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TRUSTEE SALE LAW, NOTES & CASE LAW

educationINDEX OF TOPICS BELOW:

  1. ARIZONA REVISED STATUTES – TRUSTEE SALES
  2. DEFINITIONS
  3. GENERAL TRUSTEE SALE & JUDICIAL FORECLOSURE ISSUES
  4. TRUSTEE SALE PROCESS
  5. DEFICIENCY & ANTI-DEFICIENCY ISSUES, INCLUDING VA
  6. BANKRUPTCY & TRUSTEE SALE or JUDICIAL FORECLOSURE ISSUES
  7. HOMEOWNERS’ ASSOCIATION “HOA” ISSUES
  8. POST TRUSTEE SALE & JUDICIAL FORECLOSURE ISSUES

DEFINITIONS

Deficiency – arises when a creditor does not receive the full amount they are owed by contract or court order.

  • If a deed of trust, 2 ½ acres or less, used as a one or two family dwelling AND property sold through trustee’s sale – NO DEFICIENCY. A.R.S. Section 33-814
  • If a deed of trust or mortgage, 2 ½ acres or less, used as a one or two family dwelling AND loan (all or part) was used to purchase the property AND property sold through judicial foreclosure – NO DEFICIENCY. ARS Section 33-729.

Foreclosure – action taken in court. Mortgages can only be foreclosed in court. Deeds of Trust can either be foreclosed in court (judicial foreclosure) or a statutory process called a trustee’s sale.

Trustee’s sale – Arizona statutory process that takes at least 91 days to complete, assuming no or little ligation and no bankruptcy.

Judicial foreclosure – takes approximately 9-12 months to complete, assuming no or little ligation and no bankruptcy.

Excess Proceeds – monies left over after a trustee’s sale has completed and the debt, plus costs are paid to the foreclosing lender.

HOA – Homeowners Association

GENERAL TRUSTEE SALE & FORECLOSURE ISSUES

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

Trustee holds Raw Legal Title ARS 33-817


Delprete v. Ditech, 2017 WL 6013805 (Ariz.App. Dec. 5, 2017)  Delpretes purchased a residential property (the “Property”) in Anthem. In 2006 the Delpretes refinanced the existing loan secured by the Property and obtained a new loan for $417,000 from New Century Mortgage Corp.  The 2006 loan was evidenced by a promissory note (the “Note”), and secured by a deed of trust on the Property, which listed Mortgage Electronic Registration Systems (“MERS”) as beneficiary and nominee of Century Mortgage. In 2011 MERS assigned the Deed of Trust to Bank of America, NA (“Bank of America”), and in 2013 Bank of America assigned the Deed of Trust to Green Tree Servicing LLC.

Holding:  The Delpretes sought to quiet title, alleging they are the Property’s legal owners. This assertion, however, is contrary to established law that, under a deed of trust, “the trustee holds legal title until the loan balance is paid.  Under A.R.S. § 33-817, a deed of trust automatically follows a promissory note. Further, a party “cannot seek to quiet title solely based on the alleged weakness of his adversary’s title.”

The Delpretes did not allege that they have paid the Note in full and did not allege any other facts which otherwise undermine the Defendants’ legal ownership of the Note and rights under the Deed of Trust; accordingly, the court did not err in dismissing the Delpretes’ claim to quiet title.

Vasquez v Saxon Mortgage, Deutsch Bank, AZ Supreme Ct, No. CV-11-0091-CQ (11/2011) certified question from Bankruptcy Court No. 4:08-bk-15510-EWH Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. § 33-808 when the assignee holds a promissory note payable to bearer? The answer is no; Arizona law imposes no such requirement.


“Show Me The Note” Hogan v Long Beach Mortgage CoCV 11-0115-PR (covers to trustee sales by Deutsche Bank and Washington Mutual) “show me the note” – Supreme Court accepted cert, argued 1/23/2012; We granted review to decide whether a trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

Non-judicial foreclosure sales are meant to operate quickly and efficiently, “outside of the judicial process.” Vasquez, 228 Ariz. at 359 ¶ 4 n.1, 266 P.3d at 1055 n.1 (citing Gary E. Lawyer, Note, The Deed of Trust: Arizona’s Alternative to the Real Property Mortgage, 15 Ariz. L. Rev. 194, 194 (1973)). The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the “mortgage foreclosure process . . . time-consuming and expensive,” id. (internal quotation marks omitted), and re-inject litigation, with its attendant cost and delay, into the process, see Transamerica Fin. Servs., 175 Ariz. at 313-14, 856 P.2d at 1191-92 (citing I.E. Assocs. v. Safeco Title Ins. Co., 702 P.2d 596 Cal. 1985)).

III. CONCLUSION For the reasons set forth above, the superior court’s orders dismissing Hogan’s complaints are affirmed and, although we agree with the result reached by the court of appeals, its opinion is vacated.

ISSUE ADDRESSED BY THE COURT OF APPEALS: Can a lender foreclose its deed of trust without owning the note which the deed of trust secures? Answer – yes. ISSUE NOT ADDRESSED BY THE COURT OF APPEALS: What is the legal effect of an assignment of a deed of trust without the corresponding note?


Lender conducts trustee’s sale but may not have promissory noteHogan v. Washington Mutual, CA-CV 10-0385 (Div 1, AZ Court of Appeals, filed 3/29/11) “We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.” Therefore, the trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. App Ct affirms lower court. Deed of trust is a creature of statute and not a negotiable instrument. Therefore, UCC does not apply. Lender can conduct trustee’s sale without the promissory note. Zadrozny v. Bank of New York Mellon, No. 11-16597 Dismissal of a complaint in which plaintiffs alleged that defendants improperly initiated non-judicial foreclosure proceedings after plaintiffs failed to comply with the mortgage obligations financing their residence, is affirmed, where: 1) Arizona courts have rejected plaintiffs’ claim that non-judicial foreclosures require production of the promissory note prior to a sale, their claim that successor trustees are unauthorized to initiate foreclosure proceedings, or that non-judicial foreclosure sales must comport with the Uniform Commercial Code; and 2) plaintiffs failed to provide any legal authority for their constitutional challenge to A.R.S. section 33-811(b); and 3) plaintiffs waived any challenge to the district court’s dismissal of their fraud and misrepresentation claims as untimely.

  • Resolution Trust Corp. v. Segel, 173 Ariz. 42, 839 P.2d 462 (App.1992), we examined the impact of the Baker holding on non-purchase-money loans that were secured by second-position deeds of trust on residential property of less than two and one-half acres with a one- or two-family residence. In Segel, the court held that because the lender did not institute trustee’s sale proceedings and the deeds of trust secured non-purchase-money obligations, the lender was entitled to waive its security and sue directly on the notes under A.R.S. section 33-722. Id. at 44-45, 839 P.2d at 464-65.

    Suit on the note: Following a judicial foreclosure by a senior lienholder, a junior lienholder can sue on Note (unless property is anti-deficiency in character) A.R.S. 33-722 Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 101 (App. 1995). Lender may waive its security in the real property and sue on the note. Darnell v. Denton, 137 Ariz. 204, 669 P.2d 81 (App. 1990). Also, foreclosure of a senior lien extinguishes the junior lien, therefore no need to “release” the junior lien. Wells Fargo, supra. Lender may not sue on the Note so long as the property fits within the anti-deficiency statutes (dwelling, 2 ½ acres or less, one or two family dwelling – ARS Section 33-814) Baker v. Gardner, 160 Ariz. At 105, 770 P.2d at 773 (1988) (first and second purchase money debts). First lender noticed trustee’s sale and second (Bakers) elected to sue on Promissory Note). Clarification in a supplemental opinion that the court did NOT mean to prohibit the non-PMSI creditor from waiving the security and suing on the note.


    Suit on Promissory Note or “Show me the Note”: A lender may waive their lien on real property and sue on the Promissory Note. That waiver is an “abandonment and release” of the lien and must be “evidenced by a recorded release of the lien”. ARS Section12-1566(F) All limitations of Baker v Gardner and Mid Kansas apply. But see: Smith v. Mangels, 240 P.2d 168 (1985) and Deming v. Walraven, 651 P.2d 1203 (App. 1982) (Mortgage not waived by going to judgment on the Note)


    Lender accepts less than what is owed on residential property, releases deed of trust, then sues borrower for deficiency. Tanque Verde Anesthesiologists, L.T.D. Profit Sharing Plan, 836 P.2d 1021, 172 Ariz. 311 (App. 1992) “Although no trustee’s sale occurred in this case, we agree with Proffer (borrower) that, based on the holdings of Baker, supra, and Mid Kansas, supra, and absent evidence of an agreement to the contrary (emphasis added), when Tanque Verde (lender) signed the deed of release and reconveyance, it thereby waived its right to seek a deficiency judgment.” ((The assuming lender (Tanque Verde) signed the deed of release and included in the release language that the borrower is not released on the underlying debt. The borrower (Proffer) did not sign the deed of release. Nor, was there any other signed agreement where the borrower acknowledged that the debt was not released. Correct conclusion. This outcome will be different for short sales because there is almost always a new contract which details the agreement between the seller and the lender. That short sale contract is signed by the seller/borrower, therefore will be binding on the seller/borrower.

Miller Designs v. US Bank et al CA-CV 16-0723, 244 Ariz. 265, (AZ Court of Appeals, Div. One, 2/13/18)

Holding:   :  (1)  A  purchaser of   real  property   acquired at an execution sale under Arizona Revised Statutes (“A.R.S.“) section 12-1622 has standing to assert a statute of limitations defense under A.R.S.  §  33-816 and no  additional  contractual  privity  is  necessary;  (2) a creditor may unilaterally revoke its acceleration of debt; (3) unilateral revocation of the debt’s acceleration requires an affirmative act by the creditor, which must communicate to the debtor that the debt’s  acceleration has been cancelled; (4) a notice of cancellation of the trustee’s sale may be an affirmative act by the creditor sufficient to communicate to the debtor, and to any third party investigating title to the property, that the creditor cancelled the debt’s acceleration if it contains a statement revoking the acceleration; and (5) recording the notice of cancellation of trustee’s sale with language revoking the acceleration constitutes sufficient notice that the creditor has revoked the debt’s acceleration.

Because Bank inserted the Acceleration Revocation Clause into the Notice  of Cancellation, it sufficiently communicated to the  Borrower,  and to any third party investigating title to the property, that Bank was also revoking the debt’s acceleration. Acceleration of note starts the clock for six year statute of limitations to complete trustee’s sale.  Affirmative act by lender de-accelerating a prior acceleration of a note restarts the statute of limitations. An acceleration revocation clause in the recorded notice of cancellation of trustee’s sale held sufficient affirmative act. Because the acceleration’s revocation reset the statute of limitations  the court found that the statute of limitations regarding future obligations has not run.

  • The plaintiff sold property and received a note and deed of trust from the original buyer. When the original buyer then sold the property to the defendants, the plaintiff surrendered the original note and reconveyed the original deed of trust to the original buyer, and at the same time received from the defendants a new note and deed of trust. Id. The court held that despite the creation of a “new note and trust deed,” the defendants were protected by the anti-deficiency statute because the new note and trust deed replaced the original purchase-money note and deed of trust between the plaintiff and the original buyer. Jackson v. Taylor, 272 Cal. App. 2d 1, 3 (Cal. Ct. App. 1969). Id. at 5.

    Attorney Notes: please note that (1) both loans with same lender. This result will most likely not be the same had there been a new lender involved. Second, lender did not bifurcate their claim to request deficiency on the non-purchase money portion of the debt. If they had, may have been a different decision. Lastly, this case is 20 years old and does not reflect the type of refinanced loans made in the last few years.

Monroe v. AZ Acreage, et al, Boyd Family Partnership v. Sunny Lakes Ranchos 1 CA-CV 18-0476, 18-0478, 19-0170, 19-0171 (Consolidated) FILED 5-16-2019  For the following reasons, we hold: (1) the six-year statute of limitations in Arizona Revised Statutes (“A.R.S.”) section 47-3118(A) (2019) controls the underlying debts, the deeds of trust, and the guaranties signed by Mardian; (2) Appellees had standing to seek foreclosure of the deeds of trust; (3) the certification of each class satisfied the requirements for initiating a foreclosure action as outlined in the deeds of trust; and (4) Nevada Revised Statutes (“N.R.S.”) section 645B.340 did not apply to bar Appellees’ claims.


See ARS 33-714 (enacted after De Anza). The relevant part of De Anza is the part of its holding that the SOL does not extinguish the debt, it merely bars an action on the debt or to foreclose. De Anza Land & Leisure Corp. v. Raineri, 137 Ariz. 262, 266, 669 P.2d 1339, 1343 (App. 1983) (“In the case at bar, however, the debt is not extinguished; rather, the remedy for an action on the debt is merely barred.”)

Anti-deficiency protection does not apply to waste of the property. “failure to exercise ordinary care to preserve and protect the property.” A.R.S. Section 729(B) and 333 West Thomas Medical Building v Soetantyo, 976 F. Supp. 1298 (D. Ariz. 1997).

HOA issues: A.R.S. 33-1807(B)(2) a recorded first deed of trust is senior to HOA liens. Villa De Jardines Association v. Flagstar Bank, FSB, 227 Ariz. 91, 253 P.3rd 288 (Ct. App. 2011) (HOA tried to foreclose a first deed of trust. Rule 11 sanctions against HOA’s attorneys).

Junior wiped out by senior’s foreclosure or trustee’s sale – NO DEFICIENCY if also purchase money lien Nydam v. Crawford, 181 Ariz. 101, 887 P.2d 631 (App. 1994). DEFICIENCY – consolidated second loan, used to pay off original second, plus credit cards, etc. Am. Gen. Fin.Serv. V. Dinwiddie, 2008 WL 4182862 (Ariz. Ct. Apps. 2/26/2008) (unreported)

One lender – multiple notesMid Kansas Fed. Sav. & Loan vs Dynamic Dev. Corp, 167 Ariz. 122, 804 P.2d 1310 (1991): Vice Chief Justice Feldman summarized the anti-deficiency statutes: “Read together, therefore, the statutes enact the following scheme: when the holder of a non-purchase money deed of trust of the type described in ARS Section 33-814(G) forecloses by non-judicial sale, the statute protects the borrower from a deficiency judgment. The lender therefore may not waive the security and sue on the Note.” Baker, 160 Ariz. at 106, 770 P.2d at 774. The holder may, however, seek to foreclose the deed of trust as if it were a mortgage, as allowed by Section 33-814(E); if it does so, the debtor is allowed redemption rights under Sections 33-726 and 12-1281 through 12-1289 and is thus protected from low credit bids, but the holder may recover a deficiency judgment – the difference between the balance of the debt and the sale price – unless the note is a purchase money obligation. In the latter case, the borrower is protected by the mortgage anti-deficiency statute ARS Section 33-729(a), which applies only to purchase money obligations. Id, at 127, 804 P.2d at 1315. (Emphasis added)

SUPPLEMENTAL OPINION: Summary and Application: “Where the creditor chooses non-judicial foreclosure, he cannot obtain a deficiency judgment if the collateral is within the class protected by the deed of trust anti-deficiency statutes. Where, however, the creditor chooses judicial foreclosure, he can obtain a deficiency judgment in all cases except those involving purchase money loans on the type of real property that the mortgage foreclosure statute describes. Therefore, where the creditor can obtain a deficiency judgment he can also elect to waive the security under ARS Section 33-722 and sue on the Note. By choosing judicial foreclosure, the creditor can obtain a deficiency judgment in all cases except those dealing with purchase money collateral on the residential property described in Section 33-729(a). He may, therefore, proceed under Section 33-722 in all cases that do not fall within Section 33-729(A)”


Multiple lenders with multiple notes: Junior lender can sue on Note after foreclosure by first lender unless property is purchase money, 2 ½ acres or less and utilized as a one or two family dwelling. Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 1101 (App. 1995); W.D. Lang v Corbet, 181 Ariz. 153 (888 P.2d 1340 (App. 1994) (junior could pursue sue on note and collect excess sale proceeds from sale of first lender).

ATTORNEY FEES IN QUIET TITLE ACTION:

Yard v. Perkins, 2019 WL 2394145 (Ariz.App. June 6, 2019) Upholds superior court’s discretion to not award attorneys’ fees to prevailing party in quiet title action, even though party complied with A.RS. Section 12-1103(B).

The Appeals Court held that  “A party prevailing in a quiet-title action may recover attorney’s fees if, at least 20 days before bringing the action, he or she tendered five dollars with a request that the other party execute a quit claim deed, and the other party did not comply. A.R.S. § 12-1103(B); see Cook v Grebe, 245 Ariz. 367, 369, ¶15 (App. 2018). But a fees award under the statute is not mandatory; even when the requirements of the statute are satisfied, the court may decline to award fees. . Scottsdale Mem’l Health Sys., Inc. v. Clark, 164 Ariz. 211, 2 I 5 (App. 1990). In deciding whether to award fees under§ 12-1103(B ), the superior court “may consider the same factors that are considered in determining whether to award attorney’s fees pursuant to A.R.S. section 12-341.0 I.”

US Bank NA v. JPMorgan Chase Bank NA, 1 CA-CV 16-0253, 6/29/17. Under the doctrine of replacement, a new mortgage retains the priority of a senior mortgage only to the extent new proceeds are used toward repayment of the senior mortgage. In general, an earlier-recorded lien, such as a mortgage or note secured by a deed of trust, has priority over a later recorded lien. Under the doctrine of replacement, however, a new lien retains the same priority as a senior lien released in the same transaction (i.e., a refinancing) to the extent of the balance owed on the senior lien. Under the doctrine of equitable subrogation, when a new lender applies funds to fully discharge an older loan, the new lender is substituted into the position of the older lender, but only if the more senior loan is fully discharged, or the new lender negotiates a full settlement of the obligation for less than face value.

Applying the doctrines together, if a new lender in a refinancing uses proceeds to only partially satisfy another senior loan, such as a preexisting home-equity loan, and does not otherwise negotiate a settlement of the loan, the new lender would receive the benefit of replacement but not equitable subrogation. As a result, the new lender would not have priority over the non-fully-discharged loan beyond the extent of the balance owed on the original, replaced loan.


Equitable Subrogation

2977 Camino La Palmeras v. Deutsche Bank, 2019 WL 2591565 (App. June 24, 2019) Equitable subrogation applied in favor of lender following settlement payment by lender’s title insurance company. Attorney’s fees allowed for equitable subrogation because dispute fell within provisions of deed of trust.

