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When Arizona Real Estate Closing Falls Through - Legal Options for Buyers and Sellers - Gottlieb Law
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When an Arizona Real Estate Closing Falls Through: What Are the Legal Options For Buyers And Sellers?
When an Arizona Real Estate Closing Falls Through: What Are the Legal Options For Buyers And Sellers? 1536 1024 Gottlieb Law

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.


A real estate deal can feel solid for weeks, then fall apart right before the finish line. The inspection was done. The loan was moving. The moving boxes were packed. Then financing collapses, a title issue appears, a repair dispute escalates, or one side simply refuses to close.

When an Arizona real estate closing falls through, the next move should be based on the contract, not panic. Buyers and sellers both have rights, but those rights depend on the purchase agreement, addenda, contingency deadlines, notices, escrow instructions, and the reason the transaction failed. A deal falling apart doesn’t automatically mean someone breached. It also doesn’t automatically mean everyone can walk away cleanly.

This article is general information, not legal advice. If your closing has failed or appears likely to fail, getting the contract reviewed quickly can help protect your earnest money, preserve your claims, and avoid mistakes that could worsen the dispute.

Why Arizona Real Estate Closings Fall Through

Closings fall apart for many reasons, and not every failed deal is a legal dispute. Some issues are built into the normal risk of a real estate contract. Others stem from missed deadlines, poor communication, or one party refusing to perform after their cancellation rights have expired.

Financing problems are one of the most common causes. A buyer may receive early loan approval, only to lose final underwriting due to income changes, credit issues, appraisal problems, or unmet lender conditions. Inspection disputes can also sink a deal if the buyer asks for repairs or credits and the seller refuses.

Title issues can be even more disruptive. Old liens, ownership disputes, probate issues, boundary disputes, or unreleased deeds of trust can delay or block the closing. Appraisal gaps can also create problems if the property appraises below the purchase price and the buyer can’t or won’t bring extra cash.

Common deal-breakers include:

  • Financing denial or final loan conditions that cannot be satisfied.
  • Inspection disputes over repairs, credits, or property conditions.
  • Appraisal gaps that affect the buyer’s ability to close.
  • Title defects, liens, ownership disputes, or boundary problems.
  • Missed contractual deadlines that change cancellation rights.

Start With The Purchase Contract And Escrow Documents

The purchase contract controls the first layer of analysis. Before anyone threatens legal action, relists the property, refuses to sign, or demands earnest money, the contract needs to be reviewed carefully. The key question is not only “Who caused the problem?” The sharper question is “What does the contract allow under these facts?”

Buyers and sellers should review the purchase agreement, addenda, contingency deadlines, inspection provisions, financing terms, appraisal language, title provisions, cure procedures, seller disclosure obligations, and escrow instructions. In many Arizona transactions, rights change quickly once deadlines pass.

Written notices are important. A buyer with a valid right to cancel may lose leverage if they miss the notice deadline or fail to follow the contract’s procedure. A seller who believes the buyer defaulted may still need to send a required notice before pursuing certain remedies.

If the closing has already failed, gather the full file before making your next move. That includes the contract, addenda, inspection reports, lender communications, title notices, escrow emails, repair requests, cancellation forms, and any text messages or emails between the parties.

Buyer Legal Options When A Closing Falls Through

A buyer’s options depend on why the closing failed and whether the buyer still had a valid contractual basis to cancel. If an inspection, financing, appraisal, or title contingency applies, the buyer may be able to cancel and seek the return of earnest money. The key is whether the cancellation was timely and consistent with the contract.

If the seller caused the failure, the buyer may have stronger options. A seller might refuse to close, fail to deliver clear title, ignore agreed repairs, or attempt to cancel after receiving a better offer. In that situation, the buyer may be able to demand performance, negotiate a resolution, pursue damages, or in some cases seek specific performance.

Specific performance is a legal remedy where a buyer asks the court to require the seller to complete the sale. It is not automatic; it depends on the contract and the facts. Still, it can be an important option when the buyer wants the property itself, not just money.

Buyer options may include:

  • Cancel under a valid inspection, financing, appraisal, or title contingency.
  • Request return of earnest money if the contract supports cancellation.
  • Negotiate an extension, seller credit, repair agreement, or price adjustment.
  • Demand performance if the seller refuses to close without a valid reason.
  • Evaluate damages or specific performance if the seller’s breach causes loss.

Seller Legal Options When A Closing Falls Through

Sellers also have options, especially when a buyer fails to perform after contingencies have expired. A buyer may refuse to close, fail to deliver loan approval, miss deposit deadlines, ignore closing obligations, or try to cancel without a valid contractual basis. In those situations, the seller needs to move carefully and follow the contract.

The first step is determining whether the buyer still has an active contingency. If the buyer validly canceled under the contract, the seller may have limited ability to claim breach. If the buyer’s cancellation rights expired and the buyer simply failed to close, the seller may have a claim.

