If you have been following my Real Estate Law Blog posts you may have already read about some of the recent legal developments related to foreclosures and short sales in Arizona. However, in light of a new Court of Appeals case just decided last month, I felt it was time for a summary of these recent developments.
Construction Loans and Home Improvement Loans:
A ruling last month by the Arizona Court of Appeals in the case of Helvetica Servicing Inc. v. Pasquan answers important questions in the law and may impact anti-deficiency protections for some people. This case involved the refinance of an original purchase money loan, in which the borrower was loaned additional funds. The additional funds were primarily used by the borrower: (1) to reconstruct a large portion of the home, and (2) for home improvements and related purposes.
The Court of Appeals ruled on several key issues that have been in dispute in Arizona. The Court laid out the following rules to follow when determining whether a refinanced loan or construction loan will be given purchase money status under Arizona law in certain situations and thus, afforded anti-deficiency protection in the judicial foreclosure context:
A refinance of a purchase money loan, whether by the original lender or a new lender, does NOT destroy purchase money protection to the extent the loan proceeds from the refinance are used to satisfy the underlying purchase money loan.
A construction loan given to borrower that is (1) secured by a deed of trust that covers both the land and the dwelling to be constructed on the land (provided the dwelling is a qualifying property under the anti-deficiency statute), and (2) actually used to construct the dwelling, will be afforded purchase […]