Court Upholds Anti-Deficiency Statutes For Vacation Property Owners

Recently, a Maricopa County Superior Court judge ruled that the protection of Arizona’s anti-deficiency statutes extended to the owners of a Sedona luxury vacation home accommodation, even though the owners only owned a percentage interest of the home, and even though the owners only had a license to use the home for 28 days or less each year. The owners were represented by Arizona real estate attorney, Adam Martinez of Combs Law Group.

The owners obtained a loan to purchase a minority interest in a single-family home located in a Sedona private luxury development, Seven Canyons. The owners secured the loan with a deed of trust on the home. The owners defaulted on the loan, and the lender foreclosed on the owners’ interest in the home. After the foreclosure, the lender sued the owners for the remaining balance of the loan, i.e., the deficiency. The lender argued that because the owners had a license to use the home only 28 days out of the year, they did not have “true” ownership of the home and were not entitled to anti-deficiency protection.

Upholding long-standing Arizona real estate law that provides that investment or vacation homes are included among the types of homes subject to Arizona’s anti-deficiency statutes, regardless of the length of use, the judge disagreed with the lender and ruled that the owners qualified for protection under Arizona’s anti-deficiency statutes because the statutes do not exclude percentage interests in vacation or investment homes that otherwise qualify for protection, nor do the statutes require occupancy for a certain length of time. See Maricopa County Superior Court Case No.CV2009-026684. Finally, the court stated that only the legislature can preclude percentage interests in vacation homes from the anti-deficiency statutes.

Note: During the 2009 legislative session, a law was passed, supported by the lending industry that required occupancy of at least six months in order to qualify for anti-deficiency protection. However, this law was repealed before it ever became effective. Therefore, the Arizona anti-deficiency statutes – primarily A.R.S. § 33-814 (G) – currently afford the same protection to homeowners that has existed since the enactment of the Arizona anti-deficiency statutes more than 30 years ago.


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