Arizona Supreme Court holds that the question of whether a loan is a “construction loan” subject to anti-deficiency protection is a fact question based on a multi-factor test.

A.R.S. §§ 33-729(A) and -814(G) provide anti-deficiency protection to Arizona homeowners for purchase money loans, meaning that lenders in certain foreclosure situations may not be able to recover the difference between the debt owed and the value of the home.  Construction loans are entitled to anti-deficiency protection, but home improvement loans are not.

To decide whether a loan is a “construction loan” or a “home improvement loan,” the Arizona Supreme Court held that a trial court should consider the totality of the circumstances surrounding, including the following factors:

(1) whether there was a complete or substantially complete demolition of an existing structure and a new building constructed in its place; (2) the intent of the parties when executing the loan documents; (3) whether the structure was inhabitable or inhabited during construction; (4) whether the structure was largely preserved and improved or substantially expanded; and (5) whether the project is characterized as “home improvement” or “construction” in the loan documents and in the permits or other official documents.

The Court remanded the loan at issue in this case to the trial court to make this factual determination.

Chief Justice Brutinel authored the unanimous opinion.