Tucson Fire Damage Rules: Anti-Deficiency Protection and the Word Utilized

Two Statutes, One Test

Arizona has two anti-deficiency provisions and which applies depends on how the lender forecloses.

A.R.S. section 33-814 governs a trustee's sale, the non-judicial route, which is how the overwhelming majority of Arizona residential foreclosures proceed. Subsection (G) provides that where 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 under 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.

A.R.S. section 33-729 governs judicial foreclosure, ordered by a court after a lawsuit. The property test is the same, and for judicial foreclosure the protection applies where the mortgage secures a purchase-money loan.

Which One Will Apply to Me?

Almost certainly the trustee's sale route, because Arizona lenders use deeds of trust and the non-judicial process is faster and cheaper for them. That matters practically, because a trustee's sale runs on a statutory timetable rather than through a courtroom, so nothing pauses while you work out what to do. The date you first miss a payment is the start of a clock, and an Arizona lawyer can tell you where on that clock you currently are.

The Property Test

Both statutes require the same two things of the property.

Two and one-half acres or less. A hard boundary with no discretion in it. On a typical Tucson lot this never arises. On the rural fringe, on horse property and on some larger Foothills parcels it decides the whole question.

Limited to and utilized for either a single one-family or a single two-family dwelling. A house or a duplex. A triplex or anything larger is outside the protection.

What the Courts Have Made of Utilized

This is where the fire question lives, so it is worth setting out carefully.

In M&I Marshall & Ilsley Bank v. Mueller, the Arizona Court of Appeals held that the statute protected a borrower who had started but never completed construction of a single-family dwelling before defaulting. That approach gave weight to what the borrower intended the structure to be.

In BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, the Arizona Supreme Court decided the point on 23 January 2015. The borrowers had taken a loan secured on an unimproved vacant lot on which no construction had ever begun, and the court held they were not entitled to the protection.

What Exactly Did the Court Say?

That by its terms the statute applies only to property utilized for a single one-family or single two-family dwelling, and that a dwelling must be completed on the property in order to be capable of being utilized at all. Vacant property is not being utilized for a dwelling even where the borrower intends someday to construct and occupy a home there, and utilized means presently used rather than planned for future use. On what a dwelling is, the court identified the principal element as the purpose or use of a building for human abode, meaning a structure wholly or partially occupied by persons lodging in it at night or intended for such use, and said the structure must also be suitable for residential use.

Where That Leaves a Burned House

Here is the honest position, and we are going to resist the temptation to resolve it for you.

Wildwood was about land that had never been built on. It was not a case about a home occupied for years that was subsequently destroyed, and the court's reasoning was directed at the first situation rather than the second.

The 2014 amendment at section 33-814(H) provides that subsection (G) does not apply to trust property that was developed for commercial resale to a third party, never substantially completed, or never used as a dwelling. That amendment applies to deeds of trust originating on or after 1 January 2015. The word never in the third limb is doing a great deal of work, and it does not obviously describe a house somebody lived in until it burned.

Against that sits the court's language about the structure being suitable for residential use, and about utilized meaning presently used. A gutted house is not presently suitable for residential use in any ordinary sense of the words.

So What Is the Answer?

It is a question for an Arizona lawyer on your particular facts, and it is the most valuable hour you could spend. What matters to the answer is likely to include how long the property was occupied before the fire, whether you left permanently or intend to return, when the deed of trust originated, how far the damage went and whether the structure was substantially destroyed. Those are exactly the facts that vary between one fire file and the next, which is why nobody can give you a general answer that is worth relying on.

We publish no assessments of anybody's anti-deficiency position, loan exposure or foreclosure timetable, and nothing here is legal advice. Whether the protection reaches your property, and what any shortfall would mean for you, are questions for an Arizona lawyer. On a file where payments have already been missed, that is a matter of weeks rather than months.

The Order to Do Things In

Before you stop paying. This is the moment with the most options and it is the one people pass through without noticing. Get advice here if you possibly can.

Before a notice of trustee's sale. Fewer options, and still meaningful ones.

Before the sale date. Fewer again, and the timetable is now driving.

After the sale. The anti-deficiency question is now the whole question, and it is answered by facts that were fixed months earlier.

Your Options, Compared

Repair and stay. Removes the question entirely, where the claim and the equity support it.

Sell for enough to clear the loan. Also removes it. The cleanest exit and the one to test first.

Sell for less than the balance. Needs the lender's agreement, and how any shortfall is treated becomes a negotiated term rather than a statutory protection.

Let it go to a trustee's sale. The route where section 33-814(G) decides whether you are clear afterwards, on facts you no longer control.

What This Site Does Not Cover

Arizona's insurance claim rules, the deadlines that bind insurers and the position on bad faith are a separate subject and a large one. This site is about the loan.

Where a denied or under-settled claim is what pushed you toward the loan question, a public adjuster or a lawyer who handles claims is the right first call, because a properly settled claim frequently makes everything on this page moot.

Across Tucson and Southern Arizona

The statute is state law and applies identically across Arizona. The older core is covered under the barrios and central Tucson and South Tucson and the south side, the north under the Catalina Foothills, and the newer stock under the east side. Further pages deal with the northwest and the wider region.

Those outer areas include Oro Valley, Marana and Casas Adobes, with Vail, Sahuarita, Green Valley, Benson and Sierra Vista beyond.

The full index is on our service area index.

Rules Questions

How Big Is My Lot?

The Pima County Assessor's parcel record states it. Two and one-half acres is a hard line and worth checking rather than estimating.

When Did My Deed of Trust Originate?

It is on the recorded document. Before or after 1 January 2015 decides whether subsection (H) applies to it.

Is a Guest House a Second Dwelling?

A question that turns on facts and on how the property is configured. It is exactly the sort of point to put to an Arizona lawyer rather than assume.

Primary Sources

A.R.S. section 33-814(G) — no deficiency action after a trustee's sale of qualifying property
A.R.S. section 33-814(H) — exclusions, for deeds of trust originating on or after 1 January 2015
A.R.S. section 33-729(A) — judicial foreclosure of a purchase money mortgage
BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236 Ariz. 363 (2015)
M&I Marshall & Ilsley Bank v. Mueller, Arizona Court of Appeals