Court Opinion

ID: 6479988
Source: CourtListenerOpinion
Date Created: 2022-06-26 22:56:41.677521+00
Date Added: 2024-06-11T15:54:07.179116
License: Public Domain

KESSLER, Judge,
specially concurring.
¶ 13 I concur with the majority that when a trustee’s sale occurs on a parcel of land on which no construction of a dwelling has begun, the prohibition of a deficiency judgment under Arizona Revised Statutes (“A.R.S.”) section 33-814(G) (Supp.2013) does not apply. However, I write separately because the decision today leaves our superior courts in a quandary. If construction has begun, when does M & I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011), apply? Put another way, where should the courts draw the line between the lack of any construction and an almost completed dwelling to determine if the trustor is protected by § 33-814(G)? Should the debt- or who cannot avoid default until shortly after a foundation is laid be excluded from anti-deficiency protection, but the debtor who defaults after the frame is up be entitled to protection? To avoid arbitrary line-drawing and comport with our prior cases and the policy behind the anti-deficiency statutes, I conclude that once any 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.
¶ 14 The anti-deficiency statutes do not expressly address whether a debtor’s intent to use the structure as his or her dwelling controls application of the statute. Prior judicial opinions, in seeking to effectuate the legislature’s purpose, have looked to a party’s intent to utilize the structure, or partially-constructed structure, as his or her home. Thus, in Mid Kansas Federal Savings and Loan Association of Wichita v. Dynamic Development Corporation, 167 Ariz. 122, 804 P.2d 1310 (1991), after determining that commercial residential developers are not excluded from anti-deficiency protection, id. at 129, 804 P.2d at 1317, the court held 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. ” Id. (emphasis added).
¶ 15 In Mueller, this Court expanded on the intent analysis of Mid Kansas. The Muellers purchased a vacant lot and borrowed money from the bank to construct a single one-family home on the property for their own use. Mueller, 228 Ariz. at 479, ¶ 2, 268 P.3d at 1136. Before the home was complete, the Muellers abandoned construction and defaulted on the note. Id. at ¶ 3. The bank held a trustee’s sale and sued to recover the deficiency. Id. at ¶ 4. The bank argued that the anti-deficiency statute did not apply because a home was never constructed on the property. Id. at ¶ 7. We disagreed, explaining that the result in Mid Kansas would have been the same even if the homes were finished because the debtor there intended to sell rather than occupy them. Id. at 480, ¶ 9, 268 P.3d at 1137. Unlike Mid Kansas, the Muellers intended to personally utilize the property as a dwelling upon completion and thus were entitled to protection from a deficiency judgment. Id.
¶ 16 Mueller is consistent with the statute’s primary purpose of “proteet[ing] certain homeowners from the financial disaster of losing their homes to foreclosure plus all their other nonexempt property on execution of a [deficiency] judgment.” Baker v. Gardner, 160 Ariz. 98, 101, 770 P.2d 766, 769 (1988). As we explained in Mueller, a rule that defines utilization by present occupancy would undermine this purpose and lead to absurd results:
An individual facing the possibility of foreclosure may camp out in the unfinished home, claiming to be “utilizing” the dwelling. Additionally, a person who lived in a new home for a day would be entitled to anti-deficiency protection, whereas some*104one who had not yet moved into a newly constructed home would not be entitled to such protections.
Mueller, 228 Ariz. at 480, ¶ 10, 268 P.3d at 1137.
¶ 17 Mueller instructs that present occupancy and the level of construction are not dispositive of whether property is intended to be utilized as the debtor’s dwelling, at least when some construction has begun.3 “[The] argument that a person has to physically inhabit the dwelling would create a blurry and artificial line.” Id.
¶ 18 Similarly, a rule based on the level of construction that has already begun would require courts to “create ... blurry and artificial line[s]” based on whether foundation was laid, walls erected, or plumbing connected. Further, such an arbitrary rule would protect only those borrowers who managed to stay solvent long enough to achieve some yet undetermined level of construction, while leaving unprotected those whose economic misfortunes prevented them from doing more than breaking ground. Consequently, a borrower who takes any number of pre-construction steps toward building a dwelling the borrower intends to occupy, but who defaults just after putting shovel to dirt, would be left unprotected. Meanwhile, a borrower who takes all the same pre-construction steps but manages to stay solvent long enough to reach an undefined level of construction would receive anti-deficiency proteetion. Such an outcome would undermine the purpose of § 33-814(G) and our reasoning in Mueller.
¶ 19 That does not mean that the level of construction is irrelevant to determining the borrower’s intent. Rather, in determining a borrower’s intent at the time the debt was incurred,4 we should look to the totality of circumstances then and thereafter to determine if the borrower intended to occupy the planned building as a dwelling. Without limitation, long delays in signing contracts to build, the purchase of other lots in the same area to also build the borrower’s alleged residence, and the stated intent in any loan documents all go to whether the borrower intends to build a dwelling in which to personally live. Thus, the level of construction alone is not determinative, but the type, manner, and extent of development are probative of the borrower’s intent.
¶ 20 This conclusion is consistent with the stated public policy underlying the anti-deficiency statutes. As we recently noted in Parkway Bank & Trust Co. v. Zivkovic:
The statutes were intended to “protect [ ] consumers from financial ruin” and “eliminat[e]”... hardships resulting to consumers who, when purchasing a home, fail to realize the extent to which they are subjecting assets besides the home to legal process.” The anti-deficiency statutes “allocate the risk of inadequate security” to *105lenders, “thereby discouraging overvaluation of the collateral.” Additionally, “[i]f inadequacy of the security results, not from overvaluing, but from a decline in property values during a general or local depression, [the anti-deficiency statutes] prevent the aggravation of the downturn that would result if defaulting purchasers were burdened with large personal liability.”
232 Ariz. 286, 290, ¶ 16, 304 P.3d 1109, 1113 (App.2013) (internal citations omitted).
¶ 21 Recognizing the fact that this case deals with vacant land, there are, nonetheless, some facts present here that are instructive in determining whether a borrower intends to use a dwelling as his or her house. See Mueller, 228 Ariz. at 479, ¶ 4, 480, ¶ 11, 268 P.3d at 1136, 1137 (applying anti-deficiency protections to the Muellers because they intended to build a dwelling on the property at the time that they acquired the loan, despite the fact that they admittedly abandoned that intent by the time of foreclosure). First, in the loan renewal documents the Rudgears listed the primary purpose of the Loan as “Business (including Real Estate Investment)” and the specific purpose as “RENEWAL — vacant land investment.” (Emphasis in original.) Second, the Rudgears also purchased several contiguous lots and made plans to develop them simultaneously, undermining their purported intent on summary judgment that any building on this particular lot was to be their home because it suggests that they might have been engaged in speculative development rather than personal homebuilding. Third, the Rudgears’ representations in other deeds of trust that they intended to utilize different parcels in the area as their residence undermines their purported intentions. Although § 33-814(G) does not require the borrower to use the property as a primary residence, Indep. Mortg. Co. v. Alaburda, 230 Ariz. 181, 184, ¶ 10, 281 P.3d 1049, 1052 (App.2012), the fact that the Rudgears represented that they simultaneously were going to utilize three different properties in the same area as their primary residence raises doubts about whether they truly intended to occupy any of these lots as them own residence. Ultimately, however, it is unnecessary for us to balanee such factors in this case because no construction had begun on the Property.
¶ 22 Thus, I agree with the majority that given the language of § 33-814(G), the statute does not apply to a loan secured by property on which no construction has begun. However, once some development has begun, a court should look to the totality of the circumstances, and not an arbitrary level of construction, to determine if the debtor truly intended to use the property as his or her dwelling and be protected from deficiency judgments. This is consistent with Mueller and with the policy underlying the anti-deficiency statutes.

