Bank One Arizona v. Beauvais
In Bank One Arizona v. Beauvais, 188 Ariz. 245, 934 P.2d 809 (App. 1997), the borrowers obtained a loan from Bank One to exercise stock options, pledging the stock as collateral. Id. at 246, 934 P.2d at 810.
They later sought another loan from Bank One to purchase a home. Id.
The new loan consolidated the first loan with the home purchase loan into a single note. Id.
The consolidated loan proceeds paid off the first loan and funded the home's purchase. Id.
The consolidated loan was secured by the stock and a deed of trust. Id.
When the borrowers were unable to pay, they executed a "workout note" that satisfied the consolidated loan. Id.
The workout note was secured by the stock and the existing deed of trust. Id. The borrowers defaulted, and Bank One sued them. Id. at 246-47, 934 P.2d at 810-11. The bank argued the workout note was not a purchase money obligation, but a new and independent loan used to pay existing obligations. Id. at 247, 934 P.2d at 811. Alternatively, Bank One argued it could recover the pro rata portion of the workout note that was not purchase money in nature. Id.
The superior court ruled that the workout note was a purchase money obligation and found no basis for apportioning between purchase money and non-purchase money funds. Id.
Bank One appealed. Id.
The Court held that, regardless of whether the workout note was "an extension, renewal, or new obligation," it was a purchase money obligation. Id. at 248-51, 934 P.2d at 812-15.
The Court observed that anti-deficiency protection is intended "to protect certain homeowners from the financial disaster of losing their homes to foreclosure plus all their other nonexempt property on execution of a judgment for the balance of the purchase price." Id. at 249, 934 P.2d at 813.
The Court concluded:
The legislature did not intend that a loan would lose its character as a purchase-money obligation when, as here, it is extended, renewed, or the remaining portion of the original loan is refinanced and the deed of trust on the property that was bought with the original loan continues or is renewed. Given the realities of the marketplace, to believe otherwise would put many homeowners, unable to make mortgage payments, at the peril of facing personal liability as well as the loss of their homes-a result the legislature intended to avoid through the Anti-Deficiency Statutes. Id. at 250, 934 P.2d at 814.
Bank One did not address the propriety of segregating non-purchase money portions of a loan, noting the bank had abandoned its argument that such funds should be traced and included in a deficiency judgment. Id. at 248 n.2, 934 P.2d at 812 n.2.