Creative Finance in Arizona: A Few Follow-Up Thoughts

Creative Finance in Arizona: A Few Follow-Up Thoughts

By: Michael J. “Mick” McGirr, Esq.Phocus Law

I had the opportunity to sit on AZREIA’s creative finance panel last month, and it was a great discussion. There was a lot of interest, a lot of practical questions, and thankfully only a reasonable amount of confusion. For those who attended, I wanted to share a few follow-up thoughts in reflection on that panel. And for those who were not able to make it, here is the high-level version from a legal perspective.

My main takeaway is simple: creative finance is not illegal finance. In Arizona, seller carrybacks, subject-to transactions, lease options, wraps, and similar structures are not inherently improper. The legal problems usually come from poor disclosure, weak documentation, sloppy execution, and confusion about who is doing what.

At a high level, every creative structure is doing the same basic thing: reallocating risk, cash flow, and control. That can be perfectly legitimate. But before getting too excited about the upside, investors should be clear on a few practical questions: Who owns the property? Who remains liable on the debt? Who controls the payments? Who carries the insurance? And what happens if the deal goes sideways?

That last question is where many disputes are born. A subject-to deal, for example, may transfer title to the investor while the seller remains on the original loan. That means the due-on-sale risk is real, even if it is not always enforced. It also means the seller may still be trusting you with their credit, not just their property. In seller carryback and wrap transactions, the seller often becomes a lender whether they think of themselves that way or not, which means the paperwork needs to document the ongoing relationship, not just the sale.

Just as important, insurance needs to match reality. If ownership changes, occupancy changes, or the property becomes a rental or rehab project, the insurance should reflect that. Title and document clarity matter too. If your file does not clearly explain payment mechanics, default rights, cure periods, taxes, HOA obligations, and who verifies what, then you probably do not have a creative finance system - you have a future argument.

The other issue I emphasized on the panel is that role clarity matters. Investors are not lawyers. Agents are not legal advisors. Coaches and internet forms are not a substitute for competent counsel. Arizona is a very active investor market, so these issues are not theoretical here. The opportunity is real, but so is the need for professionalism. If the seller cannot explain the deal back in plain English, disclosure probably needs more work.

The good news is that creative finance can be a valuable tool when handled correctly. The investors who do this well are usually not the flashiest. They are the ones using boring paperwork, good process, clear disclosures, and realistic expectations. Not glamorous, I know, but much cheaper than litigation.

If you would like help reviewing or building creative finance documents, processes, or deal structures, Phocus Law is here as AZREIA’s legal resource for real estate, business, and estate planning matters. Feel free to reach out to our team at 602-457-2191 or [email protected].