“Previously recorded deeds of trust normally take priority over later deeds of trust.” US Bank, NA. v. JP Morgan Chase Bank, NA., 242 Ariz. 502,  ,i 8  (App.  20 I 7).  Subrogation is one of multiple equitable remedies that “may permit a later-recorded deed of trust to assume priority over an earlier deed of trust.” Id  It  is “the  substitution  of  another  person in the place of a creditor, so  that  the  person  in  whose favor it is exercised succeeds to the rights of the creditor in relation to the debt.  (“When equitable subrogation occurs, the superior lien and attendant obligation are not discharged but are instead assigned by operation of law to the one who paid the obligation.”). “[A]n equitably subrogated lien ‘attaches’ when the superior lien was recorded [.]” Weitz, 235 Ariz. 405.  To deny equitable subrogation in this case would unjustly enrich Appellants at DB’s expense. And, given the “unique facts of [this] case,” Weitz, 235 Ariz. 405, ii 26,  it  would also reward Appellants for arguably  unscrupulous  conduct,  a result contrary to the principles of equity.


Bank of America vs FELCO. (1 CA-CV 16-0099, 8/29/17) This appeal is from a declaratory action by lienholder Bank of America, N.A. (“BofA”) against intervening lienholder Felco Business Services, Inc. 401(K) Profit Sharing Plan and FBS Sedona, LLC (collectively, “Felco”). After Felco foreclosed on its deed of trust and sold the subject property at a trustee’s sale, BofA sued for a declaration that its deed, recorded after Felco’s, was equitably subrogated to a position superior to Felco’s. Felco moved for partial summary judgment, arguing that BofA waived its equitable subrogation claim by not raising it as an objection to the trustee’s sale pursuant to A.R.S. § 33 –811(C). Without addressing whether equitable subrogation applied, the trial court agreed with Felco, holding that BofA’s equitable subrogation claim was a pre-trustee’s sale defense or objection that it waived by not asserting it before the sale.
On review, we hold that a n equitable subrogation claim is not a defense or objection to a trustee’s sale and is therefore not waivable under A.R.S. § 33–811(C). Accordingly, we reverse the trial court’s granting of partial summary judgment in Felco’s favor and remand to the trial court to determine whether equitable subrogation is appropriate in this case.
Holding:  Claim of lien priority by application of equitable subrogation is not waived under A.R.S. § 33-811 (C) if trustee’s sale of competing lien is held.

US BANK v. JPMORGAN (Div 1, AzCtApp : No. 1 CA-CV 16-0253 6/29/2017).  Issues revolved around deeds of trust, subornation and partial payoffs. “In this dispute between two lenders, we address the doctrines of “replacement” and equitable subrogation as they apply to respective lien rights. We affirm the superior court’s application of the replacement doctrine to a claim by US Bank, N.A. for declaratory relief. We vacate the court’s application of equitable subrogation and remand for entry of judgment in favor of Chase, on US Bank’s second claim for declaratory relief. We also remand for consideration of US Bank’s remaining claims.”

Need Injunction before trustee’s sale is completed: ARS 33-811(c), otherwise waive all defenses and objections to TE sale not raised in an injunction issued by the last business day before the sale. Country Bank v. Highland and Properties West, LLC, CV 2010-00107 – Yavapai County case – not precedent. Joyce Luciano v. WMC Mortgage, 2010 WL 1491952, Ariz Ct App. (trustor failed to obtain injunction before sale completed – court refused to void sale). Bernt K. Lovenberg v. Deutsche Bank, 2011 WL 2236601 (Az Court of appeals – unpublished) (same result as Luciano). BT Capital, LLC v TD Services Company, 229 Ariz. 299, 275 P.3rd 598 (Ariz. 2012) (3 sales, first cancelled, second conducted but refused tendered bid b/c blew credit bid instructions, BT obtained injunction. Third sale conducted but BT failed to obtain another injunction. Third sale okay despite earlier injunction and lis pendens.) Madison V. Groseth, 1 CA-CV 11-0222, 6/5/12 (Trustor Waives Defenses and objections: ARS 33-811(c) if a trustor fails to enjoin a trustee’s sale; all objections to the sale are waived. Moreover the waiver statue does not require the trustee to comply with mailing requirements of 33-809).


Need Injunction before trustee’s sale is completed or waive potential damages: Zubia v. Shapiro, et al. . CV-16-0255-PR (Arizona Supreme Court, Filed January 12, 2018) The issue in this case is whether a homeowner’s failure to obtain injunctive relief under A.R.S. § 33-811(C) results in the waiver of her damages claim arising from a trustee’s sale, where the homeowner alleges that her name was forged on the promissory note and deed of trust. We hold that failing to obtain an injunction before the trustee’s sale results in the waiver of damage claims dependent on the validity of the sale.

Mid Kansas had both first and second deeds of trust. Lender took title after trustee’s sale of second deed of trust by bidding full debt. Absent contrary agreement by the parties or intent not to merge, the borrower’s liability under the first deed of trust is extinguished as a result of the merger of fee simple title with lender’s beneficial interest under the first deed of trust. Mid Kansas, supra, at 130, 804 P2d at 1318.

Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108 (2017)
Background: Borrower who defaulted on a balloon payment on a promissory note for a $28.6 million commercial loan filed action seeking a declaratory judgment that lender’s successor in interest was not entitled to recover late fee.
Holding: The court relied upon the Restatement (Second) of Contracts § 356 in holding that a five percent late fee on a balloon payment is an unenforceable liquidated damages provision. Restatement (Second) of Contracts § 356 states that parties do not have free rein in setting liquidated damages; because the central objective behind the system of contract remedies is compensatory, not punitive, parties cannot provide a penalty for a breach. Further, damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach. This case involved a note for $28.6 million which would result in a late fee of $1.4 million.

The principal of bifurcating actions pertaining to portions of loan monies is supported by Southwest Savings & Loan Ass’n v. Ludi, 122 Ariz. 226, 594 P.2d 92 (1979). The similarities yet significant differences between Ludi and Baker were noted by the Supreme Court of Arizona in Mid Kansas Federal Sav. & Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 129 fn 6, 804 P.2d 1310, 1317 (1991) (In Banc); accord Cely v.DeConcini, McDonald, Brammer, Yetwin & Lacy, P.C., 166 Ariz. 500, 505-06, 803 P.2d 911, 916-17 (App. Div. 1 1990). While in Ludi and Baker the two notes were secured by the same real estate, “the second note in Ludi was given to obtain a home improvement loan and therefore was ‘independent from’ the first note . . . .” Id. (citation omitted). According to the Mid Kansas Court, Ludi was not in conflict with Baker because the action on the second deed of trust that involved the home improvement loan was “non-purchase money obligation.” Id. (citation omitted). Cited in American National Bank vs. Vatistas, 2010 WL 3115419 (2010) (Ariz.App.Div.1) As cited in appellants opening brief.

Equity Income Partners LP v. Chicago Title Ins. Co., CV-16-0162-CQ, 2/7/17 A lender’s full-credit bid made at a trustee sale does not terminate or reduce coverage under standard form title insurance policies. Such policies have provisions that allow coverage to continue through a foreclosure or trustee sale, but reduce the coverage by the amount of “payment” or “payment made.” Arizona law allows a lender to acquire property at a trustee’s sale via a full-credit bid whereby the lender’s acquisition of the property fully satisfies the borrower’s outstanding obligation even though the lender makes and receives no monetary payment in the transaction. Although the credit bid satisfies the borrower’s obligation, the terms “payment” and “payment made” in standard title insurance policies do not include a lender’s credit bid under Arizona law.

Consequently, the amount of the full or partial credit bid does not terminate or reduce the amount of coverage under the standard policy provisions.

Helvetica Servicing Inc. v. Giraudo, 1 CA-CV 15-0490 2/9/17 The redemption price for a junior lienholder is the sale price of the secured property plus the outstanding value of the senior lienholder’s allowable deficiency judgment. If a property is subject to two deeds of trust and the senior lienholder purchases the property at a foreclosure sale without joining the junior lienholder, the junior lienholder may seek to redeem the property under A.R.S. § 12-1285(B).

The redeeming junior lienholder is not required to pay any portion of the senior lien that is unenforceable against the judgment debtor under the statutes.


12-1282. Time for redemption

  1. The judgment debtor or his successors in interest may redeem at any time within thirty days after the date of the sale if the court determined as part of the judgment under which the sale was made that the property was both abandoned and not used primarily for agricultural or grazing purposes.
  2. The judgment debtor or his successor in interest may redeem at any time within six months after the date of the sale except when the court has made the determinations as provided in subsection A.
  3. If the redemption as provided in subsection A or B is not made, the senior creditor having a lien, legal or equitable, upon the premises sold, or any part thereof, subsequent to the judgment under which the sale was made, may redeem within five days after expiration of the applicable period provided in subsection A or B, and each subsequent creditor having a lien in succession, according to priority of liens, within five days after the time allowed the prior lienholder, respectively, may redeem by paying the amount for which the property was sold and all liens prior to his own held by the person from whom redemption is made, together with the eight per cent added to the amount as provided in section 12-1285.

VERY IMPORTANT TO CHECK STATUS OF CASE LAW:

Bankruptcy related: Most likely fee remains property of the estate until the foreclosure judgment is entered, after which the right to redeem is what remains property of the estate (see ARS § 12-1281 to -1289 (esp. -1282 and -1283(A)), but there’s a pair of older case saying that title doesn’t pass to the purchaser until after the redemption period passes, In re Sapphire Investments, 27 B.R. 56 (Bankr. Ariz. 1983), and that this period can be extended. In re Sapphire Investments, 19 B.R. 492 (Bankr. Ariz. 1982).

AHCCCS v Allen (In re Stephenson) 1-CA-CV 06-0785 (11/27/07) A secured creditor does not need to seek permission from the Superior Court or the Personal Representative of an estate to enforce its secured even though probate has been opened. Under common law and Arizona Probate Code the secured creditors have the power to choose a remedy after a debtor dies, either by foreclosing on their secured or by filing a claim in probate. The Probate court does not have automatic supervisory authority over a deed of trust sale governed by a separate statutory scheme.

ZB N.A. v. Hoeller, 1 CA-CV 16-0071, 4/25/17. When a promissory note’s choice-of-law provision conflicts with the choice-of-law provision in a related deed of trust, the promissory note’s provision controls in a deficiency action following a trustee’s sale. A promissory note is a written agreement to pay back a loan. When the loan is secured by some property, parties often also execute a deed of trust, which authorizes the lender to force a sale of the property if the borrower fails to pay. If the proceeds of the property sale are insufficient to repay the loan, the lender may sue the borrower for the deficiency. In such a deficiency lawsuit, the choice-of-law provision of the promissory note controls over a conflicting term in the deed of trust.

Obduskey v. McCarthy & Holthus, No. 17-1307, March 20, 2019 (United States Supreme Court) – Held that a business engaged in nonjudicial foreclosure proceedings was not a “debt collector” under the Fair Debt Collection Practices Act ‘FDCPA’. A homeowner claimed that the business violated certain statutory requirements in carrying out a foreclosure on behalf of a lender. Rejecting this argument, the U.S. Supreme Court held that the Act was inapplicable to this nonjudicial foreclosure proceeding. Justice Breyer delivered the opinion for a unanimous Court, clarifying the statute’s definition of debt collector.

TRUSTEE SALE PROCESS

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

Patton v First Federal Savings and Loan, 118 Ariz. 473, 578 P.2nd 152 (1978) Az Supreme Court suggested trustee acts as a fiduciary to both the trustor and the beneficiary.1984 ARS Section 33-801(10) amended to limit trustee’s duties to those delineated in statutes. BT Capital LLC v. TD Service Co of Arizona, 1 CA-CV 10-0450, 9/27/11 refers to statutes, but Hogan vs Washington Mutual Bank referred back to Patton. Hogan amended by Supreme Court to limits trustee duties to those described in statutes.

BT Capital LLC v. TD Service Co of Arizona, 1 CA-CV 10-0450, 9/27/11 A Trustee’s statutory power to postpone or continue a trustee’s sale does not extend to voiding a sale after completion of the bidding. Section 33-811(c) provides that all persons receiving notice of the trustee’s sale waive all defenses and objection so the sale if they fail to obtain a court order enjoining the sale before 5 pm on the last business day before the scheduled ate of the sale. Although Section 33-811(c) does not by its terms apply to a trustee, a trustee’s duties and powers are otherwise governed by the statutory procedures for conducting a trustee’s sale. A trustee conducting a sale has authority under 33-810(B) to postpone or continue the sale. Once the sale commences with the start of the bidding, however, the trustee’s ability to postpone or stop the sale is strictly limited.


Postponement of trustees sale: Margery Kanamu-Kalehuanani Kekauoha-Alisa (9th Cir. NO. 09-60019, 3/26/12) auctioneer failed to call the postponement out load and signed affidavit stating she had done so. Bankruptcy Court voided sale and awarded treble damages, BAP reversed, 9th Circuit reversed BAP. Stating that ..” the statutory balance would be upset if mortgagees could dispense with those procedures they perceive as futile, or substitute procedures they believe achieve the “spirit and purpose” of the law. The court found that violations of the trustee sale procedures voids the foreclosure sale regardless of whether the violations are grievously prejudicial and merely technical.

Kelly vs. Nationsbanc12/26/2000 No. 1 CA-CV 99-0642 (Ct.App 1st Div): Chapter 13 case filed after trustee’s sale noticed. Four postponements, bankruptcy case dismissed, sale completed. Kellys argue that they failed to receive detailed accounting of payments and failed to receive actual notice of continued sales. Court upheld lower court’s granting of summary judgment. Good review of In re Acosta, 181 B.R. 477 (Bankr.D.Ariz. 1995) (DR’s to receive actual notice of postponed trustee’s sale while in bankruptcy), see also In re Duncan, 211 B.R. 42 (Bankr.D.Ariz. 1997) In re Stober, 193 B.R. 5 (Bankr.D.Ariz. 1996) (did not follow Acosta and Duncan); In re Nagel, 245 B.R. 657 (D.Ariz. 1999) (dismissal of BK returns parties to the status quo prior to the filing of the BK. Once returned they are subject to the laws of Arizona).


Postponement of trustees sale: Margery Kanamu-Kalehuanani Kekauoha-Alisa (9th Cir. NO. 09-60019, 3/26/12) auctioneer failed to call the postponement out load and signed affidavit stating she had done so. Bankruptcy Court voided sale and awarded treble damages, BAP reversed, 9th Circuit reversed BAP. Stating that ..” the statutory balance would be upset if mortgagees could dispense with those procedures they perceive as futile, or substitute procedures they believe achieve the “spirit and purpose” of the law. The court found that violations of the trustee sale procedures voids the foreclosure sale regardless of whether the violations are grievously prejudicial and merely technical.

Krohn v Sweetheart Properties (AZ Supreme Ct) CV 01-0246-CQ, BK 00-10623-PHX-RTB Krohn filed a chapter 13 bankruptcy that was dismissed. After the dismissal her home was sold through a trustee’s sale. Krohn then filed a second chapter 13 and sought to have the sale of the house vacated for gross inadequacy of price. The court found that a trustee’s sale could be set aside solely on the basis that the bid price was grossly inadequate (see Restatement (Third) of Property: Mortgages Section 8.3).

Zubia v. Shapiro, 408 P.3d 1248 (Jan. 12, 2018)) Background:   After a trustee’s sale was completed the co-borrower on promissory note, secured by deed of trust, filed suit against borrower, lender’s assignee, and substitute trustee, seeking to quiet title to home, and asserting claims for money damages and wrongful foreclosure, based on assertion  that her signature  was  forged  on  note  and  deed  of trust.

Holding:  The issue in this case is whether a homeowner’s failure to obtain injunctive relief under A.R.S. § 33-81 l(C) results in the waiver of her damages claim arising from a trustee’s sale, where the homeowner alleges that her name was forged on the promissory note and deed of trust. We hold that failing to obtain an injunction before the trustee’s sale results in the waiver of damage claims dependent on the validity of the sale.

In re Bebensee248 BR. 820 (9th Cir. BAP 2000) (Calif). Interpreting California’s Civil Code regarding perfection of a buyer’s interest in property purchased at a trustee’s sale, the BAP found that recordation of a trustee’s deed within the fifteen-day time period after the sale perfected the buyer’s interest in property although that recordation occurred post-petition.

Arizona recently amended its statutes, effective July 1, 2000, to mirror California law In the Bebensee case, a buyer had purchased a debtor’s home at a trustee’s sale. Twelve days later, the debtor filed for Chapter 13. Two days after the petition was filed, the buyer recorded the trustee’s deed. Under California law recordation of a trustee’s deed within fifteen days after a trustee sale is a ministerial act, and perfection relates back to the date of the trustee sale. Because the sale was deemed perfected pre-petition, the debtor had no interest in the home at the lime of filing.

Section 5 of Ariz. Rev, Stat, § 33-810(A) has been amended to read, in pertinent part: “The sale shall be completed on payment by the purchaser of the price bid in a form satisfactory to the trustee. The subsequent execution, delivery and recordation of the trustee’s deed as prescribed by § 33-811 are ministerial acts. If the trustee’s deed is recorded in the county In which the trust property is located within fifteen business days after the date of the sale, the trustee’s sale is deemed perfected at the appointed date and time of the trustee’s sale.” Arizona’s statute was amended to add the “retroactive perfection” provision. Because of the similarity between Arizona’s amended statute and the language in the California Civil Code, consumer practitioners may find this case instructional in interpreting Arizona law.


Trustee’s Sale Cannot be Unwound if Errors are Immaterial:   Sutton vs Deutsche, Specialized Loan, 1 CA-CV 12-0557 (Az Ct of Appeals, Div 1 9/5/13) In this case, we hold that a homeowner may not recover damages or unwind a trustee’s sale when recorded documents concerning transfers of the lender’s interest contain immaterial errors.

The obligation to pay, and the right to foreclose upon a failure to pay, was created by the note and the deed of trust — not other documents associated with closing. Both the note and the deed of trust unambiguously named SFG Mortgage as the lender. Further, SFG Mortgage’s legal status was immaterial after the deed of trust was executed. The deed of trust clearly named MERS as SFG Mortgage’s nominee and the beneficiary, and provided that MERS had the right to exercise SFG Mortgage’s interests. MERS was the mortgagee of record and could assign the note and the deed of trust without regard to SFG Mortgage’s legal status. See Rosa v. Mortgage Electronic Sys., Inc., 821 F. Supp. 2d 423, 431 (D. Mass. 2011) (“‘[T]he fact that the debtors’ promissory note passed like a hot potato down a line of owners, including some in bankruptcy and liquidation, with no accompanying assignment of the note owner’s beneficial interest in the mortgage, changes nothing,’ because ‘MERS remained the mortgagee in its capacity as trustee and as nominee for whomever happened to own the note.’” (quoting In re Marron, 455 B.R. 1, 7 (Bankr. D. Mass. 2011))).

