A developer who doesn't hold the first lien on a property can lose everything if the seller forecloses. Under Arizona law, if the seller keeps a first-position deed of trust and the developer defaults, the seller takes the property and all improvements the developer built.
Are you in the deal room?
Chances that the seller could then come back and exercise first lien position and do a foreclosure, a lis pendens, or any other action on the property that could forfeit or sacrifice all the work we've done to it. Under Arizona law, it is understood that a promissory note with a deed of trust for the seller on this in first position risks our position as developers and doing all the work. Is this or is this not correct?
Okay, yes, the concern is real. If the seller holds a first position deed of trust, then if you default, the seller can foreclose and take the property, including all the improvements.