Earnest money is often the immediate issue. Depending on the contract, the seller may claim earnest money as liquidated damages. Some disputes may also involve additional damages if the failed closing caused measurable loss, such as carrying costs, price reductions on resale, or lost opportunities.

Sellers should avoid impulsive relisting or declaring a default before confirming their rights. If the contract requires a cure notice, the seller should follow the notice procedure. Skipping required steps can weaken an otherwise strong position.

Seller options may include:

  • Review whether the buyer still had a valid contingency or cancellation right.
  • Send required notices or cure demands if the contract requires them.
  • Claim earnest money if the buyer defaulted and the contract supports it.
  • Negotiate a release so the property can be safely relisted.
  • Consider damages if the failed closing caused financial harm.

Earnest Money Disputes After A Failed Closing

Earnest money often becomes the first major fight after a closing falls through. Buyers usually argue that they properly canceled under a contingency. Sellers often argue the buyer defaulted after deadlines expired. Escrow is caught in the middle and may not release funds without mutual instructions, a settlement, or a dispute resolution process.

The contract language matters. So do dates, notices, and written communications. A buyer who sends a timely cancellation under a valid contingency is in a very different position from a buyer who simply gets cold feet after contingencies expire. A seller who follows the notice requirements is in a stronger position than one who relies on angry emails and assumptions.

If earnest money is disputed, both sides should preserve the record. Save emails, notices, lender letters, inspection reports, repair requests, title objections, escrow messages, and cancellation forms. These documents often decide who has leverage.

Specific Performance, Damages, And Settlement

When a closing fails and the parties can’t agree, the dispute usually moves toward one of three paths: specific performance, damages, or settlement.

Specific performance may be available when one party asks the court to compel the other party to close the transaction. Buyers tend to consider this remedy when sellers refuse to complete the sale. Sellers may also have remedies, but forcing a buyer to complete a purchase can involve different practical and legal issues.

Damages focus on money. If one party breached and the other suffered measurable loss, damages may be part of the claim. Those losses may include carrying costs, price differences, lost opportunities, or other contract-based damages, depending on the facts and remedies allowed.

Settlement is often the most practical route. The parties may agree to release earnest money, extend closing, reduce price, credit repairs, cure title issues, or walk away with mutual releases. A well-drafted settlement can end the fight and prevent future claims.

Mistakes Buyers And Sellers Should Avoid

A failed closing is frustrating, but emotional decisions can quickly damage your position. The worst mistakes usually happen in the first few days, when people are angry and trying to force an outcome without reading the contract.

Avoid making the dispute worse with sloppy communications or rushed decisions. Don’t assume a verbal cancellation is enough. Don’t relist until you’ve confirmed the first contract has been properly canceled. Don’t refuse to sign escrow documents without understanding the consequences. Don’t let text messages become evidence that undercuts your legal position.

Key mistakes to avoid include:

  • Ignoring contract notice requirements or cure periods.
  • Waiving contingencies without understanding the risk.
  • Assuming escrow will automatically release earnest money.
  • Relisting or refusing access before contract rights are clear.
  • Sending emotional messages that create bad evidence.

How Gottlieb Law Helps With Failed Real Estate Closings

Gottlieb Law helps buyers and sellers assess failed closings from the contract outward. That means reviewing the purchase agreement, addenda, contingency history, escrow file, title issues, lender communications, inspection records, notices, and closing documents to identify rights and leverage.

Depending on the facts, that may involve pursuing earnest money, defending against an improper claim, negotiating a release, enforcing contract rights, seeking specific performance, or litigating breach-of-contract issues. The right strategy should protect the client’s position while keeping cost, timing, and transaction realities in view.

Get Legal Clarity Before The Dispute Gets More Expensive

If your Arizona real estate closing has fallen through, or if the deal is headed that way, Gottlieb Law can help you understand your options before you make a costly move. Contact Gottlieb Law to schedule a consultation and receive a contract-based strategy to protect your earnest money, enforce your rights, or resolve the dispute.

Contact Gottlieb Law to schedule a consultation and get clear guidance before the dispute gets more expensive. Call our firm today at 602-899-8188 to schedule a consultation or visit our contact us page.

Frequently Asked Questions About Arizona Real Estate Closings That Fall Through

Can A Buyer Back Out Before Closing In Arizona?
Yes, if the contract allows it or a valid contingency applies. If contingencies have expired, the buyer may risk losing earnest money or facing a breach claim. Timing and written notice are critical.

Can A Seller Back Out Of A Real Estate Contract In Arizona?
Sometimes, but sellers should be careful. If the seller has no valid right to cancel under the contract, the buyer may seek damages or specific performance. The contract should be reviewed before the seller refuses to close.

