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Construction Law

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, Arizona’s 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 article appeared in the January 2015 issue of "The Construction Advisor" published by Lang & Klain, P.C.

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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, Arizona’s anti-deficiency statutes prevent a lender from pursuing a borrower for a deficiency when, through a foreclosure or trustee’s 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 builders.


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 another person;

  • contains a dwelling that was never substantially completed; and

  • 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 existing homes.