefore reversed the trial court's decision and remanded the case back to the trial court for partial summary judgment to the bank.

Under A.R.S. § 33-814(G) any party seeking protection from a deficiency judgment must demonstrate: (1) a deed trust encumbered the property; (2) the property is less than two-and-one-half acres; (3) the property is being used for a one or two family dwelling; and (4) this property was disposed at a trustee's sale.

Importantly, the appeals court ruled that the dwelling provision of the anti-deficiency statute is not applicable towards this vacant land. From taking all of the facts of this matter into account, the court determined the vacant lot was not used for either a "single one-family dwelling or a single two-family dwelling." The court decided that even the borrowers' intention to build a dwelling upon the lot would not have brought it within the dwelling provision.

There was no dissenting opinion delivered in this appeals case, but there was a concurring opinion filed. The concurring justice joined the other members in stating a deficiency judgment was applicable because no construction had begun upon this property. However, he did express the concern that there would be difficulties in drawing the line should construction actually have begun on the property. Had construction begun he felt the court would have had to look at all of the circumstances to determine whether a deficiency judgment could be applied.

Real estate law in Arizona covers a wide range of matters. As the above matter demonstrates, decisions can come about based upon extremely specific interpretations of a statute. Even different justices may disagree as to that interpretation. Due to the complexity of real estate law in general, it's extremely useful to contact an attorney with experience in the vast array of real estate matters whenever a dispute should arise.

Source: Court of Appeals of Arizona, Division 1, "BMO Harris Bank v. Wildwood Creek Ranch LLC," No. 1 CA-CV 12-0728, January 16, 2014

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