Who Gets Earnest Money If Closing Falls Through?
It depends on the contract, deadlines, notices, and reason the deal failed. Escrow may require mutual instructions or a dispute process before releasing funds. Written records usually drive the outcome.

Can a Buyer Force a Seller to Close?
In some cases, yes. A buyer may seek specific performance if the seller wrongfully refuses to close. The buyer’s own performance and the contract terms matter.

What Should I Do First If My Closing Falls Through?
Gather the purchase contract, addenda, escrow file, notices, lender communications, inspection reports, and title documents. Get legal review before sending demands, canceling, relisting, or giving up earnest money.

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

 

Arizona New Groundwater Rules and Homebuilding 2025 - Gottlieb Law
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Arizona’s New Groundwater Rules and Homebuilding: Legal Challenges, Political Fallout, and What It Means for Developers
Arizona’s New Groundwater Rules and Homebuilding: Legal Challenges, Political Fallout, and What It Means for Developers 1024 768 Gottlieb Law

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.


Arizona’s Housing Crunch Just Hit a New Obstacle: Groundwater Rules

Arizona’s water crisis isn’t new, but what’s unfolding has shaken up the state’s homebuilding industry. With a rising population, long-term drought, and growing pressure to regulate groundwater use, the Arizona Department of Water Resources (ADWR) has introduced major changes to groundwater rules and how new developments are approved.

Builders are now facing halted projects, tighter permitting hurdles, and a growing cloud of legal uncertainty. Homebuilders are challenging the new rules in court. Lawmakers are scrambling for solutions. And local economies are caught in the middle of the current changes.

This article walks through how the situation unfolded, what the latest Phoenix-area groundwater rules mean, and what developers and property owners need to know. If you’re navigating this regulatory shift, this article is a great place to start.

The Backstory: Why Arizona Cracked Down on Water Use

Arizona’s relationship with groundwater has always been complicated. In a state where rivers run dry and rainfall is scarce, underground aquifers have long served as both a lifeline and a point of contention. For decades, rapid population growth and suburban expansion pushed the limits of groundwater use, especially in the state’s desert metro areas.

Recognizing the danger of unchecked pumping, Arizona passed the Groundwater Management Act in 1980, a landmark piece of legislation at the time and still one of the most comprehensive state-level water laws in the country. The law divided the state into Active Management Areas (AMAs) — high-growth regions with elevated water demand — and put in place a tiered system for managing groundwater withdrawals.

At the heart of the legislation was the Assured Water Supply (AWS) program, which created a clear legal threshold: any new residential or commercial subdivision within an AMA must prove it has access to a 100-year supply of water before receiving a certificate to build. This water could come from groundwater, surface water, reclaimed sources, or a mix of them, but the underlying intent was to prevent communities from being built on empty promises and dry wells.

For years, the AWS program allowed Arizona to balance growth and conservation, but that balance has grown more fragile. The rise in long-term drought conditions across the Southwest, combined with decreased Colorado River allocations and persistent over-reliance on groundwater pumping, put increasing strain on the state’s water security. The AWS rules remained on the books, but the data behind those rules began to shift.

In 2023, the Arizona Department of Water Resources (ADWR) published updated groundwater models that significantly altered the outlook for long-term water planning. The findings revealed that within the Phoenix AMA, groundwater supplies would fall short of meeting projected demand by 4 percent over the next 100 years, representing a staggering 4.86 million acre-foot deficit. Although 4 percent may sound small, the scale of urban development in the Phoenix metro means even a modest shortfall translates to tens of thousands of homes and substantial economic implications.

Faced with those projections, ADWR made a consequential policy decision. It halted the issuance of new Assured Water Supply certificates that relied on groundwater in the Phoenix AMA. This effectively restricted numerous proposed developments, especially in high-growth suburbs where groundwater remained the primary water source.

To further tighten oversight, ADWR began applying two critical factors in its updated AWS modeling: “unmet demand” and “water depth.” Instead of only looking at whether a developer could prove water availability on a specific parcel, the department shifted to a broader, regional analysis. “Unmet demand” assesses how much water is already being overdrawn in a particular area, while “water depth” reflects the physical depth of groundwater in the aquifer and whether it’s economically or technically feasible to access it. This represented a significant change in approach, replacing parcel-level assessments with a broader focus on regional groundwater impacts.

This new framework meant that even if a builder could pump water on-site today, the broader groundwater conditions could block development altogether. It also left many in the development community scrambling, as previously planned projects no longer met the state’s updated criteria.

The policy shift was not just a response to dry numbers. It reflected a growing awareness among state officials that Arizona’s water future demands a higher standard of scrutiny. With rising temperatures, increasingly scarce river flows, and exploding housing demand, the state’s margin for error has narrowed. These changes to AWS enforcement marked the beginning of a broader shift in Arizona’s approach to groundwater management, with a stronger focus on long-term water reliability over short-term growth.

