Arizona’s Homeowner Protection Post-Foreclosure Anti-Deficiency Laws

By Bill Sawkiw

Arizona has several anti-deficiency laws that protect homeowners from a deficiency judgment in the event of a foreclosure.  But there are limitations to the applicability and reach of those laws.

The first is A.R.S. 33-729, which expressly limits a homeowner’s liability in the event of a purchase money foreclosure: “[I]f a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real 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, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.”  (Emphasis added).

In addition to this statute, another affirms this same limitation on liability for such foreclosures.  It is A.R.S. 33-814(G), which prevents a lender’s possible attempts to collect after a foreclosure of a purchase money mortgage: “If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee’s power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.”  (Emphasis added).

The Arizona Supreme Court has examined the legislative history behind these anti-deficiency laws when ruling on foreclosure-related cases.  For example, in Baker v. Gardner,[1] the court held that a lender is prohibited from waiving its security interest in the property in order to pursue collection of the balance owed.  In reaching its conclusion, the court considered the legislature’s goal when enacting these anti-deficiency laws to protect homeowners from deficiency judgments.  In limiting the lender’s ability to collect, the court specifically held: “In our view, the legislature would not have protected homeowners from deficiency judgments but still permitted the holder of a mortgage or deed of trust to obtain essentially the same result by waiving the security and bringing action on the note.”[2] In other words, under these statutes, a lender cannot issue a purchase money mortgage, foreclose on that purchase money mortgage, then collect any other amount from the borrower.  The lender gets to keep (and eventually sell) the home or it gets the money from the trustee’s sale.  Any attempts to collect any unpaid balance owed beyond the value of the home are expressly forbidden by the anti-deficiency laws.

There are, however, restrictions to the protections of these anti-deficiency laws.  For example, you cannot be the cause in the diminution in value of the property.  And these laws typically do not apply to home equity loans obtained after your purchased the home.  But generally speaking, if you own a single-family or two-family home on less than two and one-half acres, these anti-deficiency laws likely protect you from any post-foreclosure unpaid balance owed on a purchase money mortgage.  If you have any questions about whether these anti-deficiency laws protect you, contact one of the attorneys at BWG.


[1] See Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988).
[2] Id. at 101-02, 770 P.2d at 769-70.

Should You Worry About the Rule Against Perpetuities?

Body Heat Movie PosterBy Craig LaChance

The 1981 film Body Heat is great for many reasons. It stars William Hurt, right at the beginning of his 80’s peak. The film also features Kathleen Turner in a smoldering debut. Body Heat was the directorial debut of Lawrence Kasdan fresh from serving as screenwriter for two iconic movies: The Empire Strikes Back and Raiders of the Lost Ark. The always awesome Mickey Rourke even makes an appearance as a jaded explosives expert! Watching the film is the cultural equivalent of eating an expensive designer cupcake; it has no nutritional value but is so well done you just don’t care. The plot is a slab of sleazy Florida noir, involving adultery, murder and a lot of sweating nubile bodies. What truly makes Body Heat unique, however, is that it is one of the only films—indeed, one of the few narrative fictions in any medium—in which the plot turns on the Rule Against Perpetuities.1

In the film, Turner plays conniving femme fatale Matty Walker. She seduces Hurt’s character, Ned Racine, a dim-witted sleazeball lawyer, and conspires with him to kill her rich, older husband played by Richard Crenna.2 Here is how one commentator describes Matty and Ned’s relationship:

Ned Racine was just the sort of two-bit, no-account (but aesthetically pleasing) lawyer that Matty Walker (Kathleen Turner in her steamy, lawyer-melting cinematic debut), the female lead in Body Heat, was looking for. Matty did not feel the need to go paging through the Martindale-Hubbell legal directory to look for a lawyer referral. Poised to commit the “perfect crime,” she clearly had criteria other than degrees, experience, and legal ability in mind when looking for appropriate legal representation. Nor did Matty keep these criteria all that well-hidden. “You’re not too smart, are you?” she asks Ned at one point in the film, “I like that in a man.”3

Before Matty can kill her husband, however, she needs to be sure she can get all his money. His will splits his estate between Matty and his niece. Undeterred, Matty steals stationary from Ned’s office and forges a second will that is almost identical to the first. The only difference is that the bequest to the niece is altered so that it violates the Rule Against Perpetuities. This is all revealed in amazing scene after the husband’s death, when lawyers explain the Rule Against Perpetuities and how the bequest to the niece fails and Matty ends up with all the money.

