By Michael Ripp, Kevin Heaphy and Daniel Herder, Attorneys for Ryley Carlock & Applewhite In the fifth appeal of Helvetica Servicing Inc. v. Michael S. Pasquan, the Arizona Supreme Court was asked to determine whether a loan used to pay off a purchase money loan and “renovate/expand the Property” qualifies as a purchase money obligation. Generally under Arizona’s anti-deficiency statutes (A.R.S. § 33-814; §33-729(A)), a creditor cannot recover a judgment for the deficiency balance of purchase money loans (i.e. loans used to purchase a home), which include loans for the construction of new homes. By contrast, “home improvement loans” are not entitled to anti-deficiency protection if the creditor commences a judicial foreclosure (as opposed to a trustee’s sale). Although simple on the surface, what distinguishes a construction loan from a home improvement loan is an unanswered question in Arizona, and poses particular problems where a loan is used to substantially remodel or expand an existing residence. In Helvetica, the borrowers “demolished most, but not all, of the residence,” including replacing “the existing building with a larger single-family residence and related improvements.” The loan documents and deeds of trust also called the loan a “construction loan.” The Court rejected a bright-line rule that only a loan used to build a house from scratch could qualify as a construction loan, commenting that “there is substantial grey area between a loan used to finance a newly constructed, built from scratch home and a loan used to remodel the kitchen.” The Court further reasoned that “construction” includes “building or rebuilding qualified properties,” even if the project did not begin from scratch and &l
