Pub. 5 2015 Issue 1

1 The authors are shareholders with the law firm of Engelman Berger, P.C. Their practice encompasses bankruptcy, commercial litigation, and loan restructuring. They participated in the drafting of H.B. 2018 as counsel for the Arizona Bankers Association. 2 Videotape: Senate Finance Committee Hearing – February 19, 2014 (Ar- izona State Senate 2014) (available online at http://azleg.granicus.com/M diaPlayer.php?view_id=13&clip_id=13506) 3 Id. 4 The language quoted here is from A.R.S. § 33-814(G) and (H). The language of § 33-729(C) and (D) is substantially similar, except that it refers to “real property” instead of “trust property.” 5 The “final inspection” language is modeled after A.R.S. § 12-552(E)(3), which imposes limitations periods for construction defect lawsuits com- mencing upon substantial completion of the structure. That statute has alternative definitions of substantial completion that are not found in the amendments to the anti-deficiency statute, and vice versa. 6 Baker v. Gardner, 160 Ariz. 98, 106, 770 P.2d 766, 774 (1988). Only deeds of trust (as opposed to mortgages) may be foreclosed by a non- judicial trustee’s sale. A.R.S. § 33-807. However, a lender may also foreclose a deed of trust judicially, in the same manner as a mortgage. Id. Because the anti-deficiency provisions of A.R.S. § 33-729(A) apply only to “purchase money loans,” a lender may elect judicial foreclosure to obtain a deficiency judgment on a non-purchase money loan. 7 A purchase money loan is one used “to pay all or part of the purchase price” of the mortgaged property. A.R.S. § 33-729(A). A loan that refinances a purchase money debt is itself considered a purchase money obligation protected by the statute. Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 499, 277 P.3d 198, 204 (App. 2012). A construction loan also qualifies to the extent the proceeds were “used to construct a residence that meets the size and use requirements” of the statute. Id. at 501, 277 P.3d at 206. 8 Baker, 160 Ariz. at 101, 770 P.2d at 769. 9 See, e.g., Mid Kansas Fed. Sav. & Loan Ass’n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 127, 804 P.2d 1310, 1315 (1991) (the statutes “were designed to protect consumers”); Parkway Bank & Trust Co. v. Zivkovic, 232 Ariz. 286, 290, 304 P.3d 1109, 1113 (App. 2013) (“The statutes were intended to “protect [ ] consumers from financial ruin” and “eliminat[e] ... hardships resulting to consumers.”). 10 167 Ariz. at 128, 804 P.2d at 1316. 11 Id. 12 Not that there’s anything wrong with that. 13 Careful lenders may have sought to mitigate the risk by obtaining per- sonal guaranties from the principals of the business. As of August 2014, however, there was no clear Arizona precedent determining whether the anti-deficiency statutes apply to guarantors of business loans, or whether the statutory protections could be waived by guarantors to the extent they do apply. Cf. Parkway Bank & Trust Co. v. Zivkovic, 232 Ariz. 286, 291 n.5, 304 P.3d 1109, 1114 (App. 2013) (holding that borrower waivers of the anti-deficiency statutes are invalid, but declining to con- sider validity of guarantor waivers). That issue is the subject of an appeal pending before Division One of the Arizona Court of Appeals. Arizona Bank & Trust, v. James R. Barrons Trust, 1 CA-CV 13-0096. The case was under advisement as of the time this issue went to press. 14 S.B. 1271, 49th Leg., 1st Reg. Sess. (Ariz. 2009). 15 Id. 16 Id. 17 Catherine Reagor, New Law Triggers Fear for Housing, Ariz. Repub- lic, July 26, 2009, at A1. 18 Id. 19 Id. 20 Emily Gildar, Arizona’s Anti-Deficiency Statutes: Ensuring Consumer Protection in A Foreclosure Crisis, 42 Ariz. St. L.J. 1019, 1053 (2010). 21 Id. at 1048. 22 N. Arizona Props. v. Pinetop Props. Group, 1 51 Ariz. 9, 725 P.2d 501 (App. 1986). 23 Gildar, supra note 19, at 1049. 24 Id. 25 See id. 26 Id. at 1049-50. 27 Id. at 1050. 28 S.B. 1004, 49th Leg., 4th Sp. Sess. (Ariz. 2009). 29 Jennifer A. Johnson, Banks want right to sue over home foreclosures, Phoenix Bus. J., August 12, 2011. 30 Michael Gossie, Are Arizona’s anti-deficiency statutes feeding the bubble?, Ariz. Bus., December 26, 2012 (available online at http://azbig- media.com/ab/economy/arizonas-antideficiency-statutes-feeding-bubble ). 31 Nicole LaSlavic, 2012 Legislative Summary, Arizona Realtor Maga- zine, June 2012, at 4 (available online at http://www.aaronline.com/ wp-content/uploads/2013/04/AZQ_Summer_2012_online.pdf). 32 Mid Kansas, 167 Ariz. at 129, 804 P.2d at 1317. 33 Id. 34 M & I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 480, 268 P.3d 1135, 1137 (App. 2011). 35 For example, in BMO Harris Bank N.A. v. Wildwood Creek Ranch, LLC, 234 Ariz. 100, 317 P.3d 641, 642 (App. 2014), the guarantors of a construction loan swore in affidavits that they intended to build a home on the property and occupy it as their primary residence. The bank of- fered evidence that the guarantors “owned three separate parcels, each of which they purportedly intended to use as their ‘primary residence.’” Id. 36 BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236 Ariz. 363, 340, P.3d 1071, 1072 (2015) w n Anti-Deficiency Reform — continued from page 13 F OOTNOTES: 14 www.azbankers.org