Sitton borrowed money and incurred liability under the note. The lender performed fully at the time of closing; Sitton did not perform. Her choices were to repay the money pursuant to the terms of the note, renegotiate the terms of the note, or default and cause foreclosure. Her liability on the note remained the same no matter who was assigned as beneficiary, or when. The misrepresentations in the recorded assignments were therefore immaterial to her as a matter of law.


Recording of Trustee’s Deed: ARS Section 33-810(A) – execution, delivery and recording of deed are “ministerial acts”. If recorded within 15 business days following sale then relates back to the date of sale. In re Steiner, 251 B.R. 137 (Bkrtcy.D.Ariz 2000) (sale not invalidated even if bankruptcy filed between date of dale and recording of TE deed). In Re Robert Allen Dickey, Jr, 2011 WL 6148638 (Bankr. D. Ariz 2011) (late recording of TE deed voids sale)


Presumptive Effect of Trustee’s Deed 33-811(b); 12-1566(ah), see Main I Ltd Partnership, (trustee’s deed is conclusive evidence of compliance with DOT statutes); See also BAM Invest. v Roberts, 172 Ariz. 602, 838 P.2nd 1363 (App. 1992); Security Sav. & Loan v Milton, 171 Ariz. 75, 828 P.2nd 1216 (App. 1991), bt see CS & W Contractors vs SW Savings, 175 Ariz. 55, 852 P.2nd 1239 (App. 1992), 180 Ariz. 167, 883 P.2nd 404 (1994) (DOT bene received copy of a mechanic’s lien when recorded was not a BFP).


In Biancalana v T.D. Serv. Co. (California Supreme Ct 2013) 56 C4th 807, the trustee under a deed of trust mistakenly gave the auctioneer an opening bid of less than 10 percent of what the beneficiary had instructed it to credit bid. The high bidder at the sale paid with a cashier’s check but 2 days later, the trustee declared the sale void, returned the check, and refused to issue a deed. The high bidder then brought this action against the trustee and won on summary judgment. But the court of appeal reversed, and then the Supreme Court reversed the appellate court. The trustee’s error constituted an irregularity within the foreclosure sale process. Although it occurred before the sale started, it resulted in the announcement of a mistaken opening bid by the beneficiary.

The conclusive presumption in favor of a bona fide purchaser that a sale has been conducted regularly does not apply until the trustee’s deed was delivered; here the trustee discovered the error before it delivered the deed. In this context, gross inadequacy of price and even slight unfairness or irregularity is sufficient to set the sale aside. The error was an irregularity by the trustee in its duty to conduct the sale fairly and to secure the best price for the trustor’s benefit. The trustee’s error could not be imputed to the beneficiary because the trustee deviated from the beneficiary’s instructions.


In re Krohn, Arizona Supreme Court No. CV-01-0246-CQ, Bankruptcy Court No. 00-10623-PHX-RTB  (8/27/2002)   Linda Lorraine Krohn (Krohn) filed a chapter 13 bankruptcy petition that was dismissed.  Shortly after that dismissal, her home was sold to Sweetheart Properties, Ltd. (Sweetheart) at a trustee’s sale conducted under authorization of a deed of trust. She filed a second bankruptcy petition seeking to have the sale of her home vacated for gross inadequacy of price. Bankruptcy Judge Redfield T. Baum certified a question of Arizona law to this court: “May a trustee’s sale of real property [under a deed of trust] be set aside solely on the basis that the bid price was grossly inadequate?”  We answer the certified question in the affirmative.


Whittle Development, Inc. v. Branch Banking & Trust Co. (10/11) It is common practice for mortgagees, such as banks, to foreclose on the collateral securing their loans and, in the absence of a third party purchaser for a reasonable value, to purchase such collateral by credit bidding their debt at the foreclosure sale. Due to the circumstances of foreclosure sales, however, often such sales do not result in as a high a sale price as would a private sale transaction. In the recent case of Whittle Development, Inc. v. Branch Banking & Trust Co. (In re Whittle Development, Inc.), 2011 WL 3268398 (Bankr. N.D. Tex. July 27, 2011), the United States Bankruptcy Court for the Northern District of Texas (the “Court”) held that a bankruptcy trustee can avoid a prepetition foreclosure sale of a debtor’s property as a preferential transfer under section 547 of the Bankruptcy Code despite the fact that the sale was non-collusive and conducted in accordance with applicable state law. Section 547 provides for the avoidance of a prepetition transfer made to a creditor, on account of an antecedent debt, if the debtor was insolvent and the transfer enabled the creditor to receive more than it would have in a hypothetical chapter 7 liquidation. Whittle is significant not only because it calls into question the long-accepted notion that foreclosure sales are final, but also because it represents a departure from Supreme Court precedent in the related area of fraudulent transfers under section 548 of the Bankruptcy Code.

Background In 2007, Whittle Development, Inc. (“Whittle”) borrowed $2.7 million from Colonial Bank, N.A. (“Colonial”). Branch Banking and Trust Company (“BB&T”) later acquired Colonial and became the successor-in-interest to Colonial’s loan to Whittle. In 2010, BB&T declared a default under the loan, accelerated the outstanding payments owed by Whittle and foreclosed on the real property securing the loan. The foreclosure sale complied with all relevant state law requirements. A subsidiary of BB&T purchased the property at the foreclosure sale for $1.22 million.

Within ninety days of the foreclosure sale, Whittle filed a Chapter 11 petition. BB&T subsequently filed a proof of claim, claiming a debt owed of $2,855,243 of which BB&T alleged $1,181,513 represented a deficiency from the foreclosure sale. Thereafter, Whittle brought an action to avoid, as a preferential transfer, the foreclosure sale. Whittle took the position that the approximate value of the property was $3.3 million, that BB&T’s claim on the property at the time of foreclosure was approximately $2.2 million, and thus BB&T had received approximately $1.1 million more that it would have received in a chapter 7 case.

Whittle and BB&T agreed that the foreclosure sale effected a transfer of Whittle’s interest in property and that Whittle stated a “facially plausible” claim as to all the requirements of 11 U.S.C. section 547(b) except subsection (5), which “requires a finding that the creditor received more than it would have under chapter 7.” BB&T argued that the price paid at the foreclosure sale was the fair-market value of the property based on the Supreme Court’s decision in BFP v. Resolution Trust Corp., 511 U.S. 531 (1994). Whittle asserted that since the property was worth more than the amount due to BB&T, BB&T received more than it would have received in a chapter 7. Whittle reasoned that BB&T received a total of $3,261,513, comprised of a deficiency claim in the amount of $1,181,513 and the net property value of $2,080,000 (calculated by subtracting the amount paid at foreclosure of $1.22 million from $3.3 million, the value of the property). Whittle argued that BB&T’s maximum recovery in chapter 7 would have been $2.2 million, the amount of BB&T’s claim at the time of foreclosure.


BFP v. Resolution Trust Corpin BFP, a partnership formed for the purpose of buying a home defaulted on its mortgage payments, resulting in a foreclosure by the bank. A third party purchased the home for $433,000 at a properly noticed foreclosure sale shortly before the partnership filed for bankruptcy. Acting as a debtor in possession, the partnership sued to avoid the transfer as a fraudulent conveyance, alleging that the property had an actual value of $725,000.

In BFP, the Supreme Court addressed whether a foreclosure sale could be avoided as a constructively fraudulent transfer under section 548. The key issue in BFP was whether the foreclosure sale price could qualify as “reasonably equivalent value” or whether the purchaser has to pay fair market value for the property to be insulated from avoidance under section 548. The Supreme Court held that a “fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the state’s foreclosure law have been complied with.” To hold otherwise, the Supreme Court stated, would interfere with the essential state interest in ensuring the security of title to real property. This ruling effectively insulated regularly conducted foreclosure sales from avoidance under fraudulent conveyance law. In Whittle, BB&T requested that this result be extended to preference actions.

Holding Despite the differences in the language of sections 547 and 548 of the Bankruptcy Code, the Court in Whittle noted that some courts have simply held that the test for preferences — a transfer which enables a creditor to receive more than in a chapter 7 liquidation — is essentially the same as the Supreme Court’s test for “reasonably equivalent value” in the fraudulent conveyance context. See Chase Manhattan Bank v. Pulcini (In re Pulcini), 261 B.R. 836 (Bankr. W.D. Pa. 2001); Glaser v. Chelec, Inc. (In re Glaser), 2002 WL 32375007 (Bankr. E.D. Va. 2002).

In contrast, other courts analyzing the preference test simply highlight the plain language of the statute and point out that the test for whether a transfer is a preference is fundamentally different than the test used in the fraudulent conveyance statute. In Whittle, the Court sided with this second group of cases, holding that BFP was inapplicable in the preference context based on the clear language of the statute. “[L]ooking at the unambiguous language of the statute, it would seem that the only thing that must be shown is that the creditor did, in fact, receive more from the pre-petition transfer than it would have under a chapter 7 liquidation . . . .” The Court found BFP’s assessment of “reasonably equivalent value” wholly inapplicable to the preference context.

Conclusion The Whittle court denied BB&T’s motion to dismiss and allowed Whittle’s preference action to proceed. As such, the critical issue remaining is whether the value of the property was the appraised value of $3.3 million or the price paid at the foreclosure sale of $1.2 million. Whittle’s position is sustainable only if it rebuts the claim that the selling price of the property did not reflect its true value of $3.3 million and that the deficiency claim of $1,181,513 is worth its face amount. If Whittle’s position on value is correct, BB&T did receive a preference in the amount of $1.1 million. However, if BB&T’s position on value is correct, then BB&T did not receive a preference because it did not receive more than it would have in a chapter 7. It only received the sum of the amount paid at foreclosure and a deficiency claim.

Although the Whittle decision does not stand for the proposition that all valid prepetition foreclosure sales are susceptible to avoidance as preferential transfers, it does carve out a narrow subset of such sales for which the foreclosure sale may be anything but final. Based on this ruling and others like it, secured creditors and purchasers of foreclosed property who are also creditors of the estate should be cautious. These parties should view this case as a clear warning that, depending on the jurisdiction, the foreclosure sale may not be final. Additionally, purchasers of a foreclosed property must also take into account the risk that the property owner will file bankruptcy and seek to avoid the sale as a transfer under section 547 of the Bankruptcy Code. Purchasers may discount the price they are willing to pay for foreclosed properties to account for this additional risk, a result that is detrimental to the secured creditor, the debtor and its general creditors. If the Whittle opinion gains a widespread following in other jurisdictions and the market reacts to this risk by low bids from third parties, lenders may experience an increased incidence of being required to credit bid and take such assets into its OREO inventory. The determination of the amount of the credit bid may require re-examination as well in light of the risk that the credit bid will be determined to result in the lender receiving a voidable preference.


Hicks v. E.T. Legg & Associates (05/25/01 – No. D034398) Civil Code 2924c(e), and 2924g(d) do not prohibit the postponement of a foreclosure sale for successive periods of five of fewer business days during the period a sale is on hold because of an injunction or bankruptcy stay.


Bankruptcy of Wytch, US BAP 9th, Nos. 97-1089 and 79-1145, 7/1/98: 11 U.S.C. Section 349(b) does reinstate a debtor’s pre-petition property rights by invalidating specified bankruptcy court orders, Section 349(b) does not vacate orders for relief from the automatic stay under 11 U.S.C. Section 362(d). real property sold 2 hours after BK filed (chapter 7) property purchased by third party with no knowledge of bankruptcy, lender brought action to annul stay, no objection , relief granted. Case inadvertently dismissed, then reinstated, debtor’s argued that set aside earlier Order lifting stay – Bankruptcy Court and BAP did not agree – Order lifting stay stands.

Post-Petition attorney fees based on pre-petition contract: In re SNTL Corp., 571 F.3d 826, Bankr. L. Rep. ¶ 81,515 (9th Cir., June 23, 2009), pages 154, 183 (case no. 08-60001) The Ninth Circuit Court of Appeals, in a unanimous panel decision, affirmed, and adopted as its own, In re SNTL Corp., 380 B.R. 204 (9th Cir. B.A.P. 2007), holding that an unsecured creditor may include, as part of its claim, attorney’s fees incurred post-petition but based on a pre-petition contract. The opinion reasoned that (1) Code § 506(b), permitting an over-secured creditor to recover post-petition attorney’s fees, speaks only to the secured status of a claim, and not to its allowability; (2) the claim for attorney’s fees exists on the petition date, although it is contingent and unliquidated, as the “right to payment” exists on the petition date; thus, the claim is not disallowed under Code § 502(b)(1), requiring a bankruptcy court to “determine the amount of such claim … as of the date of the filing of the petition”; and (3) neither United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S. Ct. 626, 98 L. Ed. 2d 740 (1988) (holding that an undersecured creditor could not receive post-petition interest on the unsecured portion of its debt) nor public policy mandated disallowance of such a claim.

Foresight Investments Group vs Leader Mortgage Company (LMC), CV 2003-000195, LMC permits a trustee’s sale to go forwarding knowing it should not have been held. Court decides that the trustee was effectively a seller of real estate and that the buyer at the sale had entered into a contract for the sale of the subject property. In that LMC could not transfer the subject property because the debt had already been paid, the trustee’s sale was a sale of realty and the buyer at the trustee’s sale was entitled to a benefit of the bargain measure of damages the difference between the fair market value of the property and the price bid by the buyer. (case was settled).

VA Loans: DEFICIENCY allowed. Connelly v.J Dervinski, 961 F.2d 129 (9th Cir, 1991) Once again we are asked to determine, once again, whether a state anti-deficiency scheme is preempted by Department of Veteran Affairs (VA) regulations that authorize the VA to collect deficiencies on VA-guaranteed home loans. This case involves Oregon law, which forbids a deficiency judgment after either a judicial or a non-judicial foreclosure sale. See Or.Rev.Stat. § 86.770(2). Same result in Shepherd v. Dervinski, 961 F.2d 132 (9th Cir, 1992) (an Arizona case) also see In United States v. Rossi, 342 F.2d 505 (9th Cir.1965), we held that a California anti-deficiency law, which in all material respects is identical to Oregon law, is preempted by the VA regulations. Id. at 506. Subsequently, in Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir.1990), we held that a Washington anti-deficiency law, which permits a deficiency judgment after a judicial, but not a non-judicial sale, is not preempted by the VA regulations. Id. at 1369. In Whitehead, we distinguished the Washington anti-deficiency law from the California anti-deficiency law. Id. at 1368. Because the Oregon anti-deficiency law is materially different from the Washington anti-deficiency law, but identical to the California anti-deficiency law, we hold that this case is controlled by Rossi and that the Oregon law is preempted by the VA regulations.

It is evident that a state’s anti-deficiency statute is irrelevant to VA-guaranteed home loans. This is consistent with the basic principle that federal law governs the rights of private citizens who contract in loans transactions with the United States. United States v. Kimbell Foods, Inc., 440 U.S. 715, 727, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). There is nothing to suggest that this principle and the analysis undertaken in Carter would not also apply to other federal loan programs. See United States v. Einum, 821 F.Supp. 1283, 1284 (W.D.Wis.1992) (FmHA loans).


U.S. v. Rezzonico, 32 F. Supp. 1112 (D.Ct. Ariz. 1998) that sheds a little more light on the issue. In that case the FmHA guaranteed the loan, and the court follows Carter v Derwinski, 987 F.2d 611 (9th Cir.), a case in which the court held that “the VA always has a right of indemnity against the veteran for the amount of guarantee paid to the lender….[t]he VA’s right to indemnity derives from a contract independent of the mortgage. As indemnitor the veteran is in the same position as the guarantor….” Rezzonico, at 1115 (quoting Carter, 987 F.2d at 616-7). The Rezzonico court applied the same reasoning to the FhMA as the line of cases finding no preemption with respect to the VA.
Throw Cippolline, Medtronic, and the Chevron two part defenses into the mix and you have a first class briefing nightmare on any preemption issue. Predicting the outcome in these cases is anybody’s guess.


Servicemembers Civil Relief Act (SCRA) (WARNING – ALWAYS CHECK CURRENT LAW)
Section 303 – Mortgages and trust deeds

(a) MORTGAGE AS SECURITY- This section applies only to an obligation on real or personal property owned by a servicemember that–
(1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and
(2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.

(b) STAY OF PROCEEDINGS AND ADJUSTMENT OF OBLIGATION- In an action filed during, or within 90 days after, a servicemember’s period of military service to enforce an obligation described in subsection (a), the court may after a hearing and on its own motion and shall upon application by a servicemember when the servicemember’s ability to comply with the obligation is materially affected by military service–
(1) stay the proceedings for a period of time as justice and equity require, or
(2) adjust the obligation to preserve the interests of all parties.

(c) SALE OR FORECLOSURE- A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within 90 days after, the period of the servicemember’s military service except–
(1) upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or
(2) if made pursuant to an agreement as provided in section 107.

(d) PENALTIES-
(1) MISDEMEANOR- A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
(2) PRESERVATION OF OTHER REMEDIES- The remedies and rights provided under this section are in addition to and do not preclude any remedy for wrongful conversion otherwise available under law to the person claiming relief under this section, including consequential and punitive damages.

The plaintiff sold property and received a note and deed of trust from the original buyer. When the original buyer then sold the property to the defendants, the plaintiff surrendered the original note and reconveyed the original deed of trust to the original buyer, and at the same time received from the defendants a new note and deed of trust. Id. The court held that despite the creation of a “new note and trust deed,” the defendants were protected by the antideficiency statute because the new note and trust deed replaced the original purchase-money note and deed of trust between the plaintiff and the original buyer. Jackson v. Taylor, 272 Cal. App. 2d 1, 3 (Cal. Ct. App. 1969). Id. at 5.


Attorney Notes: please note that (1) both loans with same lender. This result will most likely not be the same had there been a new lender involved. Second, lender did not bifurcate their claim to request deficiency on the non-purchase money portion of the debt. If they had, may have been a different decision. Lastly, this case is very old and does not reflect the type of refinanced loans made in the last few years.

See ARS 33-714 (enacted after De Anza). The relevant part of De Anza is the part of its holding that the SOL does not extinguish the debt, it merely bars an action on the debt or to foreclose. De Anza Land & Leisure Corp. v. Raineri, 137 Ariz. 262, 266, 669 P.2d 1339, 1343 (App. 1983) (“In the case at bar, however, the debt is not extinguished; rather, the remedy for an action on the debt is merely barred.”)