. Our legislature also appears to have rejected a present occupancy requirement when it repealed a short-lived amendment to A.R.S. § 33-814 that required the trustor/borrower to prove that he utilized the property as a dwelling for at least six consecutive months. Compare 2009 Ariz. Sess. Laws, ch. 68 (1st Reg.Sess.), with A.R.S. § 33-814(G). Furthermore, the introduced version of the bill that repealed the 2009 amendment had proposed a replacement provision that excluded "speculative construction project[s]” from anti-deficiency protection. S.B. 1004, 49th Leg., 4th Spec. Sess. (Ariz.2009) (introduced version). The proposed revision defined "speculative construction project” as "construction commenced with the intention of selling the trust property on completion to a third party” and stated that property "not occupied as a residence for four consecutive months immediately following completion is presumed to be a speculative construction project.” Id. This proposed revision did not become law. Compare id. with A.R.S. § 33-814(G). Thus, our legislature twice rejected provisions defining utilization in terms of present occupancy.

. We should look to the borrower's intent at the time the loan is secured consistent with the underlying purpose of the anti-deficiency statutes. This protects consumers when they contract the debt for the property from subjecting their other assets to legal process and to protect them from financial ruin when contracting to incur the debt. Parkway Bank & Trust Co. v. Zivkovic, 232 Ariz. 286, 290, ¶ 16, 304 P.3d 1109, 1113 (App. 2013). Additionally, looking back at the time of incurring the debt is only fair to the lender, which should be able to assess the risk of whether it will be precluded from seeking a deficiency judgment in case of a default. See Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 500, ¶ 30, 277 P.3d 198, 205 (App.2012) (noting that the anti-deficiency statutes allocate the risk of inadequate security to the lenders).