Written by: Real Estate Attorney Christopher J. Charles

On December 27, 2011, the Arizona Court of Appeals handed down a new decision that extends even greater protection to distressed property owners. The new opinion, set forth at M & I v. Mueller, 2011 WL 6778743 (App. Dec. 2011), is discouraging news to the banking industry – especially construction lenders. On the other hand, the Mueller case brings hope for some distressed property owners.   Prior to the Mueller decision, the courts only applied Arizona’s anti-deficiency statute to properties that had actually been “utilized as a dwelling” – meaning that the construction of the home was completed and that someone had actually lived there (or at least vacationed there). In other words, the protections afforded by the anti-deficiency statute did not apply to vacant lots or construction loans regarding properties that were never actually built.

But now, according to the new Mueller decision, as long as the homeowner can show that they purchased the property with the intent of occupying it once the home was built, even construction loans regarding vacant lots may qualify as “non-recourse” (as long as the other requirements of the anti-deficiency statute are met (e.g. single-family home on less than 2.5 acres). 

If you or someone you know has questions regarding their distressed property, please contact Attorney Christopher J. Charles at 480-733-6800 to schedule an appointment.