The 2024 Changes That Impacted the Industry

Following the release of ADWR’s updated groundwater projections, state regulators moved quickly to tighten oversight. On November 25, 2024, the agency finalized and enacted a set of far-reaching changes and amendments under the Alternative Path to Designation of Assured Water Supply (ADAWS). 

The new groundwater rules package represented a significant shift in how Arizona evaluates water adequacy for future developments. The most notable change was the move from site-specific hydrologic testing to regional groundwater modeling. Historically, developers had been able to hire hydrologists to run local aquifer tests and submit those findings as proof of sufficient supply. That approach allowed even small-scale projects to move forward if they could demonstrate local access to groundwater, regardless of the broader conditions in the area.

Under the new rules, those localized tests no longer hold weight on their own. Instead, ADWR now relies on area-wide groundwater models developed and maintained by the agency itself. These models consider the cumulative impact of pumping across entire basins or sub-basins, not just the conditions on a single parcel. This approach evaluates the water needs of each new development in the broader context of existing demands on the same aquifer, such as those from municipalities, industry, farms, and other residential areas.

The metrics for unmet demand and water depth are now part of the regulatory baseline. ADWR will reject applications for developments in areas where unmet demand is significant or groundwater levels have dropped too low, regardless of whether wells are still functioning.

The consequences were felt soon thereafter. Communities like Queen Creek and Buckeye, both major hubs for suburban growth, were hit especially hard. In these areas, much of the new housing stock relied on groundwater-based AWS certifications, many of which were still working their way through the approval pipeline when the rule changes landed. Practically overnight, those applications were frozen or rejected outright under the new modeling criteria.

Developers across the state described the rollout as rapid and arguably disruptive. While ADWR had previously telegraphed a tightening of groundwater access and conducted stakeholder meetings, some in the homebuilding sector argue that the rulemaking process lacked sufficient transparency or economic impact analysis. Although the agency followed formal procedures under the Arizona Administrative Procedure Act—including filing a Notice of Proposed Rulemaking and securing GRRC approval—critics contend that the pace and scope of the changes left little room for meaningful public input.

Concerns over the rulemaking process have become a core issue in ongoing litigation, but the business impact was immediate and measurable. Projects that had already secured preliminary approvals or had invested heavily in planning and engineering suddenly found themselves in limbo. For developers with large landholdings in growth corridors like the West Valley, the financial risks multiplied almost instantly.

What’s more, the new modeling approach has created a moving target. Since groundwater models are updated regularly based on new data, a site that qualifies for certification today may not meet the same criteria six months later. That unpredictability makes it significantly harder to plan long-term projects or secure financing, particularly in fringe areas without guaranteed access to municipal water systems.

In the span of weeks, what was once considered a manageable regulatory hurdle turned into a significant barrier to entry. For smaller builders and investors, especially those without the resources to negotiate alternative water arrangements, the new rules have raised the cost of doing business and reduced the feasibility of entire subdivisions.

The shift also pointed to a broader change, as Arizona is no longer issuing water certifications based solely on engineering feasibility. Now, policy, modeling assumptions, and sustainability thresholds play a much larger role in determining whether a project gets the green light.

Legal Blowback: Builders Take the Fight to Court

The response from builders came quickly. On January 22, 2025, the Home Builders Association of Central Arizona filed a lawsuit challenging the new groundwater rules. Their claim focused on ADWR’s use of metrics like “unmet demand” and “water depth.” The suit argues that these standards were not authorized by statute and impose unlawful restrictions on development.

A second lawsuit filed by the Home Builders Association of Central Arizona and the Arizona legislative leaders against ADWR followed on March 10, 2025. This case targets a newly imposed requirement that developers demonstrate access to 133% of their projected water needs—a 33.3% buffer above the statutory 100-year supply. Plaintiffs argue this buffer functions as an unlawful regulatory burden that lacks statutory basis and will drive up housing costs.

Homebuilders argue the new rules:

  • Represent regulatory overreach by ADWR

  • Were imposed without following proper statutory authority

  • Have inflicted economic harm on builders, buyers, and local communities

These legal fights are now central to the debate over Arizona’s water policy, and they raise questions about how far agencies can go in restricting development. If your business is facing uncertainty in this area, it may be time to talk with an Arizona lawyer experienced in builder disputes and litigation.

It should be noted the lawsuits are still pending as of mid-2025 and the outcomes are unresolved.

Legislative Efforts Collapse as Division Grows

In an attempt to counter the impact of Arizona’s updated groundwater modeling, Republican lawmakers introduced House Bill 2299.   Sponsored by Rep. Gail Griffin, the bill sought to carve out exemptions for certain housing developments in Queen Creek and Buckeye that were halted following the state’s June 2023 moratorium on new construction in groundwater-reliant areas.

