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 ...