Helvetica Servicing, Inc. v. Pasquan
229 Ariz. 493
| Ariz. Ct. App. | 2012Background
- Pasquans purchased a home for $935,000 with $335,000 down and a $600,000 Hamilton Mortgage loan secured by a deed of trust.
- Desert Hills Bank later funded a $1.6 million loan used to payoff the Hamilton loan and to demolish/improve the home, secured by a new deed of trust.
- The Pasquans then obtained additional Desert Hills loans ($100,000 secured by the existing deed and $400,000 secured by a second deed of trust) to fund construction-related costs.
- In 2006, Helvetica Servicing, Inc. made a $3.4 million loan secured by a new deed of trust; loan proceeds were allocated to payoff Desert Hills, pay off Stephen Pasquan, closing costs, points/interest, reserves, construction credit cards, and net proceeds to the Pasquans.
- Pasquans defaulted; Helvetica foreclosed; Helvetica purchased the property at a sheriff’s sale for a credit bid of $400,000; the superior court entered a deficiency judgment of $1,936,825.53 against Pasquan.
- The central question is whether the Helvetica loan is a purchase money obligation and how to treat mixed purchase/non-purchase money loan funds in a deficiency proceeding; the court vacated the deficiency judgment and remanded for further proceedings to resolve multiple issues including the status of the Desert Hills loans, whether they cover the land and residence, and how much deficiency (if any) remains for non-purchase money sums.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether refinancing a purchase money loan preserves purchase money status | Pasquan: refinancing destroys purchase money status | Pasquan: construction loans may be purchase money; Helvetica loan refinanced purchase money | Refinancing does not destroy purchase money status to the extent proceeds pay off the purchase money obligation. |
| Are construction loans purchase money obligations eligible for anti-deficiency protection | Pasquan: construction loan proceeds used to construct residence qualify | Pasquan: construction loans may be protected; but facts must show use and coverage | Construction loans can be purchase money if they cover land and dwelling and proceeds used for constructing a qualifying residence. |
| How should non-purchase money funds within a combined loan be treated | Pasquan: non-purchase money funds should be protected from deficiency | Helvetica: non-purchase money funds should not be sheltered | Non-purchase money sums may be traced and recovered in a deficiency action; purchase money portions may receive anti-deficiency protection. |
| Should the entire mortgage be treated as a recourse loan or partly protected | Pasquan: loan should be treated under purchase money protections | Helvetica: mixed funds undermine protection | Deficiency may be limited to the non-purchase money sums; the apparatus is to segregate accordingly. |
| Remand scope and factual questions for the superior court | Pasquan: clarify which portions are protected | Helvetica: appropriate factual determinations on remand | Remand required to resolve specific allocations and protections for each loan and deed of trust. |
Key Cases Cited
- Bank One, Arizona v. Beauvais, 188 Ariz. 245 (App. 1997) (refinancing purchase money does not automatically destroy status; pooling not required to preserve protection)
- Baker v. Gardner, 160 Ariz. 98 (1989) (anti-deficiency protection for purchase money loans; legislative intent)
- Valley Nat'l Bank of Ariz. v. Kohlhase, 182 Ariz. 436 (App. 1995) (anti-deficiency statutes protect purchasers; limit liability to purchase money collateral)
- Union Bank v. Wendland, 54 Cal.App.3d 393 (Cal. App. 1976) (refinancing not persuasive authority; construction of California rule criticized)
- Prunty v. Bank of America, 112 Cal.Rptr. 370 (Cal. App. 1974) (construction loans may be within protection when used for a dwelling; liberal construction of definitional terms)