HB 2299 would have allowed developers who submitted applications for Assured Water Supply certificates between early 2021 and May 31, 2023, to request reevaluation by the ADWR. Crucially, those reevaluations would have been based not on the state’s updated 2024 groundwater model—but instead on outdated models from 2006–2009, which were more favorable to development.

On March 12, 2025, HB 2299 failed for the second time in the Arizona House by a vote of 29 to 26. With that outcome, the possibility of a legislative fix effectively disappeared for now, leaving developers with fewer options and more pressure to adapt to the current rules or seek relief through litigation.

What This Means for Developers and Local Economies

The consequences of the new water regulations are already visible in housing markets and city planning departments.

  • Builders are pausing projects while they reassess water availability

  • Permitting delays are stacking up, especially in groundwater-reliant zones

  • Construction costs are increasing as developers consider new water sourcing methods

For investors and landowners, the uncertainty poses real financial risks. Land value in affected areas could drop, and some cities may see slower population growth. Municipal tax bases may shrink as developments get shelved or relocated.

All of this underscores the importance of having a legal team with experience in ADWR compliance, housing development restrictions, construction litigation and water-rights disputes.

Where an Experienced Real Estate Law Firm Can Help

Gottlieb Law offers the legal support needed to make informed, strategic decisions in this climate. As a respected Arizona real estate law firm, our experienced attorneys understand the complexities tied to construction law, contract law, water law, and more. 

Here’s how our law firm can help:

Experienced Guidance

Gottlieb Law can explain the current ADWR regulations, assess project eligibility, and help clients determine the best path forward. Our legal team stays on top of regulatory shifts so clients can act with confidence.

Litigation and Dispute Resolution

From assured water supply litigation to broader constitutional challenges, Gottlieb Law represents key real estate players in court and in negotiations. Our experience with real estate and Arizona law helps craft strong, results-focused legal strategies.

Compliance and Permitting

Navigating water certifications will require more than paperwork going forward. Gottlieb Law can work alongside professionals like hydrologists, engineers, and local planners to ensure projects meet all regulatory requirements and resolve miscellaneous legal issues that come up.

If your business or development project has been impacted by the recent water regulations, contact Gottlieb Law for a consultation. Our legal team can help you navigate the challenges and protect your interests.

Final Thoughts on Arizona’s New Groundwater Rules

Arizona’s new groundwater rules are reshaping what’s possible in the state’s real estate landscape. For developers, investors, and municipalities, the stakes are high and the legal landscape is shifting fast.

These changes won’t resolve overnight. Lawsuits are pending, political debates continue, and ADWR shows no signs of backing down. Now more than ever, proactive legal guidance is essential.

Gottlieb Law is here to help make sense of the rules, avoid costly missteps, and continue building for Arizona’s future. Call Gottlieb Law today at 602-899-8188 or use our Contact Us page here to schedule your initial consultation.

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

 

Arizona's 2024 real estate laws: key updates for agents, buyers, & sellers, impacting licenses, contracts, disclosures, & consumer protection.
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Understanding Some of the New 2024 Arizona Real Estate Laws and Regulations
Understanding Some of the New 2024 Arizona Real Estate Laws and Regulations 1280 720 Gottlieb Law
Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

Arizona’s real estate laws are evolving in 2024, and whether you’re a homeowner, buyer, or real estate professional, these changes could impact your next move. With new regulations shaping the way property is bought, sold, and developed across the state, staying informed is more important than ever.

In this overview, we’ll break down the key updates, including new housing options, adjustments to zoning rules, and changes affecting Homeowners’ Associations. Read on to discover what these developments mean for you and how to navigate Arizona’s real estate market in the coming year.

Key Changes in Arizona Real Estate Law for 2024

Arizona’s real estate landscape is set to change in 2024, with new laws aimed at increasing housing options. One major change shaking up Arizona’s property scene is the new rule for cities with over 75,000 people: they have to allow Accessory Dwelling Units (ADUs) on single-family lots. This could mean more housing options and a whole new way to think about your property’s potential [1]. These ADUs, also known as casitas, can be built without onerous design restrictions or additional parking requirements.  Importantly, the new bill does not supersede local building codes and does not prevent restrictive covenants from applying to ADUs within an HOA community.

The new legislation, House Bill 2720, permits homeowners to construct at least one attached (such as a converted garage), detached or internal ADU. [2] This change is designed to boost housing supply within established neighborhoods without necessitating additional land development [1]. To prevent overly restrictive rules, the law includes safeguards against costly or infeasible ADU construction, such as prohibiting excessive setbacks or additional parking requirements [2].

