Pub. 8 2018 Issue 1

19 ISSUE 1. 2018 • A loan is a purchase money obliga- tion if it secures a mortgage given to secure the payment of the balance of the purchase price, or to secure payment of all or part of the purchase price, of the real property being sold in the loan transaction. • A construction loan is a purchase money obligation when (i) the deed of trust securing the loan covers the land and the structure constructed thereon; and (ii) the loan proceeds were in fact used to construct a single-family home or duplex (hereinafter, a “residence”) subject to the “anti-deficiency” statutes. • A home improvement loan unrelated to the acquisition or construction of a residence is a non-purchase money obligation. • Home equity loans that are not 80/20 loans typically are non-purchase money obligations. • A mortgage loan secured by a borrow- er’s residence is a non-purchase money obligation if the proceeds of the loan are used to purchase a different resi- dence, such as a vacation home. • Refinancing a purchase money obliga- tion by the original, or a new, mortgage lender does not, in and of itself, convert the nature of the obligation to non-pur- chase money. The refinanced loan remains a purchase money loan to the extent of the original purchase money amount. In addition, refinance loan proceeds used to pay interest, late fees and a mandatory construction deposit directly related to the original purchase money loan and rolled into to the refi- nanced loan are considered part of the purchase money obligation. Conversely, refinance loan proceeds used for any purpose other than to acquire or con- struct the residence (such as interest, maintenance, utilities, marketing fees and penalties) are not considered part of the purchase money obligation. • A mortgage lender may obtain a money judgment for the traceable non-pur- chase money portion of a mortgage loan in (i) a judicial foreclosure; (ii) a suit upon its unsecured mortgage loan note after its mortgage lien has been extin- guished by a senior lien foreclosure; and (iii) in a suit when the mortgage lender elects to waive its collateral and sue directly on the mortgage loan note. This remedy is typically avail- able concerning a “cash out” refinance loan of the original purchase money loan which results in the borrower, or borrowers, receiving funds in excess of the original loan balance from the refinance loan proceeds. STEP TWO Determine whether the real property that secures the loan fits within the statutory definition of a “qualified property” protect- ed by Arizona’s “anti-deficiency” statutes. The general rule is that deficiency judg- ments are barred by Arizona’s anti-de- ficiency statutes when the collateral for the subject mortgage loan is a completed single-family home or duplex located on 2.5 acres or less. Specifically, the plain language of the anti-deficiency statutes pro- vides that a “Qualified Property” protected by Arizona’s anti-deficiency statutes means real property of “2.5 acres, or less” and that is limited to and utilized as a “single one-family or single two-family dwelling.” Concerning Loans Originated on or before 12/31/2014. Analyze the physical characteristics of the real property which secures the mortgage loan to attempt to determine whether it is a qualified property protected by the anti-deficiency statutes: • Vacant land cannot be “utilized as” a dwelling and is not a Qualified Property. • A single one-family or single two-fam- ily residential structure, which is not completed, cannot be “utilized as” a dwelling and is not a Qualified Property. • Real property which secures a mort- gage loan and exceeds 2.5 acres in size does not fit within the statutory defini- tions for anti-deficiency protection and is not a Qualified Property. It does not matter if a single one-family or single two-family residential structure is located on the property if it exceeds the acreage limit. • Real property which has a structure lo- cated on it that is not a single one-family Law: 2017 Update