The Rule Against Perpetuities is perhaps the most notorious, misunderstood doctrine in American law. After learning the Rule once in their first year property class and then again when they study for the bar exam, most lawyers never devote another iota of intellectual energy to thinking about it. The Rule is confusing mess that invokes vestiges of English feudal law that seem to have little relevance in the modern world. The problem begins with the abstruse language of the rule: “No interest in property is valid unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest.” Certainly not a model of clarity. The rule is further compounded by the interests involved. It is not concerned with the present interests in property but rather with interests that could arise in the future. Suppose A deeds property to B for life and then to C. B has a life estate in the property. C has a “remainder interest” in the property, which can only arise in the future, after B’s death. The Rule Against Perpetuities is concerned with this type of future interest. The Rule dictates that a future interest must vest—that is, it must belong to someone—within a certain period time, namely, 21 years after someone alive at the time the interest is created dies.4 If the interest does not vest, the transfer fails. This is enormously difficult to apply. In fact, it is so difficult the California Supreme Court once held it is not legal malpractice to draft a document that violates the Rule Against Perpetuities.5

While misunderstood and seemingly harsh, the Rule Against Perpetuities is actually well-intentioned. Its purpose is straightforward: to ensure that at some point, someone actually owns transferred property. In 17th Century England, the government imposed taxes on the transfer of land after the death of the owner. To avoid those taxes, owners would place their property in trust so their successors could live on the land for generations without actually owning it.6 (I suspect something like this is going on at Downton Abbey.) The property would be held in trust in perpetuity. The Rule was designed to end this practice, free up large concentrations of property and wealth, and make sure the deceased could not keep controlling property from the grave.

Knowing all this, is the Rule something that you need to worry about? Probably not. Most states have made some kind of effort to mitigate it effects. Some states have abolished the rule outright. Twenty Nine states, including all the ones in which I practice (Virginia, District of Columbia, Arizona) have all adopted the Uniform Statutory Rule Against Perpetuities.7 The Uniform Rule takes what is called a “wait-and-see” approach. Under this approach, a transfer is not invalidated if it does not vest with 21 year of a life in being. Instead, the Uniform Rule provides additional time—specifically, 90 years after creation of the interest—so that everyone can wait and see if the interest will actually vest. This effectively makes the Rule a chimera; a bizarre hypothetical for law students to worry about, but not something that is likely to affect you.

1 The 2011 film The Descendants, starring George Clooney, also implicates the Rule Against Perpetuities, but it is not as central to the plot.

2 Hell yeah! Colonel Trautman from the Rambo films!

3 John M. Burkoff, If God Wanted Lawyers to Fly, She Would Have Given Them Wings: Life, Lust & Legal Ethics in Body Heat, 22 Okla. City U. L. Rev. 187, 188 (1997).

4 Body Heat never reveals how the fake second will violates the Rule Against Perpetuities. UCLA professor Michael Asimov suspects the bequest to the niece “included a contingent remainder, where the contingency could not vest during the period of lives-in-being-plus-21-years.” Michael Asimov, Estate Planning and Body Heat (Jan. 1998).

5 Lucas v. Hamm, 364 P.2d 685 (Cal. 1961).

6 For a very good, brief description of the history of the Rule Against Perpetui
ties see Michael Pancheri, Rule Against Perpetuities, (2005).

7 A summary of the Uniform Rule can be found at Interestingly, Florida has also adopted the Uniform Rule, so it is unlikely that the Body Heat ploy would work.