Anti-Deficiency Protection Weakened for
Developers, Spec Home Builders
While new law in effect January 1, 2015, reduces
and in some cases eliminates the anti-deficiency protection to
developers and those constructing their home, but they will not affect those who
buy existing homes
Until January 1, 2015, Arizonas anti-deficiency statutes A.R.S.
§§ 33-729 and 33-814 applied with equal force, whether the borrower was a
family intending to occupy the subject property or a speculative home builder
looking to sell the property.
This changed when amendments to these statutes became
effective on January 1. These amendments weaken the anti-deficiency
protection provided to (1) spec or custom home builders that obtain loans to
construct new homes and (2) individuals who build, rather than buy, their home.
In certain circumstances, Arizonas anti-deficiency
statutes prevent a lender from pursuing a borrower for a deficiency when,
through a foreclosure or trustees sale, a property is sold for less than the
amount owed to the lender. Prior to January 1, borrowers were exempt from
deficiency judgments so long as the following criteria were met:
the property in question is 2.5 acres or less;
the property is limited to and utilized as a single or
two family dwelling; and
in some circumstances, the loan was used to pay some
or the entire purchase price of the property.
Whether the borrower was an occupant of the property or
a developer did not matter for purposes of the statute. As a result, Arizona has
traditionally been a favorite location for real estate investors and spec home
As is mentioned above, this changed when the amendments to the anti-deficiency
statutes went into effect on January 1. In particular, the new laws
provide that anti-deficiency protection will not apply to mortgages and deeds of
trust originating after December 31, 2014 for property that:
is owned by a person ... engaged in the business of
constructing and selling dwellings that was acquired ... in the course of that
business and that is subject to a mortgage or deed of trust given to secure
payment of a loan for construction of a dwelling on the property for sale to
contains a dwelling that was never substantially
contains a dwelling that is intended to be utilized as
a dwelling but is never actually utilized as a dwelling.
It should be noted that, while these changes will weaken
(and in some cases eliminate) the anti-deficiency protection afforded to
developers and those constructing their home, they will not affect those who buy