Guarantor Waivers of Arizona Anti-Deficiency Protection
The Arizona Court of Appeals rules that, while borrowers are not permitted to waive anti-deficiency protection, guarantors may do so.
Arizona is one of 15 states
that provide anti-deficiency protection for most residential transactions,
meaning that lenders generally cannot pursue borrowers for a deficiency after a
foreclosure or, more commonly, a trustee sale.
Moreover, the Arizona courts have held that a borrower cannot waive
While there is relatively little legislative history on
anti-deficiency protection, some commentators believe that legislators
considered the anti-deficiency provisions as a method of controlling any
residential housing pricing bubble, as it was believed that lenders would be
more conservative if they were aware that their only security was the residence.
Over the years, Arizona courts have been fairly liberal
about applying anti-deficiency protection. However, a relatively recent case,
Arizona Bank & Trust v. James R. Barrons Trust,
may have signaled a change of direction. Specifically, the Court of Appeals
held that, although borrowers are not permitted to waive the protection
of the anti-deficiency statutes, guarantors may do so.
In Barrons Trust, the Court has opened up the
possibility that residential lenders which do not use the forms provided by
various guaranteeing agencies (FHA, VA, etc.) might structure their residential
loans so that the customer will be asked to form a new borrowing entity. Such a
provision would allow the person who would have been the borrower to instead act
as a guarantor and, consequently, be able to waive the statutory protection.
We have not yet seen any loan documents that take this
approach, and the Court has cautioned against “sham transactions,” but we shall
see how this develops. A scenario in which this arrangement might occur would
likely involve a high-end residential transaction.
Of course, we are always available to discuss how this
development might impact your business or plans.
 As of March 2017, the 15 states are Alaska,
Arizona, California, Connecticut, Hawaii, Iowa, Minnesota, Montana,
Nevada, New Mexico, North Carolina, North Dakota, Oregon, Washington and
 To qualify for anti-deficiency protection, a
property must meet the criteria laid out in A.R.S. § 33-814(G) and
 Parkway Bank & Trust Co. v. Zivkovic, 232
Ariz. 286, 304 P.3d 1109 (App. 2013), as amended on reconsideration
(Aug. 28 2013).
 237 Ariz. 401, 351 P.3d 1099 (App. 2015),
review denied (Oct. 27, 2015).