Vacant Land Not Protected By Anti-Deficiency Statutes

Laying Down the Law

Chris Charles
Written by Christopher J. Charles, Esq.


ATTENTION all investors, builders, and anyone planning to build a home: according to the Arizona Supreme Court’s recent Wild Creek decision and the recently amended anti-deficiency statutes, loans obtained to purchase vacant land are not necessarily protected by Arizona’s anti-deficiency statutes.

Let’s review the basics. Where applicable, Arizona’s anti-deficiency statutes protect borrowers from being sued by their lender following a default on the loan. Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988). In order for the anti-deficiency statutes to apply, the borrower must show that the loan was used to purchase a single or two-family dwelling, situated on 2 ½ acres or less, that was utilized as a dwelling.  See A.R.S. §33-729 and A.R.S. §33-814(g).

Public policy favors protecting homeowners from losing their home to foreclosure and then being sued for a deficiency.  The anti-deficiency statutes were enacted in the 1970s to encourage lenders to make good loans and to not finance transactions where the property is not reasonably appraised to be worth at least as much as the loan. These laws place the burden on the lender to adequately perform its due diligence concerning the property’s fair market value since the lender is typically better situated to judge the financial soundness of the transaction.  Logic provides that if the lender correctly performs its due diligence, even if the borrower defaults on its payment obligations, the lender can still be made whole since the lender can foreclose and sell the property to satisfy the loan.  And there will be no need for the lender to pursue collection from the borrower.

Since the market crash in 2007, the courts have consistently expanded the scope of the anti-deficiency statutes and generally interpret the laws in the favor of the borrower.  M&I Bank v. Mueller was the high-water mark of the court’s expansion of the anti-deficiency statutes. In Mueller, the Arizona Court of Appeals held that the protections apply to even vacant land as long as the owner claims that he intended to build a single-family or duplex on the property at some point.  Id.

But recently, the Supreme Court issued an opinion that tempers the borrowers’ protections and reverses the Mueller decision.  In BMO Harris Bank, NA v. Wildwood Creek Ranch, LLC , the Supreme Court ruled that the anti-deficiency statute does not bar claims against owners of vacant property.  And in order for A.R.S. §33 814(g) to apply, “a dwelling must have been completed.”

Further, the legislature recently amended A.R.S. §33 814 to provide that the protections do not apply to property that was:  (1) developed for commercial resale to a third-party; (2) never substantially completed; or (3) never actually utilized as a dwelling.  A.R.S. §33 814(h). The revised amendment only applies to loans originated after December 31, 2014.

In light of the Wildwood decision and the amendments to the anti-deficiency statutes, lenders and borrowers are equally motivated to adequately perform due diligence before completing transactions for residential property. And these changes in the law have practical application in today’s emerging market for vacant land.

Indeed, for the last six years any discussion regarding borrowers’ personal liability for vacant land loans was moot since most lenders stopped underwriting these loans. But now, according to Jason Fronstin with Foothills Mortgage Group, LLC, “we are seeing traditional financing again for vacant land, although not as vast as an opportunity as before.” As the market improves, borrowers and lenders will do well to adequately evaluate each transaction to ensure that the purchase price adequately reflects the fair market value of the property.

Please call Mr. Charles today if you or someone you know has questions about deficiency judgments, anti-deficiency statutes, or any other real estate matter.

Christopher is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (“AAR”).  He is a Partner with the law firm Titus Brueckner & Levine PLC.  He is also an Arbitrator and Mediator for the AAR regarding real estate disputes; and he serves on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions.


Christopher is a licensed real estate instructor and he teaches classes at the Arizona School of Real Estate and Business. Christopher can be reached at or at 480-483-9600.