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Borrowers on Vacant Lots Beware

The recent Great Recession continues to produce decisions by Arizona courts.  In January, the Arizona Supreme Court held that Arizona’s anti-deficiency statute does not protect borrowers that default if the home was never built.  In BMO Harris Bank v. Wildwood Creek Ranch, LLC, the Court held that protections under ARS § 33-814(G) against deficiency judgments afforded to residential borrowers under pre 12/2014 deeds of trust do not apply to a situation where the dwelling was never constructed.  It is not enough that the borrowers intended on building a home.  Rather, it must be utilized as a dwelling, which clearly can’t be done until it is completed.  Therefore, if the bank sells the property at a trustee’s sale and recovers less than the loan, the bank may sue the defaulting borrowers to recover the difference — but only if the home was not completed.  It’s another lesson for the borrower to be sure that they can afford to enter into the transaction in the first instance.

If you find yourself in this situation, a lawyer may help.  While the Court has spoken, you can still perhaps negotiate a better deal with the Bank and pay less than the actual difference.  A lawyer may be able to negotiate favorable payment terms.  These avenues should be explored before considering defaulting, if possible, or, if the sale has already occured, before taking more drastic action such as filing for bankruptcy relief.

The lawyers at Murphy Karber Cordier have experience in dealing with these matters.