Municipal Zoning and Middle Housing

Another significant change comes with House Bill 2721, dubbed the “middle housing bill.” This legislation requires municipalities with 75,000 or more residents to modify their zoning regulations and other official controls [3]. By January 1, 2026, these cities will be required to open the door to a wider range of housing options. Duplexes, triplexes, and even fourplexes will become permitted uses on lots previously zoned for single-family homes. This move could dramatically reshape the landscape of residential neighborhoods, offering more flexibility and density for housing [3].

The law also mandates that cities allow these multi-family projects within a mile of their central business districts [1]. Additionally, it requires that middle housing projects occupy at least 20% of any development spanning 10 acres or more [1]. This change aims to create more diverse housing options, especially in areas close to city centers.

To ensure the feasibility of middle housing development, the law prohibits municipalities from:

  1. Discouraging middle housing through unreasonable costs, fees, or delays;
  2. Limiting middle housing to a maximum of two floors or imposing a floor area ratio of less than one;
  3. Creating a higher bar for middle housing development, compared to the relative ease of building single-family homes in the same area; and
  4. Requiring owner occupancy or fire sprinklers in these structures. [3]

Homeowner Association Changes

In addition to these changes, Arizona’s 2024 legislation has significant implications for condominium owners, potentially altering the dynamics of property ownership and governance within these communities. House Bill 2141, signed by Governor Hobbs on March 29, 2024, allows condo owners more freedom to renovate or redecorate their units’ interiors without needing approval from the condo board [4]. This includes installing hard surface floors with appropriate noise-reducing underlayment.

Another significant change comes with House Bill 2648, which clarifies the two distinct types of HOA liens: common expense liens (i.e., HOA dues) and individual expense liens (i.e., fines). [4]. Common expense liens, essential for the upkeep of shared property, can be foreclosed as a last resort after one year of delinquency or when the outstanding amount reaches $1,200. However, a home cannot be foreclosed on for individual expense liens due to unpaid fines, providing homeowners with more protection against losing their homes over disputed violations of the covenants [4].  The new law further provides greater protection to homeowners by requiring HOAs to exercise reasonable efforts to settle the claim before initiating a foreclosure action.

These changes aim to create a more flexible and equitable real estate environment in Arizona, addressing housing shortages and protecting homeowners’ rights.

Impact on Property Rights and Development

The 2024 Arizona real estate law changes are set to have a significant impact on property rights and development across the state. One of the most significant updates is the increased variety of housing options available. A new law signed by Governor Katie Hobbs aims to transform unused commercial buildings into affordable housing [5] This legislation allows developers to change or demolish commercial buildings, offices, or mixed-use structures to create residential properties without the need for rezoning [5]

Starting in 2025, cities with populations over 150,000 will be required to allow up to 10% of these structures to be demolished if they’re considered obsolete [5] This change is expected to spark development, as it removes a major hurdle for investors by eliminating the need to seek rezoning or conditional use permits [5]

Updated Case Law on Severance Damages in Easement Cases

Furthermore, the 2024 legal landscape in Arizona has seen updated case law in condemnation cases. This includes updated law on whether severance damages can be sought due to the loss of easements in Common Areas used for freeway expansion projects [7]. The court reasoned that easements aren’t considered parcels of land under the law for purposes of severance damages and therefore you cannot seek proximity damages (a form of severance damages) for loss of value attributable to the remaining parcel when the state condemns Common Areas..

The Corporate Transparency Act

2024 has also seen the The Corporate Transparency Act (CTA) become effective, which was enacted in 2021, is ushering in a new era of transparency in entity structures and ownership, with significant implications for the real estate sector [8] While federal legislation, the CTA will apply to across the U.S. including Arizona entities.  This legislation aims to tackle money laundering, tax evasion, and other illegal activities by mandating that certain U.S. and foreign entities provide detailed identifying information to the Financial Crimes Enforcement Network (FinCEN). This includes information about the company’s beneficial owners—those individuals who ultimately hold ownership or control over the company.[8]

Effective January 1st, 2024, the CTA has cast its net wide, impacting “reporting companies” – a broad category potentially encompassing LLCs, corporations, and other entities established through official filings with the Secretary of State or similar offices [8] Additionally, foreign companies officially registered to operate in any U.S. state must also adhere to these reporting requirements. This ensures that the reach of the CTA extends beyond domestic entities, capturing a wider range of companies operating within the U.S. market [8]

Counsel should be sought to determine when deadlines apply to your entity and if your entity is subject to the reporting requirement.  