Miller Designs v. US Bank, et al, CV 16-0723 (Az Ct.App. Div 1 – 2/13/18).
1. Whether real property acquired in a sheriff’s sale entitles the owner to raise a statute of limitations defense. 2. Whether a creditor may revoke its acceleration of a debt unilaterally. 3. Whether recording a cancellation of a trust sale constitutes sufficient notice of a creditor’s withdrawal of the debt’s acceleration.  Opinion: Because the acceleration’s revocation reset the statute of limitations in 2012, as well as in 2014, we find the statute of limitations regarding future obligations has not run, and remand the case for further proceedings consistent with this opinion.

HOA issues: A.R.S. 33-1807(B)(2) a recorded first deed of trust is senior to HOA liens. Villa De Jardines Association v. Flagstar Bank, FSB, 227 Ariz. 91, 253 P.3rd 288 (Ct. App. 2011) (HOA tried to foreclose a first deed of trust. Rule 11 sanctions against HOA’s attorneys).

Junior wiped out by senior’s foreclosure or trustee’s sale – NO DEFICIENCY if also purchase money lien Nydam v. Crawford, 181 Ariz. 101, 887 P.2d 631 (App. 1994). DEFICIENCY – consolidated second loan, used to pay off original second, plus credit cards, etc. Am. Gen. Fin.Serv. V. Dinwiddie, 2008 WL 4182862 (Ariz. Ct. Apps. 2/26/2008) (unreported)

One lender – multiple notesMid Kansas Fed. Sav. & Loan vs Dynamic Dev. Corp, 167 Ariz. 122, 804 P.2d 1310 (1991): Vice Chief Justice Feldman summarized the anti-deficiency statutes: “Read together, therefore, the statutes enact the following scheme: when the holder of a non-purchase money deed of trust of the type described in ARS Section 33-814(G) forecloses by non-judicial sale, the statute protects the borrower from a deficiency judgment. The lender therefore may not waive the security and sue on the Note.” Baker, 160 Ariz. at 106, 770 P.2d at 774. The holder may, however, seek to foreclose the deed of trust as if it were a mortgage, as allowed by Section 33-814(E); if it does so, the debtor is allowed redemption rights under Sections 33-726 and 12-1281 through 12-1289 and is thus protected from low credit bids, but the holder may recover a deficiency judgment – the difference between the balance of the debt and the sale price – unless the note is a purchase money obligation. In the latter case, the borrower is protected by the mortgage anti-deficiency statute ARS Section 33-729(a), which applies only to purchase money obligations. Id, at 127, 804 P.2d at 1315. (Emphasis added)

SUPPLEMENTAL OPINION: Summary and Application: “Where the creditor chooses non-judicial foreclosure, he cannot obtain a deficiency judgment if the collateral is within the class protected by the deed of trust anti-deficiency statutes. Where, however, the creditor chooses judicial foreclosure, he can obtain a deficiency judgment in all cases except those involving purchase money loans on the type of real property that the mortgage foreclosure statute describes. Therefore, where the creditor can obtain a deficiency judgment he can also elect to waive the security under ARS Section 33-722 and sue on the Note. By choosing judicial foreclosure, the creditor can obtain a deficiency judgment in all cases except those dealing with purchase money collateral on the residential property described in Section 33-729(a). He may, therefore, proceed under Section 33-722 in all cases that do not fall within Section 33-729(A)”


Multiple lenders with multiple notes: Junior lender can sue on Note after foreclosure by first lender unless property is purchase money, 2 ½ acres or less and utilized as a one or two family dwelling. Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 1101 (App. 1995); W.D. Lang v Corbet, 181 Ariz. 153 (888 P.2d 1340 (App. 1994) (junior could pursue sue on note and collect excess sale proceeds from sale of first lender).

Need Injunction before trustee’s sale is completed: ARS 33-811(c), otherwise waive all defenses and objections to TE sale not raised in an injunction issued by the last business day before the sale. Country Bank v. Highland and Properties West, LLC, CV 2010-00107 – Yavapai County case – not precedent. Joyce Luciano v. WMC Mortgage, 2010 WL 1491952, Ariz Ct App. (trustor failed to obtain injunction before sale completed – court refused to void sale). Bernt K. Lovenberg v. Deutsche Bank, 2011 WL 2236601 (Az Court of appeals – unpublished) (same result as Luciano). BT Capital, LLC v TD Services Company, 229 Ariz. 299, 275 P.3rd 598 (Ariz. 2012) (3 sales, first cancelled, second conducted but refused tendered bid b/c blew credit bid instructions, BT obtained injunction. Third sale conducted but BT failed to obtain another injunction. Third sale okay despite earlier injunction and lis pendens.) Madison V. Groseth, 1 CA-CV 11-0222, 6/5/12 (Trustor Waives Defenses and objections: ARS 33-811(c) if a trustor fails to enjoin a trustee’s sale; all objections to the sale are waived. Moreover the waiver statue does not require the trustee to comply with mailing requirements of 33-809).


Need Injunction before trustee’s sale is completed or waive potential damages: Zubia v. Shapiro, et al. . CV-16-0255-PR (Arizona Supreme Court, Filed January 12, 2018) The issue in this case is whether a homeowner’s failure to obtain injunctive relief under A.R.S. § 33-811(C) results in the waiver of her damages claim arising from a trustee’s sale, where the homeowner alleges that her name was forged on the promissory note and deed of trust. We hold that failing to obtain an injunction before the trustee’s sale results in the waiver of damage claims dependent on the validity of the sale.

Mid Kansas had both first and second deeds of trust. Lender took title after trustee’s sale of second deed of trust by bidding full debt. Absent contrary agreement by the parties or intent not to merge, the borrower’s liability under the first deed of trust is extinguished as a result of the merger of fee simple title with lender’s beneficial interest under the first deed of trust. Mid Kansas, supra, at 130, 804 P2d at 1318.

Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108 (2017)
Background: Borrower who defaulted on a balloon payment on a promissory note for a $28.6 million commercial loan filed action seeking a declaratory judgment that lender’s successor in interest was not entitled to recover late fee.
Holding: The court relied upon the Restatement (Second) of Contracts § 356 in holding that a five percent late fee on a balloon payment is an unenforceable liquidated damages provision. Restatement (Second) of Contracts § 356 states that parties do not have free rein in setting liquidated damages; because the central objective behind the system of contract remedies is compensatory, not punitive, parties cannot provide a penalty for a breach. Further, damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach. This case involved a note for $28.6 million which would result in a late fee of $1.4 million.

The principal of bifurcating actions pertaining to portions of loan monies is supported by Southwest Savings & Loan Ass’n v.Ludi, 122 Ariz. 226, 594 P.2d 92 (1979). The similarities yet significant differences between Ludi and Baker were noted by the Supreme Court of Arizona in Mid Kansas Federal Sav. & Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 129 fn 6, 804 P.2d 1310, 1317 (1991) (In Banc); accord Cely v.DeConcini, McDonald, Brammer, Yetwin & Lacy, P.C., 166 Ariz. 500, 505-06, 803 P.2d 911, 916-17 (App. Div. 1 1990). While in Ludi and Baker the two notes were secured by the same real estate, “the second note in Ludi was given to obtain a home improvement loan and therefore was ‘independent from’ the first note . . . .” Id. (citation omitted). According to the Mid Kansas Court, Ludi was not in conflict with Baker because the action on the second deed of trust that involved the home improvement loan was “non-purchase money obligation.” Id. (citation omitted). Cited in American National Bank vs. Vatistas, 2010 WL 3115419 (2010) (Ariz.App.Div.1) As cited in appellants opening brief.

Norwest Bank Arizona v. Superior Court, 963 P.2d 319 (AZCA, 1998) The right to receive rents is an appurtenance and an incident of ownership of real property. The right to rents was not excepted out of the property conveyed to Norwest in the trustee’s sale, and was conveyed along with the other usual incidents of property ownership by the trustee’s deed. Norwest need not pay rent to the receiver, nor to Praedium, and is entitled to the rents paid by the tenants occupying the property. Praedium is not entitled to a receivership to collect rents or manage the property.

Issue: two original purchase money loans on property – first lender completes trustee’s sale, thereby wiping out the second deed of trust. Later the original borrowers takes title to the same property: the issue arises under A.R.S. § 33-806(A), which states in part: An interest in the trust property acquired by the trustor subsequent to the execution of the trust deed shall inure to the trustee as security for the contract or contracts for which the trust property is conveyed as if the interest or claim had been acquired before execution of the trust deed.

See: Transamerica Financial Services, Inc. v. Carl Lafferty, 75 Ariz. 310, 856 P.2d 1188 (1993). This case dealt with two issues, the second of which is “Whether the beneficiary’s lien survived when the original debtor re-acquires the property and, if so, whether that lien acquired preference to other liens on the property.” The holder of the second lien, Transamerica, took the position that the re-acquisition of the property by the original debtor not only revived its lien, but also placed that lien in a superior position to the purchase money security interest of the new lender to the original debtor. The original debtor, Guerrero, argued that A.R.S. § 33-806(A) was intended to apply to situations in which a purchaser of property grants a deed of trust shortly before acquiring title to the property and was not intended to revive liens extinguished by a foreclosure sale. While the court agreed that this may have been the original intent, it stated, “. . . the literal terms of the statute are not so restrictive. The Guerreros, as trustors under Transamerica’s 1987 deed of trust, bought the property from Lafferty after the trustee’s sale. Thus, they acquired an interest in the property subsequent to the execution of the 1987 trust deed. Pursuant to this statute, that interest ‘inured[d] to the trustee as security for the contract.’” The court then reviewed other cases from other jurisdictions, including the case of Jensen v. Duke, 71 Cal.App. 210, 234 P. 876 (1925), and concluded that “[P]laintiff’s case is within the purview of the statute; and to hold otherwise would involve a strained construction, where every consideration of justice forbids that the mortgagor should hold his title obtained from Abbott free of plaintiff’s mortgage lien.” The court examined Transamerica’s position that in addition to the revival of its lien, its lien had priority over the purchase money liens acquired in the sale of the property to the Guerreros. Transamerica’s theory was that the instant the Guerreros obtained title to the property from Lafferty, its lien re-attached and, therefore, the Guerreros, giving a lien to Lafferty occurred after they acquired title and thus, the property was subject to Transamerica’s lien. The court of appeals disagreed, stating, “The common law rule applicable to purchase money mortgages is equally applicable to Lafferty’s purchase money deeds of trust. That rule is: [A] mortgage on land executed by the purchaser of the land contemporaneously with the acquirement of the legal title thereto, or afterwards, but as a part of the same transaction, is a purchase money mortgage, and entitled to preference as such over all other claims or liens arising through the mortgagor, though they are prior in point of time; and this is true without reference to whether the mortgage was executed to the vendor or to a third person. (as authored by Thomas A. Stoops)

Fidelity National Title Ins. Co. v. CenterPoint Mechanic’s Lien Claims, LLC, 238 Ariz. 135, 357 P.2d 170 (Ct. App. 2015), as amended (Dec. 30, 2016), review denied (Sept. 12, 2017)
Background: Mechanics’ lien claimants brought foreclosure action claiming priority over insureds’ deed of trust for development project, which insureds later purchased. As part of a global settlement and sale of the development, insureds formed a wholly owned and controlled entity that purchased the lien claims and settled with insureds over objection of title insurer, which had accepted the defense of mechanics’ lien claims but reserved its right to contest coverage.

Holding: Arizona Supreme Court upheld the Court of Appeals opinion that the title insurance company’s insured may enter into Morris Agreements with adverse claimants. “Under a typical Morris agreement, the insured agrees to allow judgement to be entered against it in exchange for a covenant not to execute, and assigns its rights under the policy to the claimant, who then pursues the insurer. “ Morris agreements must involve adverse parties.
The circumstances in this case are in stark contrast to those in cases in which Morris agreements have been upheld, where such agreements resolve outstanding adverse claims by third-party claimants who accept an assignment of the insured’s claims against the insurer and/or partial payment for stipulated liability. In those cases, the Morris-type agreement with third-party claimants operated to protect the insured against the “sharp thrust of personal liability.” In contrast, here, the agreement at issue was not a protection against potential liability; that liability had already been resolved through a settlement with the lien claimants. Settlement of mechanics’ lien claims between insureds, as owners of a deed of trust, and insureds’ wholly owned entity that had purchased lien claims from claimants was not an enforceable Morris agreement, in which an insured would agree to judgment against it and to assign its rights under insurance policy to the claimant in exchange for a covenant not to execute against insured, and therefore title insurer was only potentially liable for the amount that entity had purchased lien claims; interests of insureds and entity were aligned, not divergent, and insureds were not at risk of excess liability under policy, reflected in an artificially inflated judgment against insureds.

Andra R Miller Designs LLC v. US Bank NA, 1 CA-CV 16-0723, 2/13/18. A creditor may revoke its acceleration of debt by including an acceleration- revocation clause in a notice of cancellation of trustee’s sale. The statute of limitations for collecting on a debt arising out of a written contract is six years. When a creditor accelerates a debt, the six-year limitations period begins to run upon acceleration. The creditor may revoke the acceleration (and thus stop the statute of limitations from running) by taking an affirmative act and providing notice sufficient to make clear to the debtor that the creditor has withdrawn the acceleration. Recording a notice of cancellation of a trustee’s sale qualifies as an affirmative act and notice of revocation if the notice contains a statement that the acceleration of the debt has been withdrawn.

DEFICIENCY & ANTI-DEFICIENCY ISSUES, INCLUDING VA

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

Mortgage Deficiency Article : Larry Folks
An Armistice in the Fight for Anti-Deficiency by Bradley Pack & Scott Cohen

If the loan document is a mortgage, the next few questions are about the property.


Did you borrow the money to buy the property? Is it a dwelling? Is it on 2 ½ acres or less? Is the property used as a one or two family dwelling? If the answer is “yes” to all 4 questions – then A.R.S. Section 33-729(a) prohibits the lender in seeking a deficiency once they complete their judicial foreclosure of the real property. PNL Credit LP v Southwest Pacific, 179 Ariz. 259, 877 P.2d 832 (App. 1994) (anti-deficiency does not apply to more than two single family units). Mid Kansas Fed. Sav. & Loan v Dynamic Dev. Corp, , 163 Ariz. 233, 787 P.2d 132 (App. 1989) vacated, 167 Ariz. 122, 804 P.2d 1310 (1991) & Northern Arizona Properties vs Pinetop Properties, 151 Ariz 9, 725 P.2nd 501 (App. 1986) (can be investment property, no owner need to occupy. – BUT SEE NOTE BELOW). Independent Mortgage Company vs Alaburda and Warner, 1 CA-CV 11-0301 (Ct. App., 7/17/12) ( 1/10 fractional interest in Sedona condo still a dwelling even if short term occupancy and does not matter how many families live there at a time. Cely v. Deconcini, 166 Ariz. 500, 803 P.2d 911 (App. 1990) (using one home as collateral for purchase of second home is not purchase money debt).


NOTE: As of December 31, 2014 ARS 33-814 changed this result.  Investors and partially completed property is no longer protected by the Arizona Anti-Deficiency Flow Chart (124 downloads) statute.


Bank One v Beauvais, 188 Ariz. 245, 934 (P2.d 809 (App. 1997) (consolidated loan including purchase money debt ($240,000) and non-purchase money ($75,000) still retains purchase money protection. Later workout note retains character of purchase money for the purpose of anti-deficiency. Note: the original and workout loans were with same lender and it appears that the original loan was modified, not released.). “In summary, we hold that regardless of whether the workout note was an extension, renewal, or refinancing of the 1989 consolidated loan, it retained its character as a purchase-money note. See Lucky Invs., Inc. v. Adams, 183 Cal.App.2d 462, 7 Cal. Rptr. 57 (1960) (Cancellation and replacement with new notes, secured by the same property, transfers purchase-money status to new notes.). Accordingly, the Bank is prohibited from waiving the security under the deed of trust and suing on the note. We affirm the trial court’s dismissal of the Bank’s complaint”, at 816.


This is just a sampling of cases, others may change the outcome of any questions.  MAKE SURE TO DO YOUR OWN RESEARCH.

Resolution Trust Corp. v. Segel, 173 Ariz. 42, 839 P.2d 462 (App.1992), we examined the impact of the Baker holding on non-purchase-money loans that were secured by second-position deeds of trust on residential property of less than two and one-half acres with a one- or two-family residence. In Segel, the court held that because the lender did not institute trustee’s sale proceedings and the deeds of trust secured non-purchase-money obligations, the lender was entitled to waive its security and sue directly on the notes under A.R.S. section 33-722. Id. at 44-45, 839 P.2d at 464-65.


Suit on the note: Following a judicial foreclosure by a senior lienholder, a junior lienholder can sue on Note (unless property is anti-deficiency in character) A.R.S. 33-722 Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 101 (App. 1995). Lender may waive its security in the real property and sue on the note. Darnell v. Denton, 137 Ariz. 204, 669 P.2d 81 (App. 1990). Also, foreclosure of a senior lien extinguishes the junior lien, therefore no need to “release” the junior lien. Wells Fargo, supra. Lender may not sue on the Note so long as the property fits within the anti-deficiency statutes (dwelling, 2 ½ acres or less, one or two family dwelling – ARS Section 33-814) Baker v. Gardner, 160 Ariz. At 105, 770 P.2d at 773 (1988) (first and second purchase money debts). First lender noticed trustee’s sale and second (Bakers) elected to sue on Promissory Note). Clarification in a supplemental opinion that the court did NOT mean to prohibit the non-PMSI creditor from waiving the security and suing on the note.


Suit on Promissory Note or “Show me the Note”: A lender may waive their lien on real property and sue on the Promissory Note. That waiver is an “abandonment and release” of the lien and must be “evidenced by a recorded release of the lien”. ARS Section12-1566(F) All limitations of Baker v Gardner and Mid Kansas apply. But see: Smith v. Mangels, 240 P.2d 168 (1985) and Deming v. Walraven, 651 P.2d 1203 (App. 1982) (Mortgage not waived by going to judgment on the Note)


Lender accepts less than what is owed on residential property, releases deed of trust, then sues borrower for deficiency. TANQUE VERDE ANESTHESIOLOGISTS, L.T.D. PROFIT SHARING PLAN, 836 P.2d 1021, 172 Ariz. 311 (App. 1992) “Although no trustee’s sale occurred in this case, we agree with Proffer (borrower) that, based on the holdings of Baker, supra, and Mid Kansas, supra, and absent evidence of an agreement to the contrary (emphasis added), when Tanque Verde (lender) signed the deed of release and reconveyance, it thereby waived its right to seek a deficiency judgment.” ((The assuming lender (Tanque Verde) signed the deed of release and included in the release language that the borrower is not released on the underlying debt. The borrower (Proffer) did not sign the deed of release. Nor, was there any other signed agreement where the borrower acknowledged that the debt was not released. Correct conclusion. This outcome will be different for short sales because there is almost always a new contract which details the agreement between the seller and the lender. That short sale contract is signed by the seller/borrower, therefore will be binding on the seller/borrower.

