Opinion ID: 1352228
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Heading: The Applicability of the Anti-Deficiency Statutes

Text: Arizona has two anti-deficiency statutes. A.R.S. § 33-729(A) applies to purchase money mortgages and purchase money deeds of trust foreclosed judicially pursuant to the authority of A.R.S. § 33-807(A). A.R.S. § 33-814(G) applies to deeds of trust that are foreclosed by trustee's sale, regardless of whether they represent purchase money obligations. Both sections prohibit a deficiency judgment after sale of a parcel of property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling. A.R.S. §§ 33-729(A), 33-814(G). Arizona also has an election of remedies statute within the general law applicable to mortgages. Under A.R.S. § 33-722, a mortgagee can foreclose and seek a deficiency judgment or can sue on the note and then execute on the resultant judgment but cannot bring both actions simultaneously. See Washburn, The Judicial and Legislative Response to Price Inadequacy in Mortgage Foreclosure Sales, 53 S.CAL.L. REV. 843, 928 (1980). The election statute is intended to protect the debtor from multiple suits and at the same time grant the creditor the benefit of the security. The election statute alters the traditional common law rule that a holder of a note secured by a mortgage has the right to sue on the note alone, to foreclose on the property, or to pursue both remedies at once (although there may be only one recovery on the debt). See Paramount Ins., Inc. v. Rayson & Smitley, 86 Nev. 644, 472 P.2d 530, 533 (1970). [2] However, the reach of the statute, as applied to most mortgages, is quite limited. In Smith v. Mangels, 73 Ariz. 203, 207, 240 P.2d 168, 170 (1952), this court held the election statute does not preclude a subsequent foreclosure action after judgment on the debt, as is the case in some other states. See, e.g., Neb. Rev. Stat. §§ 25-2140 and 25-2143 (1989); N.Y. Real Prop.Acts.Law § 1301 (McKinney 1979); S.D. Codified Laws Ann. §§ 21-47-5 and 21-47-6 (1987). In Baker, we held the election statute was limited by the subsequently enacted purchase money mortgage anti-deficiency statute, A.R.S. § 33-729(A), which barred the lender from waiving the security and suing on the debt. 160 Ariz. at 104, 770 P.2d at 772. In so holding, we joined the courts of California and North Carolina in finding that such an election is inconsistent with the anti-deficiency statutes, which limit the lender to recovery from the land itself. Id. Baker held that the lender should not be allowed to circumvent the anti-deficiency statute by electing to sue the debtor on the note, thereby realizing any difference between the value of the real property and the amount owed on the debt. As our supplemental opinion pointed out, Baker's holding applies whenever the anti-deficiency statutes apply and therefore is not always limited to the purchase money situation. 160 Ariz. at 106-07, 770 P.2d at 774-75. Assuming that the deed of trust falls within one of the anti-deficiency statutes, an action for a deficiency is prohibited after a trustee's sale on any deed of trust and after judicial foreclosure on purchase money deeds of trust. See A.R.S. §§ 33-814(G) and 33-729(A). If a lender holds a non-purchase money deed of trust, he may recover a deficiency if he does so through an action for judicial foreclosure because A.R.S. § 33-729(A) applies only to purchase money liens. In this latter case, of course, the debtor receives the protections of judicial foreclosure, including a statutory redemption right. [3] Read together, therefore, the statutes enact the following scheme: when the holder of a non-purchase money deed of trust of the type described in A.R.S. § 33-814(G) forecloses by non-judicial sale, the statute protects the borrower from a deficiency judgment. The lender therefore may not waive the security and sue on the note. Baker, 160 Ariz. at 106, 770 P.2d at 774. The holder may, however, seek to foreclose the deed of trust as if it were a mortgage, as allowed by § 33-814(E); if he does so, the debtor is allowed redemption rights under §§ 33-726 and 12-1281 through 12-1289 and is thus protected from low credit bids, but the holder may recover a deficiency judgment  the difference between the balance of the debt and the sale price  unless the note is a purchase money obligation. In the latter case, the borrower is protected by the mortgage anti-deficiency statute, A.R.S. § 33-729(A), which applies only to purchase money obligations. Baker, 160 Ariz. at 106, 770 P.2d at 774. Thus, if under Baker and the facts of this case Dynamic is protected by an anti-deficiency statute, Mid Kansas could not elect to waive its security and sue on the first notes after having already chosen to proceed by trustee's sale under the second deed of trust.