Tuesday, June 2, 2015
Guarantors, Unlike Borrowers, Can Waive Antideficiency Protections
Two years ago, in Parkway Bank & Trust Co. v. Zivkovic, the Arizona Court of Appeals held that borrowers cannot prospectively waive Arizona’s antideficiency protections. In doing so, however, the Court expressly declined to consider whether guarantors receive similar protection.
On May 28, 2015, the Arizona Court of Appeals answered this decades-old question in Arizona Bank & Trust v. James R. Barrons Trust, et al., holding that guarantors, unlike borrowers, can waive the antideficiency protections of A.R.S. § 33-814(G). The decision is consistent with the stated purpose of Arizona’s antideficiency statutes—“to protect ‘homeowners’ from deficiency judgments,” not guarantors of business loans, Long v. Corbet, and brings further clarity to the real-estate lending industry.
But questions remain. For example, what about guarantors who haven’t waived antideficiency protections? Can lenders pursue deficiency judgments against them? Barrons Trust doesn’t answer those questions. In its analysis, the Barrons Trust court assumed, without deciding, that guarantors qualify for antideficiency protections under A.R.S. § 33-814(G). And what about the “resident guarantor” scenario, i.e., where an LLC acts as borrower, but its sole member (or members) guarantee the loan to the LLC and then reside in the house that serves as the collateral for the loan? Barrons Trust doesn’t address this potential scenario. Would it make a difference? In light of these and other unanswered questions, there is little doubt that Arizona’s antideficiency statutes, and the cases interpreting them, will continue to generate litigation in the years to come.