The CTA’s influence on real estate transactions is considerable, particularly in its aim to reduce anonymity within the industry. Special purpose entities (SPEs), frequently employed in real estate deals, may now fall under the CTA’s reporting requirements unless they meet specific exemption criteria. This move towards increased transparency could fundamentally change the way real estate transactions are managed and financed.[8] This necessitates continuous monitoring of changes in ownership structure to ensure compliance.[8]

It’s worth noting that the CTA has faced its share of controversy. On March 1, a federal judge in Alabama declared the CTA unconstitutional and issued an injunction preventing the government from enforcing it against the plaintiffs involved in that case. While this ruling doesn’t invalidate the CTA nationwide, it does raise questions about its future and potential legal challenges [9]. While the Act remains in effect for those not affiliated with the National Small Business Association, this ruling could be the catalyst for a broader legal battle that will ultimately determine the Act’s constitutionality. The outcome of this legal challenge may have far-reaching implications for the future of financial transparency and reporting requirements in the United States.[9]

Final Thoughts on Arizona Real Estate Laws

While the above is not a comprehensive recitation of all the 2024 Arizona real estate law changes, it is clear that Arizona has taken swift action to address the current housing affordability crisis.  These modifications aim to boost housing options, protect homeowners’ rights, and streamline development processes. From allowing Accessory Dwelling Units to mandating middle housing in certain areas, these changes reflect a push towards more diverse and affordable housing solutions. In addition, the new regulations place restrictions on HOA powers, providing homeowners with added protections.

These legal updates also demonstrate new potential reporting requirements to Arizona entity owners under the Corporate Transparency Act. Property owners and real estate professionals need to keep up with these changes to effectively manage the evolving legal landscape. As these new laws take effect, they’re likely to have a lasting impact on Arizona’s real estate market, potentially leading to more housing opportunities and a more balanced approach to property rights and development.

Experienced Arizona Real Estate Lawyers Can Help

Staying ahead of these legal shifts is crucial for all parties involved in Arizona’s real estate transactions. Whether you’re a buyer, seller, agent, or developer, understanding and complying with these new regulations is essential for protecting your interests and ensuring a smooth transaction. That’s where experienced Arizona real estate lawyers come in.

The team at Gottlieb Law has a proven track record of guiding clients through complex legal challenges with experience and precision. We’re committed to staying up-to-date with the latest laws and regulations, ensuring you have the experienced guidance you need to make informed decisions and protect your investments.

Contact Gottlieb Law today to schedule your consultation and let us help you navigate the ever-changing world of Arizona real estate law.

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

References

[1] – https://therealdeal.com/national/phoenix/2024/05/24/new-arizona-law-overrides-local-zoning-to-spur-housing-projects/

[2] – https://tempeyimby.org/2024/05/27/arizonas-new-housing-laws-explained/

[3] – https://www.azleg.gov/legtext/56leg/2R/summary/S.2721FICO.DOCX.htm

[4] – https://independentamericancommunities.com/2024/04/17/arizonas-new-hoa-laws-for-2024/

[5] – https://www.abc15.com/news/business/new-bill-could-help-convert-old-commercial-buildings-in-phoenix

[6] – https://www.azleg.gov/legtext/56leg/2R/bills/HB2648H.pdf

[7] – https://www.azbar.org/media/epjnvc4f/real-estate-case-and-legislative-update.pdf

[8] – https://www.azcc.gov/docs/default-source/corps-files/boi-crib-sheet.pdf?sfvrsn=52c2dc91_1

[9] – https://www.thomsonreuters.com/en-us/posts/corporates/cta-unconstitutional-ruling/

 

Gottlieb Law - Arizona Real Estate Disclosure Laws
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Understanding Real Estate Disclosure Laws in Arizona When Selling a Home
Understanding Real Estate Disclosure Laws in Arizona When Selling a Home 1769 1184 Gottlieb Law
Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

One of the most important things for anyone looking to sell their home in Arizona to understand is what must be disclosed to potential buyers.  Home sellers will commonly start the process by figuring out exactly what information they have to share with potential buyers and it is natural to have some confusion.  The good news is there are some simple guidelines that will help any seller disclose all the required information.  Here is what you need to know about real estate disclosure laws in Arizona.

Arizona Residential Seller’s Property Disclosure Statement

Anyone that has bought or sold a home in Arizona should be familiar with the Residential Seller’s Property Disclosure Statement, commonly known as SPDS.  The Arizona Association of Realtors created this standard form to simplify the disclosure process for sellers.  If you are working with a Realtor, it is typically one of the first things he or she will go through with you as a part of the listing process.  For those sellers that are looking to sell their home without the representation of a real estate agent, you will want to carefully read through and complete the form by sharing all the information detailed on the form.

Understanding the SPDS and Disclosure Requirements

For starters, all known material information and any defects or issues with the property must be disclosed in the SPDS.  There are six sections to work through that cover the required areas of disclosure for all sellers.  Here are some of the key points for each section:

Property and Ownership

The disclosure statement starts with the key details of the property.  Among other things, this section covers information like the address, year built and ownership status of the property.  You must disclose if the property is owner-occupied, leased, foreclosed or vacant.  For rental properties, the seller must disclose when the current lease expires.  If the property is part of a homeowners association, the seller must include all the pertinent details of the homeowner association fees and when they are due as well as other pertinent information.  The seller must also include any known proposed or existing assessments the potential buyer will need to pay.  Any existing liens or easements on the property must be detailed as well. 

