Independent Mortgage Company v. Alaburda – 7/17/2012

July 24, 2012

Arizona Court of Appeals Division One Holds That A Vacation Condominium Is a “Dwelling” for Purposes of Anti-Deficiency Protection Even When the Borrower Seeking Protection Owned Only a Fractional Interest in the Property and Could Only Use the Property for Part of the Year.

Alaburda bought a 1/10th fractional interest in a residential condo in Sedona.  Independent Mortgage financed the purchase with a loan secured by a deed of trust.  The fractional interest gave Alaburda the right to vacation on the property for up to twenty-eight days a year.  Ownership of the condo was subject to a “Condominium and Fractional Ownership Plan” that imposed various restrictions, including that the condo could be used only as a “vacation accommodation.”  The Plan also prohibited Alaburda from changing the furnishings or décor in the condo.

Alaburda defaulted on the loan in 2008, prompting Independent Mortgage to hold a trustee’s sale.  The fractional interest in the property sold for less than the amount owed and Independent Mortgage sued for the deficiency.  The superior court granted Alaburda’s motion for summary judgment, concluding that Alaburda was entitled to anti-deficiency protection under A.R.S. § 33-814(G).  Independent Mortgage appealed.

Section 33-814(G) prohibits actions for deficiency judgments in certain circumstances involving the sale of some types of residential trust property.  The purpose is to “protect consumers from financial ruin” by shifting the risk of inadequate security to lenders.  The anti-deficiency statute applies if, among other things, the property is “limited to and utilized for a dwelling.”  The Court affirmed summary judgment for Alaburda, holding that the property was used as a “dwelling” for purposes of the statute.

Independent Mortgage argued that Alaburda’s fractional interest for vacation purposes meant that the property was not a “dwelling” because it was not used “on a continuous and permanent basis” and because Alaburda’s use of the premises was restricted in various ways.  In one case, the court held that an “investment condominium” that was “occasionally occupied . . . as a vacation property” qualified as a “dwelling.”  See Northern Arizona Properties v. Pinetop Properties Group, 151 Ariz. 9, 725 P.2d 501 (App. 1986).  In another case, the Arizona Supreme Court approved of the Pinetop holding and explained that the “principal element” in the definition of “dwelling” is the “purpose or use of a building for human abode.”  Mid Kansas Federal Savings and Loan Association v. Dynamic Development Corporation, 167 Ariz. 122, 804 P.2d 1310 (1991).  The Court explained that Independent Mortgage’s definition of “dwelling” was far too narrow in light of the existing case law.  Pinetop and Mid Kansas did not require the borrower to have a right to “continuous” or “permanent” occupation. 

The Court likewise rejected Independent Mortgage’s argument that the statute should not apply because Alaburda was a “fractional” owner, rather than a tenant in common with the other owners.  Although the owners in Pinetop were a group of investors who owned as tenants in common, the Court explained that the statutory definition of “trust property” itself does not limit its application to certain types of ownership; “trust property” includes “any interest” in real property.  See A.R.S. § 33-801(9).

Judge Thompson authored the unanimous opinion; Judges Swann and Brown concurred