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Helvetica Servicing, Inc. v. Pasquan

Court of Appeals of Arizona, First Division

August 15, 2019

HELVETICA SERVICING, INC., Plaintiff/Appellant,
v.
MICHAEL S. PASQUAN, Defendant/Appellee.

          Appeal from the Superior Court in Maricopa County Nos. CV2008-050966 CV2009-029276 (Consolidated) The Honorable John R. Hannah, Jr., Judge

          Buchalter, Scottsdale By Roger W. Hall, Jason E. Goldstein, Pro Hac Vice Counsel for Plaintiff/Appellant

          Daniel Kloberdanz, PLC, Scottsdale By Daniel L. Kloberdanz Counsel for Defendant/Appellee

          Judge Maria Elena Cruz delivered the opinion of the Court, in which Presiding Judge Diane M. Johnsen and Judge Randall M. Howe joined.

          OPINION

          CRUZ, JUDGE

         ¶1 Helvetica Servicing, Inc. ("Helvetica") appeals the deficiency judgment the superior court entered in its favor against Michael S. Pasquan ("Pasquan"). Helvetica argues the court erred in deciding that most of the debt remaining after a judicial foreclosure was a construction loan entitled to anti-deficiency protection under Arizona Revised Statutes ("A.R.S.") section 33-729(A). Its appeal raises issues that demand clarification by the legislature.

         ¶2 We held in Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 501, ¶ 32 (App. 2012) (hereinafter Helvetica I), that the anti-deficiency protections of A.R.S. § 33-729(A) apply to a loan "used to construct a residence" if a dwelling meets the size and use requirements of the statute and the deed of trust secures both the land and the dwelling. We also recognized that "[i]n some cases, it will be a question of fact whether a particular transaction is a construction loan or some different type of obligation-e.g., a home improvement loan." Id. at 499 n.6, ¶ 25. Here, the evidence in the record shows that, aside from the $600, 000 original purchase money loan that was later refinanced as part of a loan from Helvetica, Pasquan used the bulk of the loan proceeds for the purpose of home improvement, not home construction. Therefore, the anti-deficiency protections of A.R.S. § 33-729(A) do not extend to the funds Pasquan borrowed beyond the refinancing of the original purchase money obligation. Accordingly, we vacate the judgment and remand for further proceedings.

         FACTS AND PROCEDURAL HISTORY

         ¶3 This is the fourth appeal stemming from a 2009 judicial foreclosure sale of Pasquan's home. Helvetica I, 229 Ariz. at 495; Gold v. Helvetica Servicing, Inc., 229 Ariz. 328 (App. 2012); Helvetica Servicing, Inc. v. Giraudo, 241 Ariz. 498 (App. 2017). In May 2003, Michael and Kelly Pasquan (the "Pasquans") purchased a 4, 000 square-foot home in Paradise Valley (the "Property") with a $600, 000 loan from Hamilton Bank ("Hamilton loan") and a cash payment. Over the next several years, the Pasquans substantially renovated the Property, expanding the home by 7, 000 square feet. In 2004-2005, the Pasquans borrowed approximately $2.1 million from Desert Hills Bank ("Desert Hills loan"). The Pasquans used a portion of the Desert Hills loan to refinance the Hamilton loan, then applied the remainder of the proceeds toward the renovation/expansion project. They also borrowed $225, 000 from Pasquan's father and put that money toward the expansion and charged another $140, 000 on credit cards for the project.

         ¶4 In September 2006, the Pasquans borrowed $3.4 million from Helvetica, secured by a deed of trust on the Property. The Pasquans used the proceeds of the Helvetica loan to pay off the Desert Hills loan, the loan from Pasquan's father, the credit card debt, loan fees, and interest. They were left with $357, 172.72 in cash from the loan proceeds, from which they made interest payments to Helvetica and paid for landscaping, maintenance, taxes, utilities, and marketing.

         ¶5 The Pasquans defaulted on the Helvetica loan, and Helvetica sued to judicially foreclose. On April 9, 2009, Helvetica obtained a judgment against the Pasquans for the amount due on the loan plus attorneys' fees and a foreclosure judgment on the Property. After a sheriff's sale, the superior court entered a deficiency judgment against the Pasquans for $1, 936, 825.53.

         ¶6 Pasquan[1] appealed, and, in Helvetica I, we vacated the judgment and remanded for further consideration pursuant to § 33-729(A).[2]In that decision, we held that a construction loan used to build a home that secures the debt qualifies as a purchase money loan for anti-deficiency protection under § 33-729(A) and refinancing a purchase money loan does not destroy the original loan's status. Helvetica I, 229 Ariz. at 499-502, ¶¶ 23, 32, 37. Further, when loan proceeds are used for "both purchase money and non-purchase money sums, a lender may pursue a deficiency judgment for the latter amounts" if they can be traced and segregated. Id. at 501-02, ¶¶ 34, 37; see First Financial Bank, N.A. v. Claassen, 238 Ariz. 160, 163, ¶ 10 (App. 2015).

         ¶7Helvetica I remanded the matter to the superior court and directed it to ...


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