The Arizona Court of Appeals recently ruled in Independent Mortgage Co. v. Alaburda, that Arizona’s anti-deficiency law (A.R.S. § 33-814(G)) protects a borrower who has a fractional interest in a vacation home.
The Alaburdas purchased a 1/10 fractional interest in a single-family residential condominium in Sedona. Independent Mortgage financed the purchase with a loan in the amount of $321,750, which was secured by a deed of trust on the 1/10 interest in the property. The Alaburdas could vacation at the property for up to twenty-eight days each year.
The Alaburdas defaulted on the promissory note, and Independent Mortgage foreclosed on the property via a trustee’s sale. The property sold for $285,000, which was less than the amount owed on the promissory note. Independent Mortgage filed a lawsuit against the Alaburdas as a result of the deficiency balance.
The Alaburdas moved for summary judgment, arguing that Independent Mortgage was precluded from recovering any difference between the amount obtained from the trustee’s sale and the amount of indebtedness pursuant to the anti-deficiency protection of A.R.S. § 33-814(G). The
trial court ruled in favor of the Alaburdas, finding that they were not liable for the deficiency, and Independent Mortgage appealed the trial court’s decision. The Court of Appeals affirmed the trial court’s decision and held that the Alaburdas were entitled to the protection of A.R.S. § 33-814(G).
A.R.S. § 33-814(G) protects homeowners in certain instances from liability for a deficiency resulting from a trustee sale. In order for a homeowner to be protected by A.R.S. § 33-814(G), the property must be limited and utilized as a dwelling. The purpose of the statute is to protect consumers from financial ruin and place the risk of inadequate security on lenders rather than borrowers.
Independent Mortgage argued that a 1/10th interest in a vacation property is not a “dwelling” entitled to the anti-deficiency protection of A.R.S. § 33-814(G) because it was not used “on a continuous and permanent basis” and because the Alaburda’s use of the premises was restricted in various ways.
In evaluating Independent Mortgage’s argument, The Court of Appeals relied on the prior Arizona cases of Northern Arizona Properties v. Pinetop Properties Group and Mid Kansas Federal Savings and Loan Association v. Dynamic Development Corporation. In Pinetop the court defined “dwelling” broadly as “a shelter (as a house or a building) in which people live.” The Court in Pinetop held that an investment condominium, which was only occasionally occupied by the owners as a vacation property, fell within the statutory definition of trust property utilized as a single one-family dwelling.
In Mid Kansas the Court approved of the holding in Pinetop and noted that the principal element in the definition of “dwelling” is the “purpose or use of a building for human abode.” The Court found that neither Pinetop nor Mid Kansas supported Independent Mortgage’s narrow definition of “dwelling.”
This is a helpful decision for Arizona homeowners. However, keep in mind that the protection of under the anti-deficiency statute is fact-specific. If you are facing foreclosure, contact a reputable attorney to assist you in evaluating your individual situation.