Pub. 5 2015 Issue 1

An Armistice in the Fight for Anti-Deficiency Reform By BRADLEY PACK and SCOTT COHEN 1 This article first appeared in Arizona Attorney Magazine “P E ACE IN THE MIDDLE EAST.” THAT IS HOW TOM FARLEY, CHIEF LOBBYIST FOR THE ARIZONA Association of Realtors, described the collaborative effort that led to the pas- sage of the most recent amendments to Arizona’s anti-deficiency statutes. 2 While the amendments may not have achieved that lofty objective, they did effectuate a compromise between Arizona realtors, bankers, and home- builders over the scope and reach of the statutes – an issue that previously had sharply divided these groups. H.B. 2018, which only applies prospectively, amends Arizona’s anti- deficiency statutes in two respects: (1) it abrogates the holding in Mueller, and (2) it eliminates protection for certain homebuilders and developers. The amendments do not overhaul existing anti-deficiency legislation. Rather, as described by Arizona Bank- ers Association CEO Paul Hickman, they affect a “narrow reform” by revers- ing judicial expansion of the statutes beyond their original intent. 3 They do so by adding two new paragraphs to each of Arizona’s anti- deficiency statutes, codified as A.R.S. §§ 33-729(C), (D) and 33-814(H), (I). The first of those paragraphs 4 provides that for loans originated after December 31, 2014, anti-deficiency protection does not extend to: 1. Trust property owned by a person who is engaged in the business of constructing and sell- ing dwellings that was acquired by the person in the course of that business and that is sub- ject to a deed of trust given to secure payment of a loan for construction of a dwelling on the property for sale to another person. 2. Trust property that contains a dwelling that was never substan- tially completed. 3. Trust property that contains a dwelling that is intended to be utilized as a dwelling but that is never actually utilized as a dwelling. The first clause eliminates protection for commercial developers and spec home builders, but only for homes built in the course of their business. It does not apply to mortgages on developers’ own homes. The language addresses a concern voiced during the drafting process that employees of homebuild- ers would be stripped of anti-deficiency protection merely because of the nature of their profession. The second and third clauses abro- gate Mueller by requiring substantial completion of a home and actual (not just intended) utilization of a home as a dwelling as prerequisites to protection. The term “substantial completion” is defined in the next paragraph as either: (1) completion of final inspection “if required by the governmental body that issued the building permit for the dwelling;” or (2) if no such inspection is required, “the dwelling has been completed in all material respects as pre- scribed in the applicable ordinances and regulations of the governmental body 10 www.azbankers.org