In re Boardwalk holds that late charges and interest must be reasonable and bankruptcy judge can reduce; any authority for once 13 filed, that no default or late fees on post-petition payments can accrue.

Vasquez v Saxon Mortgage, Deutsch Bank, AZ Supreme Ct, No. CV-11-0091-CQ (11/2011) certified question from Bankruptcy Court No. 4:08-bk-15510-EWH Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. § 33-808 when the assignee holds a promissory note payable to bearer? The answer is no; Arizona law imposes no such requirement.


“Show Me The Note” Hogan v Long Beach Mortgage CoCV 11-0115-PR (covers to trustee sales by Deutsche Bank and Washington Mutual) “show me the note” – Supreme Court accepted cert, argued 1/23/2012; We granted review to decide whether a trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

Non-judicial foreclosure sales are meant to operate quickly and efficiently, “outside of the judicial process.” Vasquez, 228 Ariz. at 359 ¶ 4 n.1, 266 P.3d at 1055 n.1 (citing Gary E. Lawyer, Note, The Deed of Trust: Arizona’s Alternative to the Real Property Mortgage, 15 Ariz. L. Rev. 194, 194 (1973)). The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the “mortgage foreclosure process . . . time-consuming and expensive,” id. (internal quotation marks omitted), and re-inject litigation, with its attendant cost and delay, into the process, see Transamerica Fin. Servs., 175 Ariz. at 313-14, 856 P.2d at 1191-92 (citing I.E. Assocs. v. Safeco Title Ins. Co., 702 P.2d 596 Cal. 1985)).

III. CONCLUSION For the reasons set forth above, the superior court’s orders dismissing Hogan’s complaints are affirmed and, although we agree with the result reached by the court of appeals, its opinion is vacated.

ISSUE ADDRESSED BY THE COURT OF APPEALS: Can a lender foreclose its deed of trust without owning the note which the deed of trust secures? Answer – yes. ISSUE NOT ADDRESSED BY THE COURT OF APPEALS: What is the legal effect of an assignment of a deed of trust without the corresponding note?


Lender conducts trustee’s sale but may not have promissory noteHogan vs Washington Mutual, CA-CV 10-0385 (Div 1, AZ Court of Appeals, filed 3/29/11) “We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.” Therefore, the trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. App Ct affirms lower court. Deed of trust is a creature of statute and not a negotiable instrument. Therefore, UCC does not apply. Lender can conduct trustee’s sale without the promissory note. Zadrozny v. Bank of New York Mellon, No. 11-16597 Dismissal of a complaint in which plaintiffs alleged that defendants improperly initiated non-judicial foreclosure proceedings after plaintiffs failed to comply with the mortgage obligations financing their residence, is affirmed, where: 1) Arizona courts have rejected plaintiffs’ claim that non-judicial foreclosures require production of the promissory note prior to a sale, their claim that successor trustees are unauthorized to initiate foreclosure proceedings, or that non-judicial foreclosure sales must comport with the Uniform Commercial Code; and 2) plaintiffs failed to provide any legal authority for their constitutional challenge to A.R.S. section 33-811(b); and 3) plaintiffs waived any challenge to the district court’s dismissal of their fraud and misrepresentation claims as untimely.

Helvetica Servicing Inc. v. Pasquan  Arizona Supreme Court, 8/25/20 (the 5th appeal). To resolve the fact question of whether a residential purchase money loan is a construction loan or a home improvement loan, the Arizona Supreme Court held that a trial court must consider the totality of the circumstances surrounding the loan. Here, the Court identified five non-exclusive factors indicating whether a loan is a construction loan for purposes of anti-deficiency protection under A.R.S. § 33-729(A): (1) whether there was a complete or substantially complete demolition of an existing structure and a new building constructed in its place; (2) the intent of the parties when executing the loan documents; (3) whether the structure was inhabitable or inhabited during construction; (4) whether the structure was largely preserved and improved or substantially expanded; and (5) whether the project is characterized as “home improvement” or “construction” in the loan documents and in the permits or other official documents. The distinction between the loans is significant because statutory anti-deficiency protection is afforded to construction loans but not to home improvement loans – so lenders may not seek a money judgment against the borrower over a construction loan. 


Baker v. Gardner Ariz.,1988. 770 P.2d 766 Holder of purchase money note and trust deed on premises sought to bring suit to collect on note and waived security deed of trust. The Superior Court, Maricopa County, No. C-587681, Michael J. O’Melia, J., found action precluded by anti-deficiency statute. On appeal, the Court of Appeals reversed in a memorandum decision. The Supreme Court, Feldman, V.C.J., held that: (1) holders of purchase money note and security device could not hold maker liable for entire unpaid balance by waiving security, and (2) election of remedies could occur except where anti-deficiency statute applied.


Cely v. DeConcini, McDonald, Brammer, Yetwin & Lacy, P.C., 166 Ariz. 500, 505, 803 P.2d 911, 916 (App.1990). A “purchase money mortgage” for purposes of Arizona’s anti-deficiency statutes is one that encumbers the property being sold.


Junior wiped out by senior’s foreclosure or trustee’s sale – NO DEFICIENCY if also purchase money lien Nydam v. Crawford, 181 Ariz. 101, 887 P.2d 631 (App. 1994). DEFICIENCY – consolidated second loan, used to pay off original second, plus credit cards, etc. Am. Gen. Fin.Serv. V. Dinwiddie, 2008 WL 4182862 (Ariz. Ct. Apps. 2/26/2008) (unreported)


Multiple lenders with multiple notes: Junior lender can sue on Note after foreclosure by first lender unless property is purchase money, 2 ½ acres or less and utilized as a one or two family dwelling. Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 1101 (App. 1995); W.D. Lang v Corbet, 181 Ariz. 153 (888 P.2d 1340 (App. 1994) (junior could pursue sue on note and collect excess sale proceeds from sale of first lender).

Property not yet fully constructed does not qualify as “limited to and utilized for one or two family dwelling” DEFICIENCY allowed.: Mid Kansas, id at 129, 804 P2d at 117.


M&I vs Mueller, (Az Ct Appeals, Div 1, 12/27/11) 1 CA-CV 10-0804 CV 2009-031468 This case is distinguishable from Mid Kansas. Although the Muellers never actually occupied the dwelling, they intended to personally occupy it upon its completion.  Therefore, we affirm the lower court summary judgment for the homeowners and rejecting M&I’s claim for a deficiency claim.  OVERTURNED by AZ Supreme Court 1-23-15 in BMO Harris Bank N.A. v. Wildwood Creek Ranch.


BMO Harris Bank N.A. v. Wildwood Creek Ranch, No. CV-14-0101-PR (AZ Sup. Ct. 1/23/2015 – vacated Court of Appeals decision) Finding: 1) there must be a completed structure on the property suitable for dwelling purposes and, 2) even the homeowner who has not yet moved into the completed residence would be entitled to anti-deficiency protection. “Mueller’s emphasis on intent arguably would extend anti-deficiency protection to owners of a vacant lot so long as they intend to build and eventually live in a residence.” ‘Our holding in Mid Kansas clarified, for purposes of the anti-deficiency statute, both what constitutes a dwelling” and when property is “utilized for” a dwelling.   A structure is a “dwelling” if it is suitable for residential purposes and a person resides in the structure, or the structure is intended for such use. Id. at 128, 804 P.2d at 1316. Thus, a property contains a “dwelling” for purposes of the anti-deficiency statute when a borrower has purchased but not yet occupied a home, given that the structure is suitable and intended for human abode.”

Helvetica Servicing Inc. v. Pasquan  Arizona Supreme Court, 8/25/20 (the 5th appeal). To resolve the fact question of whether a residential purchase money loan is a construction loan or a home improvement loan, the Arizona Supreme Court held that a trial court must consider the totality of the circumstances surrounding the loan. Here, the Court identified five non-exclusive factors indicating whether a loan is a construction loan for purposes of anti-deficiency protection under A.R.S. § 33-729(A): (1) whether there was a complete or substantially complete demolition of an existing structure and a new building constructed in its place; (2) the intent of the parties when executing the loan documents; (3) whether the structure was inhabitable or inhabited during construction; (4) whether the structure was largely preserved and improved or substantially expanded; and (5) whether the project is characterized as “home improvement” or “construction” in the loan documents and in the permits or other official documents. The distinction between the loans is significant because statutory anti-deficiency protection is afforded to construction loans but not to home improvement loans – so lenders may not seek a money judgment against the borrower over a construction loan.

Helvetica Servicing, Inc. v. Pasquan – No. 1 CA-CV 17-0699 (AZ Div 1, 8-15-19) Helvetica Servicing, Inc. (“Helvetica”) appeals the deficiency judgment the superior court entered in its favor against Michael S. Pasquan (“Pasquan”). Helvetica argues the court erred in deciding that most of the debt remaining after a judicial foreclosure was a construction loan entitled to anti-deficiency protection under Arizona Revised Statutes (“A.R.S.”) section 33-729(A). Its appeal raises issues that demand clarification by the legislature.

We held in Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 501, ¶ 32 (App. 2012) (hereinafter Helvetica I), that the anti-deficiency protections of A.R.S. § 33-729(A) apply to a loan “used to construct a residence” if a dwelling meets the size and use requirements of the statute and the deed of trust secures both the land and the dwelling. We also recognized that “[i]n some cases, it will be a question of fact whether a particular transaction is a construction loan or some different type of obligation—e.g., a home improvement loan.” Id. at 499 n.6, ¶ 25. Here, the evidence in the record shows that, aside from the $600,000 original purchase money loan that was later refinanced as part of a loan from Helvetica, Pasquan used the bulk of the loan proceeds for the purpose of home improvement, not home construction. Therefore, the anti-deficiency protections of A.R.S. § 33-729(A) do not extend to the funds Pasquan borrowed beyond the refinancing of the original purchase money obligation. Accordingly, we vacate the judgment and remand for further proceedings.

Helvetica Servicing, Inc. v. Pasquan, No. 1 CA–CV 10–0418. (Az Div 1, March 20, 2012). (judicial foreclosure) “We hold that refinancing a purchase money loan does not destroy purchase money status and forfeit anti-deficiency protection to the extent proceeds from the refinancing transaction are disbursed in satisfaction of the underlying purchase money obligation. We further hold that loan proceeds used to construct a qualifying residence merit anti-deficiency protection under certain circumstances. However, sums disbursed in a loan transaction for non-purchase money purposes may be traced, segregated, and recovered in a deficiency action.”

Bank One v Beauvais, 188 Ariz. 245, 934 (P2.d 809 (App. 1997) (consolidated loan including purchase money debt ($240,000) and non-purchase money ($75,000) still retains purchase money protection. Later workout note retains character of purchase money for the purpose of anti-deficiency. Note: the original and workout loans were with same lender and it appears that the original loan was modified, not released.). “In summary, we hold that regardless of whether the workout note was an extension, renewal, or refinancing of the 1989 consolidated loan, it retained its character as a purchase-money note. See Lucky Invs., Inc. v. Adams, 183 Cal.App.2d 462, 7 Cal. Rptr. 57 (1960) (Cancellation and replacement with new notes, secured by the same property, transfers purchase-money status to new notes.). Accordingly, the Bank is prohibited from waiving the security under the deed of trust and suing on the note. We affirm the trial court’s dismissal of the Bank’s complaint”, at 816.


The Court held that, [A]s the Supreme Court observed decades ago, ‘[w]ith purchase money deeds, [sic] the character of the transaction must necessarily be determined at the time the trust deed is executed. Its nature is then fixed for all time and as so fixed no deficiency judgment may be obtained regardless of whether the security later becomes valueless.” [emphasis added]. Palm v. Shilling, 199 Cal.App.3d 63, 244 Cal.Rptr.600 (1988). citing Goodyear v. Mack, 159 Cal.App.3d 654, 657, 205 Cal.Rptr 702 (1984), “[t]he purchase money character of the original note was not defeated by subsequent transactions involving the property until the purchase money deed of trust was reconveyed.” [emphasis added].

Helvetica Servicing, Inc. v. Gold, No. 1 CA-CV 11-0100 deals with redemption rights after judicial foreclosure. One defendant requested fair market value determination which exceeded the price Helvetica bid at the sheriff’s sale. Thus protecting both borrowers from a deficiency claim. Court would not allow the other defendant to get the protection of the fair market value AND be able to redeem the property. “We hold that ARS 12-1566(c) operates to eliminate all rights of redemption when any debtor applies for an FMV determination.”

VA Loans: DEFICIENCY allowed. Connelly v.J Dervinski, 961 F.2d 129 (9th Cir, 1991) Once again we are asked to determine, once again, whether a state anti-deficiency scheme is preempted by Department of Veteran Affairs (VA) regulations that authorize the VA to collect deficiencies on VA-guaranteed home loans. This case involves Oregon law, which forbids a deficiency judgment after either a judicial or a non-judicial foreclosure sale. See Or.Rev.Stat. § 86.770(2). Same result in Shepherd v. Dervinski, 961 F.2d 132 (9th Cir, 1992) (an Arizona case) also see In United States v. Rossi, 342 F.2d 505 (9th Cir.1965), we held that a California anti-deficiency law, which in all material respects is identical to Oregon law, is preempted by the VA regulations. Id. at 506. Subsequently, in Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir.1990), we held that a Washington anti-deficiency law, which permits a deficiency judgment after a judicial, but not a non-judicial sale, is not preempted by the VA regulations. Id. at 1369. In Whitehead, we distinguished the Washington anti-deficiency law from the California anti-deficiency law. Id. at 1368. Because the Oregon anti-deficiency law is materially different from the Washington anti-deficiency law, but identical to the California anti-deficiency law, we hold that this case is controlled by Rossi and that the Oregon law is preempted by the VA regulations.

It is evident that a state’s anti-deficiency statute is irrelevant to VA-guaranteed home loans. This is consistent with the basic principle that federal law governs the rights of private citizens who contract in loans transactions with the United States. United States v. Kimbell Foods, Inc., 440 U.S. 715, 727, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). There is nothing to suggest that this principle and the analysis undertaken in Carter would not also apply to other federal loan programs. See United States v. Einum, 821 F.Supp. 1283, 1284 (W.D.Wis.1992) (FmHA loans).

U.S. v. Rezzonico, 32 F. Supp. 1112 (D.Ct. Ariz. 1998) that sheds a little more light on the issue. In that case the FmHA guaranteed the loan, and the court follows Carter v Derwinski, 987 F.2d 611 (9th Cir.), a case in which the court held that “the VA always has a right of indemnity against the veteran for the amount of guarantee paid to the lender….[t]he VA’s right to indemnity derives from a contract independent of the mortgage. As indemnitor the veteran is in the same position as the guarantor….” Rezzonico, at 1115 (quoting Carter, 987 F.2d at 616-7). The Rezzonico court applied the same reasoning to the FhMA as the line of cases finding no preemption with respect to the VA.
Throw Cippolline, Medtronic, and the Chevron two part defenses into the mix and you have a first class briefing nightmare on any preemption issue. Predicting the outcome in these cases is anybody’s guess.


Servicemembers Civil Relief Act (SCRA) (this may be out of date – check the current law)
Section 303 – Mortgages and trust deeds

(a) MORTGAGE AS SECURITY- This section applies only to an obligation on real or personal property owned by a servicemember that–
(1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and
(2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.

(b) STAY OF PROCEEDINGS AND ADJUSTMENT OF OBLIGATION- In an action filed during, or within 90 days after, a servicemember’s period of military service to enforce an obligation described in subsection (a), the court may after a hearing and on its own motion and shall upon application by a servicemember when the servicemember’s ability to comply with the obligation is materially affected by military service–
(1) stay the proceedings for a period of time as justice and equity require, or
(2) adjust the obligation to preserve the interests of all parties.

(c) SALE OR FORECLOSURE- A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within 90 days after, the period of the servicemember’s military service except–
(1) upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or
(2) if made pursuant to an agreement as provided in section 107.

(d) PENALTIES-
(1) MISDEMEANOR- A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
(2) PRESERVATION OF OTHER REMEDIES- The remedies and rights provided under this section are in addition to and do not preclude any remedy for wrongful conversion otherwise available under law to the person claiming relief under this section, including consequential and punitive damages.

CSA 13-101 Loop, LLC vs Loop 101, 1 CA-CV 12-0167 (9/10/13 AZ Court of Appeals Div 1) “This case requires this Court to decide, among other questions, whether a borrower or guarantor can contractually waive its right to a determination of fair market value in a deficiency action (after a foreclosure – explanation added). Because we agree with the trial court that this right cannot be waived, and reject the other claims raised on appeal, we affirm the trial court’s granting of summary judgment.” Good decision for the borrower and/or guarantor.

Miller Designs v. US Bank et al CA-CV 16-0723 (Arizona Court of Appeals, Div. One, 2/13/18)  Issues: 1. Whether real property acquired in a sheriff’s sale entitles the owner to raise a statute of limitations defense. 2. Whether a creditor may revoke its acceleration of a debt unilaterally. 3. Whether recording a cancellation of a trust sale constitutes sufficient notice of a creditor’s withdrawal of the debt’s acceleration.  Held: that a purchaser of real property acquired at an execution sale has standing to assert a statute of limitations defense, and no additional contractual privity is needed. In addition, a creditor may unilaterally revoke its acceleration of debt, which requires an affirmative act by the creditor that is communicated to the debtor. Recording the notice of cancellation of trustee’s sale with language revoking the acceleration constitutes sufficient notice that the creditor has revoked the debt’s acceleration.  Remanded for further proceedings consistent with this opinion.

The plaintiff sold property and received a note and deed of trust from the original buyer. When the original buyer then sold the property to the defendants, the plaintiff surrendered the original note and reconveyed the original deed of trust to the original buyer, and at the same time received from the defendants a new note and deed of trust. Id. The court held that despite the creation of a “new note and trust deed,” the defendants were protected by the antideficiency statute because the new note and trust deed replaced the original purchase-money note and deed of trust between the plaintiff and the original buyer. Jackson v. Taylor, 272 Cal. App. 2d 1, 3 (Cal. Ct. App. 1969). Id. at 5.


Attorney Notes: please note that (1) both loans with same lender. This result will most likely not be the same had there been a new lender involved. Second, lender did not bifurcate their claim to request deficiency on the non-purchase money portion of the debt. If they had, may have been a different decision. Lastly, this case is 20 years old and does not reflect the type of refinanced loans made in the last few years.