Building and Safety Information

The second section covers any known issues or defects with the roof or structure of the building.  Among other things, sellers are required to disclose known leaks and repairs in the roof.  They must also share any warranties on the roof, including whether those warranties will transfer ownership.  Sellers must also share any known issues with the foundation, walls, ceiling, doors and windows.  

As a seller, it is important to understand that no issues are too small to share.  If you have had any small repairs or issues, simply detail what you know about what happened and what you did to address the matter.  This section also requires sellers to disclose any known wood infestations.  If the property had any issues with termites or wood destroying insects, make sure to disclose the details and what treatments were used to correct the issue.  Sellers should also detail any issues with heating and air conditioning systems, plumbing, and electrical systems.  If the home has a pool, hot tub or water feature, there is a section to detail any known issues or defects.

The section ends with a catch-all miscellaneous section that is particularly important for Arizona sellers.  If your home has ever had scorpions, bees, reptiles or bed bugs, this must be disclosed to the potential buyer.  It also covers any work that might not exactly fit into one of the previous categories.  Make sure to even share things like landscaping work, appliance changes, and other property improvements, even if they seem small.

Utilities

The third section covers all the utility services used on the property.  The seller will need to list the provider for each utility, like electrical, fuel, cable, internet, phone, garbage, water and fire.  Sellers must disclose if there are any known drinking water problems.  They must also include if any alternative power systems, like solar or wind, are being used on the property.  While this section is short, it is still important to be thorough.

Environmental Information

This section requires sellers to disclose any known issues with soil, drainage, erosion, fissures and more.  Sellers must detail whether these problems occurred in the past and were fixed or whether they are still an issue.  Many sellers are surprised this section includes questions about whether the property is subject to issues like airport noise, traffic noise, rail line noise, nearby landfills, and even odors.  There are also questions about any known contaminants, like asbestos, radon gas, lead-based paint and underground storage tanks.  This is another section where it is advisable to disclose anything you can think of that can be considered material to the property.  This allows the buyer to make their decision with pertinent information and eliminates your liability down the road if they try to claim they were not provided correct or complete information.

Sewer and Waste Water Treatment

The fifth section of the SPDS covers the property sewer and waste water system.  Sellers must disclose if the property has had a professional verify the existing sewer connection and what type of sewer is being used, including the name of the provider.  If there are any known issues in the past with the sewer and waste water system, the seller must provide all details of the issue and what repairs were performed to correct the problem.  One of the final parts of this section requires sellers to disclose the last time an inspection was performed on the sewer or waste water system.

Other Conditions and Factors

The final section requires sellers to disclose any additional material information about the property that has not been included in the previous sections.  It can be common for sellers to dismiss this section and assume that previous sections cover all the important matters.  This is another place where the best practice is to share anything and everything that could potentially impact the long term value of the property.

Arizona also requires sellers of homes built before 1978 to include a lead-based paint disclosure notice.  Real estate contracts with Realtors must also include a comprehensive loss underwriting exchange report (CLUE) that details all insurance claims in the past 5 years (or as long as the seller has owned the home).

Arizona Laws on Property Disclosure

The state of Arizona does have some laws in regards to what does not need to be disclosed.  Sellers do not have to disclose if a death has occurred in the home or whether anyone residing in the home has HIV or other diseases.  Sellers are also not responsible for disclosing whether sex offenders live in the neighborhood, even if known to them.

Error on the Side of Caution and Disclose What You Know

It is common for sellers to ask if they really have to disclose certain details they think are small or unimportant.  They will commonly think that it will make it more difficult to sell their home or it will sell for a lower price.  This line of thinking opens the seller up to substantial legal risks.  When it comes to completing your property disclosure form, share absolutely everything that you can, unless Arizona law specifically addresses that you do not have to disclose.  All buyers have an opportunity to hire professional home inspectors and specialists to review everything of interest to them.  This allows them to assess if any additional specialists should be involved during the escrow process and reduces the risk of any future legal claims for non-disclosure.

Work with an Expert Real Estate Attorney in Arizona

The attorneys at Gottlieb Law focus on real estate law.  We work with buyers and sellers to protect their interests in real estate transactions of all types.  Our firm can review potential real estate disclosure forms and contracts.  Our attorneys can also assist in pursuing a claim if material facts were not disclosed during a home sale.  Contact our firm today at 602-899-8188 or schedule an appointment on our contact us page.

Gottlieb Law, PLC provides this article for information purposes only and nothing herein creates an attorney-client relationship. You should not take any actions in reliance on any of the information contained herein without consulting with qualified legal counsel first and reading this article is not a proper substitute for seeking legal advice of your specific situation.  Laws change over time and you should seek counsel to discuss any specific legal questions.

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