Certain Residential Developers are Unprotected by the Anti-Deficiency Statute after Foreclosure of a Deed of Trust on Vacant Property

by Ryley Carlock & Applewhite

Nearly three years ago, in M&I Marshall & Isley Bank v. Mueller, the Arizona Court of Appeals held that the Arizona anti-deficiency statute (A.R.S. § 33-814) protects a borrower who started, but never completed, construction of a single-family dwelling before defaulting on its loan. Recently, the same appellate court limited those anti-deficiency protections by holding in BMO Harris Bank v. Wildwood Creek Ranch, LLC that a developer of vacant land - land on which no construction has begun - cannot invoke the anti-deficiency statute as a matter of law, regardless of whether the borrower intends to eventually reside on that land.

In 2006, Wildwood Creek Ranch, LLC ("Wildwood") obtained a $296,200 loan from BMO Harris Bank's predecessor in interest, M&I Bank, for the purchase of an unimproved, vacant lot in Scottsdale, Arizona. The vacant lot was secured by a deed of trust on the land. Shaun and Kristina Rudgear, Wildwood's sole members, executed a promissory note on behalf of Wildwood and also personally guaranteed the promissory note. There was never any construction upon the property. In 2011, Wildwood and the Rudgears defaulted on their loan obligations. BMO Harris Bank ("BMO") foreclosed on its deed of trust securing the vacant lot through a trustee's sale and then sued Wildwood and the Rudgears to obtain a deficiency judgment for the unpaid balance of the loan.

The parties filed cross-motions for partial summary judgment regarding the applicability of A.R.S. § 33-814(G), the anti-deficiency-judgment statute. Seeking protection under the anti-deficiency statute, the Rudgears argued that BMO could not recover the unpaid balance of the loan because, as they asserted in affidavits, they intended to build a house on the property and occupy it as their primary residence. BMO submitted evidence that the Rudgears owned three separate parcels, each of which they purportedly intended to use as a primary residence. However, the Superior Court ruled in favor of Wildwood and the Rudgears, concluding that no material evidence contradicted the Rudgears' affidavits and that their intent to build a residence on the property precluded BMO from obtaining a deficiency judgment.

The Court of Appeals reversed the holding of the Superior Court on the basis that vacant property upon which no construction had begun does not constitute a "dwelling" as defined by the anti-deficiency statute, and as such, protection thereunder could not be invoked. Specifically, A.R.S. § 33-814(G) prohibits an action to obtain a deficiency judgment if the property at issue: (1) was encumbered by a deed of trust, (2) sold at a trustee's sale, (3) consists of two-and-a-half acres or less, and (4) "is limited to and utilized for either a single one-family or a single two-family dwelling." (Emphasis added). Only the last requirement was disputed in this case. The critical difference between M&I Marshall & Isley Bank v. Mueller and this case is that here, the property at issue was vacant, and there had never been any construction. Unimproved, vacant land is not a "dwelling" as required by the anti-deficiency statute.

Judge Kessler of the Court of Appeals specially concurred to discuss his views on what triggers the applicability of the anti-deficiency statute. Judge Kessler suggested the need to scrutinize a borrower's alleged intend to occupy the property for residential purposes. In this particular instance, Wildwood's loan renewal documents listed the primary purpose of the loan as "Business," it purchased several contiguous lots and made plans to develop them simultaneously, and represented in several other deeds of trust that the Rudgears intended to utilize those different parcels as their residences as well.Judge Kessler ultimately concluded that "once construction has begun, a court should determine whether the debtor is protected from a deficiency judgment based on a totality of the circumstances to see if the debtor intended the structure under construction to be utilized as his or her dwelling." In other words, if any construction has occurred, the borrower's intent regarding the use of the building under construction would be determinative.

As a result of the opinion set forth in BMO Harris Bank v. Wildwood Creek Ranch, LLC, lenders and developers will be affected in that this decision shows a shift in favor of lenders in that it renders the anti-deficiency statute a less powerful defense to be used by a borrower who has defaulted.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ryley Carlock & Applewhite | Attorney Advertising

Written by:

Ryley Carlock & Applewhite

Ryley Carlock & Applewhite on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.