In M&I Marshall & Ilsley Bank v. Mueller, 1 CA-CV 10-0804, the Arizona Court of Appeals said that Arizona’s anti-deficiency statute applies to those who buy land with the intent to occupy the property upon completing building a home even if they do not complete construction and actually occupy the property.  In Mueller, the family bought a lot and borrowed $440,000 from M&I Bank to build a single-family home on the property for their own use.  Months into the construction they abandoned the property after experiencing construction delays and defaulted on the note.  M&I Bank repossessed the property with a non-judicial foreclosure and sought to recover the deficiency.

M&I Bank argued that the debtors were not entitled to protection because the home was never constructed; therefore, the property was not “utilized” for a single-family home.  In Mid Kansas Federal Savings & Loan Association of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 129, 804 P.2d 1310, 1317 (1991), a commercial homebuilder defaulted on a loan during the construction of homes for resale.  The homes had not been fully completed as of the date of the default.  The Arizona Supreme Court held that Arizona’s anti-deficiency statute did not protect the debtor from a deficiency judgment because the property was not “utilized as a dwelling when it is unfinished, has never been lived in, and is being held for sale to its first occupant by the owner who has no intent to ever occupy the property.”  The Appellate Court distinguished the Supreme Court’s decision, holding that when raw land is purchased by the debtor with the intent to personally occupy the property, the anti-deficiency statute applies even if the home is not constructed and the property is not occupied.  However, where the raw land is purchased by the debtor with the intent to never personally occupy the land the anti-deficiency statute does not apply.  The Court held that this framework serves the primary purpose of the anti-deficiency statute which is to protect homeowners from deficiency judgments.  The Court further held that any requirement that a person has to physically inhabit the dwelling creates an artificial line that creates absurd results.  For example, the Court noted that an individual that lived in a home for one day would be entitled to protection, but an individual that has not moved into a newly completed home would not be entitled to protection.

At the Law Firm of William A. Miller we handle this type of claim against the bank. Call us at 602-319-6899 or visit us at 8170 North 86th Place Scottsdale, Arizona 85258.

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