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MORTGAGE DEFICIENCIES

August 29, 2022

By Diane Drain Attorney & Retired Law Professor

If the loan document is a mortgage, the next few questions are about the property.


Did you borrow the money to buy the property? Is it a dwelling? Is it on 2 ½ acres or less? Is the property used as a one or two family dwelling? If the answer is “yes” to all 4 questions – then A.R.S. Section 33-729(a) prohibits the lender in seeking a deficiency once they complete their judicial foreclosure of the real property. PNL Credit LP v Southwest Pacific, 179 Ariz. 259, 877 P.2d 832 (App. 1994) (anti-deficiency does not apply to more than two single family units). Mid Kansas Fed. Sav. & Loan v Dynamic Dev. Corp, , 163 Ariz. 233, 787 P.2d 132 (App. 1989) vacated, 167 Ariz. 122, 804 P.2d 1310 (1991) & Northern Arizona Properties vs Pinetop Properties, 151 Ariz 9, 725 P.2nd 501 (App. 1986) (can be investment property, no owner need to occupy. – BUT SEE NOTE BELOW). Independent Mortgage Company vs Alaburda and Warner, 1 CA-CV 11-0301 (Ct. App., 7/17/12) ( 1/10 fractional interest in Sedona condo still a dwelling even if short term occupancy and does not matter how many families live there at a time. Cely v. Deconcini, 166 Ariz. 500, 803 P.2d 911 (App. 1990) (using one home as collateral for purchase of second home is not purchase money debt).


NOTE: As of December 31, 2014 ARS 33-814 changed this result.  Investors and partially completed property is no longer protected by the Arizona Anti-Deficiency Flow Chart (124 downloads) statute.


Bank One v Beauvais, 188 Ariz. 245, 934 (P2.d 809 (App. 1997) (consolidated loan including purchase money debt ($240,000) and non-purchase money ($75,000) still retains purchase money protection. Later workout note retains character of purchase money for the purpose of anti-deficiency. Note: the original and workout loans were with same lender and it appears that the original loan was modified, not released.). “In summary, we hold that regardless of whether the workout note was an extension, renewal, or refinancing of the 1989 consolidated loan, it retained its character as a purchase-money note. See Lucky Invs., Inc. v. Adams, 183 Cal.App.2d 462, 7 Cal. Rptr. 57 (1960) (Cancellation and replacement with new notes, secured by the same property, transfers purchase-money status to new notes.). Accordingly, the Bank is prohibited from waiving the security under the deed of trust and suing on the note. We affirm the trial court’s dismissal of the Bank’s complaint”, at 816.


This is just a sampling of cases, others may change the outcome of any questions.  MAKE SURE TO DO YOUR OWN RESEARCH.

By |Published On: August 29th, 2022|Last Updated: September 21st, 2022|

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