Anti-deficiency protection does not apply to waste of the property. “failure to exercise ordinary care to preserve and protect the property.” A.R.S. Section 729(B) and 333 West Thomas Medical Building v Soetantyo, 976 F. Supp. 1298 (D. Ariz. 1997).

See ARS 33-714 (enacted after De Anza). The relevant part of De Anza is the part of its holding that the SOL does not extinguish the debt, it merely bars an action on the debt or to foreclose. De Anza Land & Leisure Corp. v. Raineri, 137 Ariz. 262, 266, 669 P.2d 1339, 1343 (App. 1983) (“In the case at bar, however, the debt is not extinguished; rather, the remedy for an action on the debt is merely barred.”)

One lender – multiple notesMid Kansas Fed. Sav. & Loan vs Dynamic Dev. Corp, 167 Ariz. 122, 804 P.2d 1310 (1991): Vice Chief Justice Feldman summarized the anti-deficiency statutes: “Read together, therefore, the statutes enact the following scheme: when the holder of a non-purchase money deed of trust of the type described in ARS Section 33-814(G) forecloses by non-judicial sale, the statute protects the borrower from a deficiency judgment. The lender therefore may not waive the security and sue on the Note.” Baker, 160 Ariz. at 106, 770 P.2d at 774. The holder may, however, seek to foreclose the deed of trust as if it were a mortgage, as allowed by Section 33-814(E); if it does so, the debtor is allowed redemption rights under Sections 33-726 and 12-1281 through 12-1289 and is thus protected from low credit bids, but the holder may recover a deficiency judgment – the difference between the balance of the debt and the sale price – unless the note is a purchase money obligation. In the latter case, the borrower is protected by the mortgage anti-deficiency statute ARS Section 33-729(a), which applies only to purchase money obligations. Id, at 127, 804 P.2d at 1315. (Emphasis added)

SUPPLEMENTAL OPINION: Summary and Application: “Where the creditor chooses non-judicial foreclosure, he cannot obtain a deficiency judgment if the collateral is within the class protected by the deed of trust anti-deficiency statutes. Where, however, the creditor chooses judicial foreclosure, he can obtain a deficiency judgment in all cases except those involving purchase money loans on the type of real property that the mortgage foreclosure statute describes. Therefore, where the creditor can obtain a deficiency judgment he can also elect to waive the security under ARS Section 33-722 and sue on the Note. By choosing judicial foreclosure, the creditor can obtain a deficiency judgment in all cases except those dealing with purchase money collateral on the residential property described in Section 33-729(a). He may, therefore, proceed under Section 33-722 in all cases that do not fall within Section 33-729(A)”


Multiple lenders with multiple notes: Junior lender can sue on Note after foreclosure by first lender unless property is purchase money, 2 ½ acres or less and utilized as a one or two family dwelling. Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 1101 (App. 1995); W.D. Lang v Corbet, 181 Ariz. 153 (888 P.2d 1340 (App. 1994) (junior could pursue sue on note and collect excess sale proceeds from sale of first lender).


The following is from Larry’s Folks article Arizona Mortgage Deficiency Law, 2017.  If a mortgage lender holds a non-purchase money promissory note and junior deed of trust lien upon a Qualified Property and a senior lien holder completes a Trustee’s Sale of the property to extinguish the mortgage lender’s junior lien, then the mortgage lender can sue the borrower and/or guarantor upon the remaining unsecured promissory note and/or guaranty for a deficiency. This exception applies even if the same mortgage lender holds both the senior promissory note and deed of trust lien foreclosed upon and the junior promissory note and/or guaranty and deed of trust lien extinguished by the senior lien Trustee’s Sale.[2]  

[2] This has been the rule of law for many years. On December 8, 2016, however, the Arizona Court of Appeals held the opposite in an unpublished memorandum decision (which provides that it is not precedential). See Northern Trust, NA v. Wareing, 2016 WL 7156439 (App. 2016). In that case, a mortgage lender that conducted a non-judicial trustee’s sale of a purchase money loan first-priority deed of trust secured by a property located on 2.5 acres and utilized by the borrowers as a single-family residence was barred by the trustee’s sale “anti-deficiency” statute A.R.S. § 33-814(G) from bringing either a deficiency action or suing directly on the lender’s remaining unsecured non-purchase money home equity line of credit note that had been secured by a second-priority deed of trust lien on the residence prior to the trustee’s sale foreclosure. The Court did indicate that the mortgage lender could have elected to judicially foreclose both of its mortgage liens to obtain a deficiency judgment based on the junior non-purchase money home equity line of credit. This will likely be an evolving area of Arizona foreclosure law.

Determining Deficiency: (1) Foreclosure action – difference between debt and amount obtained at sheriff’s sale or fair market value at the time of the foreclosure. ARS Sections 33-725(B), 727(B), 814(C) and 12-1566(B). (2) Trustee’s sale – same as foreclosure. Market value determined by the court (expedited hearing process) must be brought within 90 days of trustee’s sale. 33-814(A). This 90 statute of limitations does not apply to a lender who has the right to ue on the Note because this suit is not a deficiency action. Wells Fargo v. Tolliver, supra.


ZB, N.A. vs Hoeller and Ghafari, CV2014-054267, CV-CA16-0071, (Az Ct of Appeals, Div One, filed 4-25-17) This appeal is from a deficiency action that lender ZB,  N.A. brought against Hoeller and Ghafari (“Borrowers”) on a loan used to finance the purchase of commercial real estate in Missouri,  secured by a deed of trust on the property.

Borrowers moved for summary judgment, arguing that because the promissory note included  a  Utah choice-of-law provision, the  action  was  time-barred by Utah’s 90-day statute of limitations.  The trial court denied the motion, finding that the deed of trust’s Missouri choice-of-law provision  applied and that the lawsuit was timely  under Missouri’s five-year  statute  of limitations. ZB subsequently moved for summary judgment on the merits, and the trial court granted the motion.

Holding: the promissory note’s choice-of-law provision—not the deed of trust’s—applies to the deficiency action because deficiency actions stem from the underlying debt. We further conclude that the deed of trust is effectively extinguished after the security property is sold at a trustee’s sale and  therefore provides no remedies to the lender beyond the trustee’s sale. Accordingly, we reverse and remand for entry of judgment in Borrowers’ favor.


Suit for deficiency after trustee sale: Deficiency action is substantive, therefore covered by the law in the debt (the Note), whereas a trustee’s sale is procedural and governed by the law where the land is located. Cardon v. Cotton Lane Holdings, Inc., 841 P. 2d 198 – Ariz: Supreme Court 1992 Cotton Lane takes the position that because a trustee’s sale held in Arizona is conducted in accordance with the procedures mandated by Arizona statute, the pursuit of a deficiency judgment after a trustee’s sale is also a procedural matter governed by Arizona law. Once Arizona foreclosure procedure is invoked for a trustee’s sale, “all aspects of the foreclosure provided for in the statutes should be applied,” including the right to pursue a deficiency judgment. We disagree.

Cotton Lane is correct that the trustee’s sale itself is a procedural matter and is governed by the law of the situs. See Restatement § 229; California Fed. Sav. & Loan Ass’n v. Bell, 6 Haw. App. 597, 735 P.2d 499, 504 (1987)Gate City Fed. Sav. & Loan Ass’n v. O’Connor, 410 N.W.2d 448, 450 (Minn.App. 1987). The situs in this case is Arizona, and the trustee’s sale was conducted correctly in accordance with Arizona law. A deficiency judgment, on the other hand, is a matter of substantive law. Greater Ariz. Sav. & Loan Ass’n v. Gleeson, 5 Ariz. App. 577, 582, 429 P.2d 464, 469 (1967) (Hardy, J., dissenting in part), citing Kresos v. White, 47 Ariz. 175, 54 P.2d 800 (1936); Citibank v. Errico, 251 N.J. Super. 236, 597 A.2d 1091, 1094 (1991)Gate City, 410 N.W.2d at 450see also Catchpole v. Narramore, 102 Ariz. 248, 250, 428 P.2d 105, 107 (1967) (California anti-deficiency statute is substantive). As a substantive matter, a deficiency action is governed by Arizona choice of law rules, and in Schwartz v. Schwartz, 103 Ariz. 562, 565, 447 P.2d 254, 257 (1968), this court expressly adopted the Restatement (Second) of Conflict of Laws as our guide in resolving choice of law questions. See also Estate of Levine, 145 Ariz. 185, 189, 700 P.2d 883, 887 (App. 1985) (Arizona courts follow Restatement to determine choice of law questions in contract actions), citing Burr v. Renewal Guaranty Corp., 105 Ariz. 549, 468 P.2d 576 (1970); Herma Hill Kay, Theory into Practice: Choice of Law in the Courts, 34 Mercer L.Rev. 521, 556 & n. 223 (1983) (as of 1983, Arizona one of 14 states relying on Restatement in choice of law cases). The Restatement states that a deficiency action is governed by the law applicable to the underlying debt (i.e., the Note), not the law of the situs. Restatement § 229 comment e; see also Catchpole, 102 Ariz. at 251, 428 P.2d at 108Consolidated Capital Income Trust v. Khaloghli, 183 Cal. App.3d 107, 111-12, 227 Cal. Rptr. 879, 882 (1986)First Commerce Realty Investors v. K-F Land Co., 617 S.W.2d 806, 809 (Tex.Civ.App. 1981)Cf. Mid Kansas Fed. Sav. & Loan Ass’n v. Dynamic Dev. Corp., 167 Ariz. 122, 129, 804 P.2d 1310, 1317 (1991) (if deed of trust holder purchases property at trustee’s sale, its interest in deed of trust merges in the fee and deed of trust no longer exists). Therefore, Cotton Lane’s deficiency action is governed by the law applicable to the Note.


MORGAN AZ FINANCIAL vs GOTSES, No. 1 CA-CV 13-0046 (AZ Ct Appeals, Div. 1 5-13-14)  This is a deficiency action following trustee’s sales of two parcels of real property. The borrower asserted common-law defenses to liability under the promissory notes. The superior court held that, under A.R.S. § 33-811(C), these defenses had been waived and the lender’s successor-in-interest was entitled to summary judgment. We reverse and remand. We hold that common-law defenses to a borrower’s liability under a note generally survive a trustee’s sale and may be asserted in a deficiency action.  REVERSED AND REMANDED

Three or more units: does not qualify as a one or two family dwelling, therefore DEFICIENCY allowed. PNL Credit.

Commercial owner – NO DEFICIENCY so long as character or property fits within statutory requirements of anti-deficiency. PNL Credit.

Partnership assets: Lender may collect a deficiency from community property of a general partner and spouse without the spouse signing the loan documents or partnership agreement. MacCollum v. Perkinson, 185 Ariz. 179, 913 P.2d 1097 (App. 1996) (Partners community property liable for deficiency even though spouse did not sign loan documents); Chase Bank of Arizona vs Acosta, 179 Ariz. 563, 880 P.2d 1109 (App. 1994) (General partnership in bankruptcy, lender could sue general partner.)


Guarantor separate liability: Tenet v. Silver, 52 P.3d 786 (App. 2002) (lender’s trustee’s sale did not extinguish guarantors separate liability for the debt)


Long v. Corbet, 181 Ariz. 153, 888 P.2d 1340 (Ariz. App. Div. 1, 1994) This issue is whether a creditor who has received excess funds from a trustee’s sale held by a senior creditor is precluded by Arizona’s anti-deficiency statute, Ariz.Rev.Stat.Ann. (“A.R.S.”) section 33-814(G), from pursuing a guarantor for satisfaction of the remainder of the debt. Because we conclude that the anti-deficiency statute does not apply in this situation, we affirm the trial court’s grant of summary judgment to the creditor.

Can Borrower Waive Anti-deficiency Protection? No, as determined in Parkway v. Zivkovic, 1 CA-CV 12-0612 (7/2013) This appeal presents the issue whether the anti-deficiency protections afforded by Arizona Revised Statutes (A.R.S.) section 33-814(G) (Supp. 2012) may be prospectively waived by the trustor. Because we conclude that such protections serve an important public purpose and may not be waived, we vacate the partial summary judgment for Parkway Bank and Trust Company (Parkway) and remand for proceedings consistent with this Opinion.

90 day statute of limitation re deficiencyU.S. v. Rezzonico, 32 F.Supp.2d 1112 (D. Ariz., 1998) The Arizona anti-deficiency statute has been interpreted by the Arizona Court of Appeals and this District Court to be a statute of repose. Valley National Bank of Arizona v. Kohlhase, 182 Ariz. 436, 897 P.2d 738 (Ct.App.1995)Resolution Trust Corp. v. Olson, 768 F.Supp. 283 (D.Ariz.1991). Statutes of repose limit the time in which a cause of action may be brought. As contrasted with statutes of limitations, which extinguish the right to proceed with an accrued cause of action, statutes of repose extinguish the actual action. In other words, once a statute of repose has expired, a valid cause of action no longer exists. Unlike statutes of limitations, statutes of repose are ordinarily binding on the federal government. Olson, 768 F.Supp. at 285 (citing United States v. Hartford Accident and Indemnity Co., 460 F.2d 17 (9th Cir.1972), cert. denied, 409 U.S. 979, 93 S.Ct. 308, 34 L.Ed.2d 243 (1972)). … The central dispute in this case is not whether Ariz.Rev.Stat. § 33-814 is a statute of repose binding on the United States, but whether the Government’s right to collect its deficiency action is created by federal law. This Court erred in applying the anti-deficiency statute before considering whether the Secretary of Agriculture’s right to bring a deficiency action arose under federal law…. Based on the foregoing analysis, summary judgment should have been entered in favor of the United States and against the Rezzonicos.


Norwest Bank Arizona v. Superior Court, 963 P.2d 319 (AZCA, 1998) (February 19, 1998) Arizona’s anti-deficiency statute, A.R.S. Section 33-814(D), directs that since Praedium did not maintain an action for a deficiency judgment within the specified time, the proceeds at the trustee’s sale are deemed to be in full satisfaction of the original…

Arbitration Clauses and deficiency suits: National Bank of Arizona v. Richard A. Schwartz, 2012 WL 2459408 (Ariz. App. 2012) bank brought deficiency suit after trustee’s sale. (Court found this action to be subject to the arbitration clause of original Note and/or DOT.)

A.R.S. Section 12-1566(D), requires a creditor collecting on a deficiency to proceed first against all other real property of the debtor before proceeding against the debtor’s primary residence. This law does not apply when the mortgage or deed of trust is a consensual lien. A.R.S. Section 33-964(B). Except as provided in section 33-1103, a recorded judgment shall not become a lien on any homestead property. Any person entitled to a homestead on real property as provided by law holds the homestead property free and clear of the judgment lien.

Home Improvement loan not purchase money: the Supreme Court of Arizona has already identified a home improvement loan security instrument as a non-purchase money mortgage outside the scope of the anti-deficiency statutes. Southwest Savings & Loan Ass’n v. Ludi, 122 Ariz. 226, 594 P.2d 92 (1979); accord Allstate Sav. & Loan Ass’n v. Murphy, 98 Cal.App.3d 761, 764, 159 Cal.Rptr. 663, 664 (1979) (holding that “construction loans for improvements or repairs of the type involved in this case are not within the description of loans protected by the purchase-money deficiency prohibition of section 580(b)”). In Ludi, the property in question involved two promissory notes and two mortgages, executed at different times and by different individuals (prior owner and subsequent owner). Id. 122 Ariz. at 227, 594 P.2d at 93. While the first promissory note and mortgage involved monies used for the purchase of real property the second promissory note and mortgage was for a home improvement loan. Id. The Ludis, being the third purchaser, assumed both promissory notes and mortgages and defaulted on both of the notes. Id. The creditor Southwest foreclosed on the property in response to the Ludis’ default of the first note and waived its security and brought an action on the second note. Id. Ludi contended that any action on the second note was barred pursuant to A.R.S. § 33-729. Id.

The issue was whether the Ludis as a subsequent party to the transaction who assumed both notes could force Southwest the creditor to elect its remedy to foreclosure of the security or an action on the note. Id. The Supreme Court ruled that the Ludis were subject to the same conditions and obligations as their grantor and the fact that the Ludis had assumed the notes simultaneously did not change the result. Id. 122 Ariz. at 227-28, 594 P.2d at 93-94. The Ludis also argued in the alternative that both mortgages were purchase money mortgages and barred by the anti-deficiency statute. Id. 122 Ariz. at 228, 594 P.2d at 94. The Court rejected this argument holding that the second mortgage and note was for a property improvement loan not for purchase money and therefore, was “clearly not covered by the statute.” Id. Cited in American National Bank vs Vatistas, , 2010 WL 3115419 (2010) (Ariz.App.Div.1) Cited in appellants opening brief.


But, see completely different outcome: HELVETICA SERVICING, INC. v. PASQUAN, No. 1 CA–CV 10–0418. (Az Div 1, March 20, 2012). (judicial foreclosure) “We hold that refinancing a purchase money loan does not destroy purchase money status and forfeit anti-deficiency protection to the extent proceeds from the refinancing transaction are disbursed in satisfaction of the underlying purchase money obligation. We further hold that loan proceeds used to construct a qualifying residence merit anti-deficiency protection under certain circumstances. However, sums disbursed in a loan transaction for non-purchase money purposes may be traced, segregated, and recovered in a deficiency action.”

Re construction loan: “We hold that a construction loan qualifies as a purchase money obligation if: (1) the deed of trust securing the loan covers the land and the dwelling constructed thereon; and (2) the loan proceeds were in fact used to construct a residence that meets the size and use requirements set forth in A.R.S. § 33–729(A).”

Re blended non-purchase money with purchase money: “It appears unnecessarily punitive and contrary to the consumer-protection goals of Arizona’s legislation to convert an entire obligation into a recourse loan simply because it happens to include non-purchase money sums. On the other hand, it seems similarly inappropriate to shield borrowers from deficiencies for loan disbursements unrelated to the acquisition or construction of a qualifying residence. Extending anti-deficiency protection in such a manner could encourage irresponsible borrowing and abdication of personal responsibility for repaying legitimate debt. It would also appear to stretch our anti-deficiency laws beyond the scope intended by the legislature. We therefore hold that, to the extent a judicially foreclosed mortgage includes both purchase money and non-purchase money sums, a lender may pursue a deficiency judgment for the latter amounts.”

Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108 (2017)
Background: Borrower who defaulted on a balloon payment on a promissory note for a $28.6 million commercial loan filed action seeking a declaratory judgment that lender’s successor in interest was not entitled to recover late fee.
Holding: The court relied upon the Restatement (Second) of Contracts § 356 in holding that a five percent late fee on a balloon payment is an unenforceable liquidated damages provision. Restatement (Second) of Contracts § 356 states that parties do not have free rein in setting liquidated damages; because the central objective behind the system of contract remedies is compensatory, not punitive, parties cannot provide a penalty for a breach. Further, damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach. This case involved a note for $28.6 million which would result in a late fee of $1.4 million.

The principal of bifurcating actions pertaining to portions of loan monies is supported by Southwest Savings & Loan Ass’n v.Ludi, 122 Ariz. 226, 594 P.2d 92 (1979). The similarities yet significant differences between Ludi and Baker were noted by the Supreme Court of Arizona in Mid Kansas Federal Sav. & Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 129 fn 6, 804 P.2d 1310, 1317 (1991) (In Banc); accord Cely v.DeConcini, McDonald, Brammer, Yetwin & Lacy, P.C., 166 Ariz. 500, 505-06, 803 P.2d 911, 916-17 (App. Div. 1 1990). While in Ludi and Baker the two notes were secured by the same real estate, “the second note in Ludi was given to obtain a home improvement loan and therefore was ‘independent from’ the first note . . . .” Id. (citation omitted). According to the Mid Kansas Court, Ludi was not in conflict with Baker because the action on the second deed of trust that involved the home improvement loan was “non-purchase money obligation.” Id. (citation omitted). Cited in American National Bank vs. Vatistas, 2010 WL 3115419 (2010) (Ariz.App.Div.1) As cited in appellants opening brief.

See In re Estate of Stephenson, 173 P.3d 448, 451, 217 Ariz. 284, ¶ 15 (Ariz. App. 2007) (“secured creditors do not have to use probate proceedings to enforce any security, even after the appointment of a personal representative.”)

BANKRUPTCY & TRUSTEE SALES/FORECLOSURE

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO. WARNING – SOME OF THESE CASES ARE PRE-BAPCPA.

Trustee holds Raw Legal Title ARS 33-817


Delprete v. Ditech, 2017 WL 6013805 (Ariz.App. Dec. 5, 2017)  Delpretes purchased a residential property (the “Property”) in Anthem. In 2006 the Delpretes refinanced the existing loan secured by the Property and obtained a new loan for $417,000 from New Century Mortgage Corp.  The 2006 loan was evidenced by a promissory note (the “Note”), and secured by a deed of trust on the Property, which listed Mortgage Electronic Registration Systems (“MERS”) as beneficiary and nominee of Century Mortgage. In 2011 MERS assigned the Deed of Trust to Bank of America, NA (“Bank of America”), and in 2013 Bank of America assigned the Deed of Trust to Green Tree Servicing LLC.

Holding:  The Delpretes sought to quiet title, alleging they are the Property’s legal owners. This assertion, however, is contrary to established law that, under a deed of trust, “the trustee holds legal title until the loan balance is paid.  Under A.R.S. § 33-817, a deed of trust automatically follows a promissory note. Further, a party “cannot seek to quiet title solely based on the alleged weakness of his adversary’s title.”

The Delpretes did not allege that they have paid the Note in full and did not allege any other facts which otherwise undermine the Defendants’ legal ownership of the Note and rights under the Deed of Trust; accordingly, the court did not err in dismissing the Delpretes’ claim to quiet title.

Resolution Trust Corp. v. Segel, 173 Ariz. 42, 839 P.2d 462 (App.1992), we examined the impact of the Baker holding on non-purchase-money loans that were secured by second-position deeds of trust on residential property of less than two and one-half acres with a one- or two-family residence. In Segel, the court held that because the lender did not institute trustee’s sale proceedings and the deeds of trust secured non-purchase-money obligations, the lender was entitled to waive its security and sue directly on the notes under A.R.S. section 33-722. Id. at 44-45, 839 P.2d at 464-65.


Suit on the note: Following a judicial foreclosure by a senior lienholder, a junior lienholder can sue on Note (unless property is anti-deficiency in character) A.R.S. 33-722 Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 101 (App. 1995). Lender may waive its security in the real property and sue on the note. Darnell v. Denton, 137 Ariz. 204, 669 P.2d 81 (App. 1990). Also, foreclosure of a senior lien extinguishes the junior lien, therefore no need to “release” the junior lien. Wells Fargo, supra. Lender may not sue on the Note so long as the property fits within the anti-deficiency statutes (dwelling, 2 ½ acres or less, one or two family dwelling – ARS Section 33-814) Baker v. Gardner, 160 Ariz. At 105, 770 P.2d at 773 (1988) (first and second purchase money debts). First lender noticed trustee’s sale and second (Bakers) elected to sue on Promissory Note). Clarification in a supplemental opinion that the court did NOT mean to prohibit the non-PMSI creditor from waiving the security and suing on the note.


Suit on Promissory Note or “Show me the Note”: A lender may waive their lien on real property and sue on the Promissory Note. That waiver is an “abandonment and release” of the lien and must be “evidenced by a recorded release of the lien”. ARS Section12-1566(F) All limitations of Baker v Gardner and Mid Kansas apply. But see: Smith v. Mangels, 240 P.2d 168 (1985) and Deming v. Walraven, 651 P.2d 1203 (App. 1982) (Mortgage not waived by going to judgment on the Note)


Lender accepts less than what is owed on residential property, releases deed of trust, then sues borrower for deficiency. TANQUE VERDE ANESTHESIOLOGISTS, L.T.D. PROFIT SHARING PLAN, 836 P.2d 1021, 172 Ariz. 311 (App. 1992) “Although no trustee’s sale occurred in this case, we agree with Proffer (borrower) that, based on the holdings of Baker, supra, and Mid Kansas, supra, and absent evidence of an agreement to the contrary (emphasis added), when Tanque Verde (lender) signed the deed of release and reconveyance, it thereby waived its right to seek a deficiency judgment.” ((The assuming lender (Tanque Verde) signed the deed of release and included in the release language that the borrower is not released on the underlying debt. The borrower (Proffer) did not sign the deed of release. Nor, was there any other signed agreement where the borrower acknowledged that the debt was not released. Correct conclusion. This outcome will be different for short sales because there is almost always a new contract which details the agreement between the seller and the lender. That short sale contract is signed by the seller/borrower, therefore will be binding on the seller/borrower.

  • In re Boardwalk holds that late charges and interest must be reasonable and bankruptcy judge can reduce; any authority for once 13 filed, that no default or late fees on post-petition payments can accrue.

Vasquez v Saxon Mortgage, Deutsch Bank, AZ Supreme Ct, No. CV-11-0091-CQ (11/2011) certified question from Bankruptcy Court No. 4:08-bk-15510-EWH Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. § 33-808 when the assignee holds a promissory note payable to bearer? The answer is no; Arizona law imposes no such requirement.


“Show Me The Note” Hogan v Long Beach Mortgage CoCV 11-0115-PR (covers to trustee sales by Deutsche Bank and Washington Mutual) “show me the note” – Supreme Court accepted cert, argued 1/23/2012; We granted review to decide whether a trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

Non-judicial foreclosure sales are meant to operate quickly and efficiently, “outside of the judicial process.” Vasquez, 228 Ariz. at 359 ¶ 4 n.1, 266 P.3d at 1055 n.1 (citing Gary E. Lawyer, Note, The Deed of Trust: Arizona’s Alternative to the Real Property Mortgage, 15 Ariz. L. Rev. 194, 194 (1973)). The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the “mortgage foreclosure process . . . time-consuming and expensive,” id. (internal quotation marks omitted), and re-inject litigation, with its attendant cost and delay, into the process, see Transamerica Fin. Servs., 175 Ariz. at 313-14, 856 P.2d at 1191-92 (citing I.E. Assocs. v. Safeco Title Ins. Co., 702 P.2d 596 Cal. 1985)).

III. CONCLUSION For the reasons set forth above, the superior court’s orders dismissing Hogan’s complaints are affirmed and, although we agree with the result reached by the court of appeals, its opinion is vacated.

ISSUE ADDRESSED BY THE COURT OF APPEALS: Can a lender foreclose its deed of trust without owning the note which the deed of trust secures? Answer – yes. ISSUE NOT ADDRESSED BY THE COURT OF APPEALS: What is the legal effect of an assignment of a deed of trust without the corresponding note?


Lender conducts trustee’s sale but may not have promissory noteHogan vs Washington Mutual, CA-CV 10-0385 (Div 1, AZ Court of Appeals, filed 3/29/11) “We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.” Therefore, the trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. App Ct affirms lower court. Deed of trust is a creature of statute and not a negotiable instrument. Therefore, UCC does not apply. Lender can conduct trustee’s sale without the promissory note. Zadrozny v. Bank of New York Mellon, No. 11-16597 Dismissal of a complaint in which plaintiffs alleged that defendants improperly initiated non-judicial foreclosure proceedings after plaintiffs failed to comply with the mortgage obligations financing their residence, is affirmed, where: 1) Arizona courts have rejected plaintiffs’ claim that non-judicial foreclosures require production of the promissory note prior to a sale, their claim that successor trustees are unauthorized to initiate foreclosure proceedings, or that non-judicial foreclosure sales must comport with the Uniform Commercial Code; and 2) plaintiffs failed to provide any legal authority for their constitutional challenge to A.R.S. section 33-811(b); and 3) plaintiffs waived any challenge to the district court’s dismissal of their fraud and misrepresentation claims as untimely.

  • Kelly vs. Nationsbanc12/26/2000 No. 1 CA-CV 99-0642 (Ct.App 1st Div): Chapter 13 case filed after trustee’s sale noticed. Four postponements, bankruptcy case dismissed, sale completed. Kellys argue that they failed to receive detailed accounting of payments and failed to receive actual notice of continued sales. Court upheld lower court’s granting of summary judgment. Good review of In re Acosta, 181 B.R. 477 (Bankr.D.Ariz. 1995) (DR’s to receive actual notice of postponed trustee’s sale while in bankruptcy), see also In re Duncan, 211 B.R. 42 (Bankr.D.Ariz. 1997) In re Stober, 193 B.R. 5 (Bankr.D.Ariz. 1996) (did not follow Acosta and Duncan); In re Nagel, 245 B.R. 657 (D.Ariz. 1999) (dismissal of BK returns parties to the status quo prior to the filing of the BK. Once returned they are subject to the laws of Arizona).

Foresight Investments Group vs Leader Mortgage Company (LMC), CV 2003-000195, LMC permits a trustee’s sale to go forwarding knowing it should not have been held. Court decides that the trustee was effectively a seller of real estate and that the buyer at the sale had entered into a contract for the sale of the subject property. In that LMC could not transfer the subject property because the debt had already been paid, the trustee’s sale was a sale of realty and the buyer at the trustee’s sale was entitled to a benefit of the bargain measure of damages the difference between the fair market value of the property and the price bid by the buyer. (case was settled).

In re Krohn, Arizona Supreme Court No. CV-01-0246-CQ, Bankruptcy Court No. 00-10623-PHX-RTB  (8/27/2002)   Linda Lorraine Krohn (Krohn) filed a chapter 13 bankruptcy petition that was dismissed.  Shortly after that dismissal, her home was sold to Sweetheart Properties, Ltd. (Sweetheart) at a trustee’s sale conducted under authorization of a deed of trust. She filed a second bankruptcy petition seeking to have the sale of her home vacated for gross inadequacy of price. Bankruptcy Judge Redfield T. Baum certified a question of Arizona law to this court: “May a trustee’s sale of real property [under a deed of trust] be set aside solely on the basis that the bid price was grossly inadequate?”  We answer the certified question in the affirmative.


Whittle Development, Inc. v. Branch Banking & Trust Co. (10/11) It is common practice for mortgagees, such as banks, to foreclose on the collateral securing their loans and, in the absence of a third party purchaser for a reasonable value, to purchase such collateral by credit bidding their debt at the foreclosure sale. Due to the circumstances of foreclosure sales, however, often such sales do not result in as a high a sale price as would a private sale transaction. In the recent case of Whittle Development, Inc. v. Branch Banking & Trust Co. (In re Whittle Development, Inc.), 2011 WL 3268398 (Bankr. N.D. Tex. July 27, 2011), the United States Bankruptcy Court for the Northern District of Texas (the “Court”) held that a bankruptcy trustee can avoid a prepetition foreclosure sale of a debtor’s property as a preferential transfer under section 547 of the Bankruptcy Code despite the fact that the sale was non-collusive and conducted in accordance with applicable state law. Section 547 provides for the avoidance of a prepetition transfer made to a creditor, on account of an antecedent debt, if the debtor was insolvent and the transfer enabled the creditor to receive more than it would have in a hypothetical chapter 7 liquidation. Whittle is significant not only because it calls into question the long-accepted notion that foreclosure sales are final, but also because it represents a departure from Supreme Court precedent in the related area of fraudulent transfers under section 548 of the Bankruptcy Code.

Background In 2007, Whittle Development, Inc. (“Whittle”) borrowed $2.7 million from Colonial Bank, N.A. (“Colonial”). Branch Banking and Trust Company (“BB&T”) later acquired Colonial and became the successor-in-interest to Colonial’s loan to Whittle. In 2010, BB&T declared a default under the loan, accelerated the outstanding payments owed by Whittle and foreclosed on the real property securing the loan. The foreclosure sale complied with all relevant state law requirements. A subsidiary of BB&T purchased the property at the foreclosure sale for $1.22 million.

Within ninety days of the foreclosure sale, Whittle filed a Chapter 11 petition. BB&T subsequently filed a proof of claim, claiming a debt owed of $2,855,243 of which BB&T alleged $1,181,513 represented a deficiency from the foreclosure sale. Thereafter, Whittle brought an action to avoid, as a preferential transfer, the foreclosure sale. Whittle took the position that the approximate value of the property was $3.3 million, that BB&T’s claim on the property at the time of foreclosure was approximately $2.2 million, and thus BB&T had received approximately $1.1 million more that it would have received in a chapter 7 case.

Whittle and BB&T agreed that the foreclosure sale effected a transfer of Whittle’s interest in property and that Whittle stated a “facially plausible” claim as to all the requirements of 11 U.S.C. section 547(b) except subsection (5), which “requires a finding that the creditor received more than it would have under chapter 7.” BB&T argued that the price paid at the foreclosure sale was the fair-market value of the property based on the Supreme Court’s decision in BFP v. Resolution Trust Corp., 511 U.S. 531 (1994). Whittle asserted that since the property was worth more than the amount due to BB&T, BB&T received more than it would have received in a chapter 7. Whittle reasoned that BB&T received a total of $3,261,513, comprised of a deficiency claim in the amount of $1,181,513 and the net property value of $2,080,000 (calculated by subtracting the amount paid at foreclosure of $1.22 million from $3.3 million, the value of the property). Whittle argued that BB&T’s maximum recovery in chapter 7 would have been $2.2 million, the amount of BB&T’s claim at the time of foreclosure.

BFP v. Resolution Trust Corp. in BFP, a partnership formed for the purpose of buying a home defaulted on its mortgage payments, resulting in a foreclosure by the bank. A third party purchased the home for $433,000 at a properly noticed foreclosure sale shortly before the partnership filed for bankruptcy. Acting as a debtor in possession, the partnership sued to avoid the transfer as a fraudulent conveyance, alleging that the property had an actual value of $725,000.

In BFP, the Supreme Court addressed whether a foreclosure sale could be avoided as a constructively fraudulent transfer under section 548. The key issue in BFP was whether the foreclosure sale price could qualify as “reasonably equivalent value” or whether the purchaser has to pay fair market value for the property to be insulated from avoidance under section 548. The Supreme Court held that a “fair and proper price, or a ‘reasonably equivalent value,’ for foreclosed property, is the price in fact received at the foreclosure sale, so long as all the requirements of the state’s foreclosure law have been complied with.” To hold otherwise, the Supreme Court stated, would interfere with the essential state interest in ensuring the security of title to real property. This ruling effectively insulated regularly conducted foreclosure sales from avoidance under fraudulent conveyance law. In Whittle, BB&T requested that this result be extended to preference actions.

Holding Despite the differences in the language of sections 547 and 548 of the Bankruptcy Code, the Court in Whittle noted that some courts have simply held that the test for preferences — a transfer which enables a creditor to receive more than in a chapter 7 liquidation — is essentially the same as the Supreme Court’s test for “reasonably equivalent value” in the fraudulent conveyance context. See Chase Manhattan Bank v. Pulcini (In re Pulcini), 261 B.R. 836 (Bankr. W.D. Pa. 2001); Glaser v. Chelec, Inc. (In re Glaser), 2002 WL 32375007 (Bankr. E.D. Va. 2002).

In contrast, other courts analyzing the preference test simply highlight the plain language of the statute and point out that the test for whether a transfer is a preference is fundamentally different than the test used in the fraudulent conveyance statute. In Whittle, the Court sided with this second group of cases, holding that BFP was inapplicable in the preference context based on the clear language of the statute. “[L]ooking at the unambiguous language of the statute, it would seem that the only thing that must be shown is that the creditor did, in fact, receive more from the pre-petition transfer than it would have under a chapter 7 liquidation . . . .” The Court found BFP’s assessment of “reasonably equivalent value” wholly inapplicable to the preference context.

Conclusion The Whittle court denied BB&T’s motion to dismiss and allowed Whittle’s preference action to proceed. As such, the critical issue remaining is whether the value of the property was the appraised value of $3.3 million or the price paid at the foreclosure sale of $1.2 million. Whittle’s position is sustainable only if it rebuts the claim that the selling price of the property did not reflect its true value of $3.3 million and that the deficiency claim of $1,181,513 is worth its face amount. If Whittle’s position on value is correct, BB&T did receive a preference in the amount of $1.1 million. However, if BB&T’s position on value is correct, then BB&T did not receive a preference because it did not receive more than it would have in a chapter 7. It only received the sum of the amount paid at foreclosure and a deficiency claim.

Although the Whittle decision does not stand for the proposition that all valid prepetition foreclosure sales are susceptible to avoidance as preferential transfers, it does carve out a narrow subset of such sales for which the foreclosure sale may be anything but final. Based on this ruling and others like it, secured creditors and purchasers of foreclosed property who are also creditors of the estate should be cautious. These parties should view this case as a clear warning that, depending on the jurisdiction, the foreclosure sale may not be final. Additionally, purchasers of a foreclosed property must also take into account the risk that the property owner will file bankruptcy and seek to avoid the sale as a transfer under section 547 of the Bankruptcy Code. Purchasers may discount the price they are willing to pay for foreclosed properties to account for this additional risk, a result that is detrimental to the secured creditor, the debtor and its general creditors. If the Whittle opinion gains a widespread following in other jurisdictions and the market reacts to this risk by low bids from third parties, lenders may experience an increased incidence of being required to credit bid and take such assets into its OREO inventory. The determination of the amount of the credit bid may require re-examination as well in light of the risk that the credit bid will be determined to result in the lender receiving a voidable preference.

