By Nicole LaSlavic, AAR Vice President of Government Affairs

Over the years, many attempts have been made to revise Arizona’s anti-deficiency statutes. This legislative session, a decision was made that will have an effect on speculative or custom homebuilders come January 1, 2015.

On April 22, Governor Jan Brewer signed into law HB 2018, mortgages; trust deeds; deficiency actions, effectively establishing conditions in which a spec or custom home builder will be unable to claim anti-deficiency protection if the home is not completed or has not been utilized as a dwelling. The new law states that “anti-deficiency” protection does not apply to mortgages and deeds of trust that originate after December 31, 2014 for the following types of properties:

  • Owned by a person who is engaged in the business of construction and selling dwellings that were acquired by the person in the course of that business and that is subject to a mortgage or deed of trust given to secure payment of a loan for construction of a dwelling on the property for sale to another person;
  • Contains a dwelling that was never substantially completed; and
  • Contains a dwelling that is intended to be utilized as a dwelling, but is never actually utilized as a dwelling.

The first two bullet points above directly address the Arizona Supreme Court decision in Mid Kansas Federal Savings and Loan Association of Wichita v. Dynamic Development Corporation, which held that “commercial residential properties held by the mortgagor for construction and eventual resale as dwellings” are not protected, and that “property is 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 an owner who has no intent to ever occupy the property.” The aforementioned revised language simply codifies into statute the case law and what has been practice for the past 23 years.

The last bullet point addresses an expansion of the 1971 legislative intent to Arizona’s anti-deficiency statutes. In 2011, the Arizona Court of Appeals expanded the long standing interpretation of the anti-deficiency statutes in M&I Marshall & Ilsley Bank v. Mueller. The Court held that the borrowers were protected by the anti-deficiency statutes because the borrowers “intended” to live in the unfinished home upon its completion. Prior application of the law dating back to its inception satisfaction of required a two-prong standard; “utilized” and “dwelling.” HB 2018 is intended to restore this standard.

Understanding the integral relationship of the banking industry and the real estate industry, the Arizona Association of REALTORS® worked with the Arizona Bankers Associations to address their concerns and more importantly, maintain critical anti-deficiency protection for homeowners. The result of the legislation is that individuals with multiple properties, investment properties, and rental properties will remain protected under the new law. The law takes effect on January 1, 2015 and will not affect mortgages and deeds of trust that are already in place. Ultimately, the legislation realigns statute with what was in practice for 40 years and provides the continued protections long afforded to Arizona homeowners.

About The Author

Nicole LaSlavic

Nicole LaSlavic

Nicole LaSlavic is Vice President of Government Affairs for the Arizona Association of REALTORS® representing the association at the Arizona capitol. In the past, LaSlavic worked as a lobbyist for a law firm as well as a local government relations lobbying firm. In both capacities, she worked to develop, advocate and implement policy and programs on a broad range of issues including health care, retirement, public safety and economic development. Throughout her career, she has developed and maintained relationships with legislators, staff and members of various state agencies. In addition, Ms. LaSlavic has solid expertise in fundraising and event planning for both political candidates and organizations. You can reach her at or 602-248-7787.