Hicks v. E.T. Legg & Associates (05/25/01 – No. D034398) Civil Code 2924c(e), and 2924g(d) do not prohibit the postponement of a foreclosure sale for successive periods of five of fewer business days during the period a sale is on hold because of an injunction or bankruptcy stay.

Bankruptcy of Wytch, US BAP 9th, Nos. 97-1089 and 79-1145, 7/1/98: 11 U.S.C. Section 349(b) does reinstate a debtor’s pre-petition property rights by invalidating specified bankruptcy court orders, Section 349(b) does not vacate orders for relief from the automatic stay under 11 U.S.C. Section 362(d). real property sold 2 hours after BK filed (chapter 7) property purchased by third party with no knowledge of bankruptcy, lender brought action to annul stay, no objection , relief granted. Case inadvertently dismissed, then reinstated, debtor’s argued that set aside earlier Order lifting stay – Bankruptcy Court and BAP did not agree – Order lifting stay stands.

Post-Petition attorney fees based on pre-petition contract: In re SNTL Corp., 571 F.3d 826, Bankr. L. Rep. ¶ 81,515 (9th Cir., June 23, 2009), pages 154, 183 (case no. 08-60001) The Ninth Circuit Court of Appeals, in a unanimous panel decision, affirmed, and adopted as its own, In re SNTL Corp., 380 B.R. 204 (9th Cir. B.A.P. 2007), holding that an unsecured creditor may include, as part of its claim, attorney’s fees incurred post-petition but based on a pre-petition contract. The opinion reasoned that (1) Code § 506(b), permitting an over-secured creditor to recover post-petition attorney’s fees, speaks only to the secured status of a claim, and not to its allowability; (2) the claim for attorney’s fees exists on the petition date, although it is contingent and unliquidated, as the “right to payment” exists on the petition date; thus, the claim is not disallowed under Code § 502(b)(1), requiring a bankruptcy court to “determine the amount of such claim … as of the date of the filing of the petition”; and (3) neither United Sav. Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 108 S. Ct. 626, 98 L. Ed. 2d 740 (1988) (holding that an undersecured creditor could not receive post-petition interest on the unsecured portion of its debt) nor public policy mandated disallowance of such a claim.

Partnership assets: Lender may collect a deficiency from community property of a general partner and spouse without the spouse signing the loan documents or partnership agreement. MacCollum v. Perkinson, 185 Ariz. 179, 913 P.2d 1097 (App. 1996) (Partners community property liable for deficiency even though spouse did not sign loan documents); Chase Bank of Arizona vs Acosta, 179 Ariz. 563, 880 P.2d 1109 (App. 1994) (General partnership in bankruptcy, lender could sue general partner.)


Guarantor separate liability: Tenet v. Silver, 52 P.3d 786 (App. 2002) (lender’s trustee’s sale did not extinguish guarantors separate liability for the debt)


Long v. Corbet, 181 Ariz. 153, 888 P.2d 1340 (Ariz. App. Div. 1, 1994) This issue is whether a creditor who has received excess funds from a trustee’s sale held by a senior creditor is precluded by Arizona’s anti-deficiency statute, Ariz.Rev.Stat.Ann. (“A.R.S.”) section 33-814(G), from pursuing a guarantor for satisfaction of the remainder of the debt. Because we conclude that the anti-deficiency statute does not apply in this situation, we affirm the trial court’s grant of summary judgment to the creditor.

In re Goudelock, (9th Cir Ct Appeals, July 10, 2018)   The panel reversed the district court’s decision affirming the bankruptcy court’s summary judgment in favor of a condominium association, which sought in an adversary proceeding to determine the dischargeability of a debtor’s personal obligation to pay condominium association assessments that accrued between the date the debtor filed her Chapter 13 bankruptcy petition and the date the condominium unit was foreclosed upon.

Agreeing with the reasoning of the Seventh Circuit in a Chapter 7 case, the panel held that condominium association assessments that become due after a debtor has filed for bankruptcy under Chapter 13 are dischargeable under 11 U.S.C. § 1328(a). The panel concluded that the debt arose prepetition and was not among exceptions listed in § 1328(a). The panel held that the Takings Clause was not implicated because the condominium association retained its in rem interest. The panel also concluded that equitable arguments did not override the express provisions of the Bankruptcy Code.

Helvetica Servicing Inc. v. Giraudo, 1 CA-CV 15-0490 2/9/17 The redemption price for a junior lienholder is the sale price of the secured property plus the outstanding value of the senior lienholder’s allowable deficiency judgment. If a property is subject to two deeds of trust and the senior lienholder purchases the property at a foreclosure sale without joining the junior lienholder, the junior lienholder may seek to redeem the property under A.R.S. § 12-1285(B).

The redeeming junior lienholder is not required to pay any portion of the senior lien that is unenforceable
against the judgment debtor under the statutes.


12-1282. Time for redemption

  1. The judgment debtor or his successors in interest may redeem at any time within thirty days after the date of the sale if the court determined as part of the judgment under which the sale was made that the property was both abandoned and not used primarily for agricultural or grazing purposes.
  2. The judgment debtor or his successor in interest may redeem at any time within six months after the date of the sale except when the court has made the determinations as provided in subsection A.
  3. If the redemption as provided in subsection A or B is not made, the senior creditor having a lien, legal or equitable, upon the premises sold, or any part thereof, subsequent to the judgment under which the sale was made, may redeem within five days after expiration of the applicable period provided in subsection A or B, and each subsequent creditor having a lien in succession, according to priority of liens, within five days after the time allowed the prior lienholder, respectively, may redeem by paying the amount for which the property was sold and all liens prior to his own held by the person from whom redemption is made, together with the eight per cent added to the amount as provided in section 12-1285.

VERY IMPORTANT TO CHECK STATUS OF CASE LAW:

Bankruptcy related: Most likely fee remains property of the estate until the foreclosure judgment is entered, after which the right to redeem is what remains property of the estate (see ARS § 12-1281 to -1289 (esp. -1282 and -1283(A)), but there’s a pair of older case saying that title doesn’t pass to the purchaser until after the redemption period passes, In re Sapphire Investments, 27 B.R. 56 (Bankr. Ariz. 1983), and that this period can be extended. In re Sapphire Investments, 19 B.R. 492 (Bankr. Ariz. 1982).

HOMEOWNER‘S ASSOCIATION ’HOA’ ISSUES

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO. WARNING – SOME OF THESE CASES ARE PRE-BAPCPA.

HOA issues: A.R.S. 33-1807(B)(2) a recorded first deed of trust is senior to HOA liens. Villa De Jardines Association v. Flagstar Bank, FSB, 227 Ariz. 91, 253 P.3rd 288 (Ct. App. 2011) (HOA tried to foreclose a first deed of trust. Rule 11 sanctions against HOA’s attorneys).

Bocchino v. Fountain Shadows Homeowners Ass’n  April 3, 2018. The Arizona Court of Appeals, Div. One, affirmed the judgment requiring defendant to repay a portion of attorneys’ fees to plaintiff, who previously owned a home in the HOA. Defendant was not entitled to unilaterally assess against her the attorneys’ fees it incurred in obtaining from justice court an injunction against her, when the Association did not seek an award of attorneys’ fees from the court and no fees were awarded by the court. When it sought and obtained its original injunction, Defendant had relied on the Arizona statute against workplace harassment – A.R.S. § 12-1810 – which requires a litigant to request of the court an award of fees. In addition, Defendant could not rely on its declaration of covenants, conditions and restrictions as a basis to obtain a fee award, as the declaration does not expressly provide that the association may assess, directly against a homeowner, attorneys’ fees that have not been awarded by a qualified tribunal.

  • Turtle Rock III Homeowners Association v. Fisher, 726 Ariz. Adv. Rep. 20 (CA 1, 10/26/17)
    Background: This case involved a dispute between the Turtle Rock III HOA and homeowner Fisher. Fisher appeals from an injunction requiring her to clean up or repair certain parts of her property and from a judgment in favor of the HOA for penalties in the amount of $3850. The injunction was affirmed. The award of monetary penalties and attorneys’ fees against Fisher was reversed.Holding: Where an HOA has authority to levy fines, the fines must be reasonable and the HOA must promulgate a fee schedule prior to imposing the fines, or the fines are per se unenforceable. Ad hoc fines are per se unreasonable.

Forest Highlands Association v. Alexander, 2017 WL 5180837 (Ariz. App. Nov. 9, 2017)

Background: The Alexanders appeal from the superior court’s order granting summary judgment in favor of The Forest Highlands Association (“Forest Highlands”). Forest Highlands brought a complaint against Clifford E. Alexander, III and Jeanne Fischer (the “Alexanders”), claiming breach of contract and unjust enrichment based on the Alexanders’ failure to pay fees according to Forest Highlands’ Covenants, Conditions, and Restrictions (“CC&Rs”). The CC&R’s violation arose from Appellants’ actions wherein Appellant, Mr. Alexander was involved in an incident in which, according to Forest Highlands, he intimidated a group of children, threatened to chase them with a gun, chased them with his vehicle, and stole one of the children’s bicycles.  The Forest Highlands Board of Directors (“Board”) charged Mr. Alexander with violating Forest Highlands’ code of conduct contained within Association Rule 2.2, which prohibits flagrant misconduct such as: verbally abusing, harassing, and intimidating another; driving a vehicle in a reckless manner; theft; and endangering the safety, health, and welfare of other individuals in the community.

Holding: Forest Highlands has power to fine the homeowner for non-real property related misconduct. The Arizona Court of Appeals affirmed the superior court’s judgment in the amount of $25,131.25 on the unpaid assessments and late fees incurred on those assessments, plus attorneys’ fees of $24,278.50.

  • In re Goudelock, (9th Cir Ct Appeals, July 10, 2018)   The panel reversed the district court’s decision affirming the bankruptcy court’s summary judgment in favor of a condominium association, which sought in an adversary proceeding to determine the dischargeability of a debtor’s personal obligation to pay condominium association assessments that accrued between the date the debtor filed her Chapter 13 bankruptcy petition and the date the condominium unit was foreclosed upon.Agreeing with the reasoning of the Seventh Circuit in a Chapter 7 case, the panel held that condominium association assessments that become due after a debtor has filed for bankruptcy under Chapter 13 are dischargeable under 11 U.S.C. § 1328(a). The panel concluded that the debt arose prepetition and was not among exceptions listed in § 1328(a). The panel held that the Takings Clause was not implicated because the condominium association retained its in rem interest. The panel also concluded that equitable arguments did not override the express provisions of the Bankruptcy Code.

Defendants’ effort to collect homeowner association fees through judicial foreclosure constitutes “debt collection” under the Act, 15 U.S.C. 1692a(5).

McNair v. Maxwell & Morgan, P.C., No. 15-17383 (9th Cir. 2018)

FACTS: Plaintiff bought a Gilbert, Arizona home in 2004. She was required to pay the Community Association an annual assessment in monthly installments. Defendants notified Plaintiff in 2009 of her failure to pay a debt arising out of the assessment. Defendants represented the Association in suing Plaintiff. After Plaintiff defaulted on a payment agreement, Defendants revived the lawsuit and obtained a default judgment. The parties agreed to a new payment plan and to execute a stipulated judgment against Plaintiff that recognized the Association’s right to collect the debt by selling Plaintiff’s home. Plaintiff failed to make the required payments. The Maricopa Superior Court granted a writ of special execution for foreclosure on Plaintiff’s house. The property was sold for $75,000 at a foreclosure sale, and Defendants received $11,600.13 in satisfaction of the debt, including attorneys’ fees and costs. The district court rejected Plaintiff’s claim that Defendants violated the Fair Debt Collection Practices Act by misrepresenting the amount of Plaintiff’s debt and seeking attorneys’ fees to which they were not entitled.

FINDING: The Ninth Circuit reversed. Defendants’ effort to collect homeowner association fees through judicial foreclosure constitutes “debt collection” under the Act, 15 U.S.C. 1692a(5). In Arizona, requests for post-judgment attorneys’ fees must be made in a motion to the court. No court had yet approved the quantification of the “accruing” attorneys’ fees claimed by Defendants; Defendants falsely represented the legal status of this debt.

LAVEEN MEADOWS v. MEJIA  No. 1 CA-CV 18-0276 (Div 1, 5/5/20)  The Arizona Court of Appeals, Div. One, affirmed the superior court’s denial of appellant Mejia’s motion to set aside a default judgment allowing appellee homeowners association to foreclose on its lien on appellant’s property, because appellant’s partial payment of the association’s lien did not entitle him to relief under Ariz.R.Civ.Proc. 60(b). The plain language of A.R.S. § 33-1807(A) supports appellee’s interpretation, as it states that a lien “may be foreclosed” once an owner is either delinquent for one year or for $1,200 in unpaid assessments, “whichever occurs first.” There was a dissent.

Laveen Meadows v. Mejia, 1 CA-CR 18-0276 (May 5, 2020) Appellant Carlos Mejia challenges the superior court’s denial of his motion to set aside a default judgment allowing Appellee Laveen Meadows Homeowners Association (“Laveen Meadows”) to foreclose on its lien on Mejia’s property. We affirm because Mejia’s partial payment of the Association’s lien did not entitle him to relief under Arizona Rule of Civil Procedure (“Rule”) 60(b).

Laveen Meadows sued Mejia to foreclose on its lien for unpaid assessments and other unpaid amounts. Laveen Meadows alleged “the principal balance due as of 2016 [was] $8,246.48,” which included “amounts awarded in an earlier justice court judgment, as well as amounts not previously reduced to judgment, including attorney fees and costs.” Mejia did not timely respond to the complaint, and Laveen Meadows moved for and obtained entry of default.

Laveen Meadows moved for a default judgment against Mejia; eleven days later, Mejia moved to set aside the entry of default and tendered a check for $5,000, which he asserted “cover[ed] all past due
assessments and, therefore, eliminate[d] the right to foreclose.” The superior court declined to set aside the default and set a damages hearing.  On appeal – denied motion to set aside default and awarded attorney fees to HOA.

POST TRUSTEE SALES & FORECLOSURE ISSUES, EXCESS SALE PROCEEDS

IMPORTANT: THIS FIRM MAKES NO REPRESENTATIONS AS TO THE ACCURACY OR CURRENT STATUS OF ANY LAW, CASE, ARTICLE OR PUBLICATION CITED HEREIN OR LINKED TO.

Norwest Bank Arizona v. Superior Court, 963 P.2d 319 (AZCA, 1998) The right to receive rents is an appurtenance and an incident of ownership of real property. The right to rents was not excepted out of the property conveyed to Norwest in the trustee’s sale, and was conveyed along with the other usual incidents of property ownership by the trustee’s deed. Norwest need not pay rent to the receiver, nor to Praedium, and is entitled to the rents paid by the tenants occupying the property. Praedium is not entitled to a receivership to collect rents or manage the property.

Bekelian at al. v. JP Morgan Chase Bank NA  The Arizona Court of Appeals, Div. One 3/19/19), held that if a junior claimant files an application for excess proceeds resulting from a trustee’s sale, and the superior court has reason to know a senior claimant may exist, the court may not issue an order releasing the proceeds until at least 180 days from the date the complaint is filed. In affirming the superior court and its release of excess proceeds from the trustee’s sale to Chase Bank, the Court of Appeals rejected the argument that A.R.S. § 33-812(J) imposes a 180-day deadline for applying for excess proceeds.


PNC Bank v. Cabinetry by Karman, Inc, 1 CA CV 11-0476 (7/24/12) a court may not distribute excess proceeds from a trustee’s sale before the expiration of 180 days after a complaint is filed, if the court has information before it indicating that a party may have a claim superior to the applicant’s claim, even if no party files a response to the application.  ARS Section 33-812(I).


Articles on Excess Sale Proceeds

  • HOA issues: A.R.S. 33-1807(B)(2) a recorded first deed of trust is senior to HOA liens. Villa De Jardines Association v. Flagstar Bank, FSB, 227 Ariz. 91, 253 P.3rd 288 (Ct. App. 2011) (HOA tried to foreclose a first deed of trust. Rule 11 sanctions against HOA’s attorneys).

DMC, Inc. v Downey Savings & Loan Ass’n, 99 Cal.App.4th 190, 120 Cal.Rprt.2d 761 (2002) . After obtaining two loans secured by deeds of trust on her property, Henry transferred the property to her parents. When they defaulted on the first loan, the lender foreclosed and acquired title, extinguishing DMC’s second mortgage. Two months later, Henry repurchased the property from the foreclosure sale purchaser. To do so, she obtained a new loan, secured by a trust deed on the property from Downey S & L. A year later, DMC sued to foreclose judicially its second lien. The trial court granted Downey’s motion for summary judgment, holding that even if DMC’s second trust deed reattached to the property, it remained junior to Downey’s new purchase money trust deed.

The court of appeal affirmed. Despite California’s “first in time, first in right” approach to lien priority, under an equitable analysis, “the new senior lien holder would not have advanced the substantial funds necessary for the repurchase if it was not assured that it would have the rights and remedies associated with lien priority.” 99 Cal.App.4th at 199. The foreclosure extinguished DMC’s lien, and without Downey’s new loan DMC would have been left holding a wiped-out junior lien without any legal claim to repayment. It was only because of the money advanced by Downey, therefore, that DMC’s lien was revived, thereby retaining its original place in the order of priority

  • Issue: two original purchase money loans on property – first lender completes trustee’s sale, thereby wiping out the second deed of trust. Later the original borrowers takes title to the same property: the issue arises under A.R.S. § 33-806(A), which states in part: An interest in the trust property acquired by the trustor subsequent to the execution of the trust deed shall inure to the trustee as security for the contract or contracts for which the trust property is conveyed as if the interest or claim had been acquired before execution of the trust deed.See: Transamerica Financial Services, Inc. v. Carl Lafferty, 75 Ariz. 310, 856 P.2d 1188 (1993). This case dealt with two issues, the second of which is “Whether the beneficiary’s lien survived when the original debtor re-acquires the property and, if so, whether that lien acquired preference to other liens on the property.” The holder of the second lien, Transamerica, took the position that the re-acquisition of the property by the original debtor not only revived its lien, but also placed that lien in a superior position to the purchase money security interest of the new lender to the original debtor. The original debtor, Guerrero, argued that A.R.S. § 33-806(A) was intended to apply to situations in which a purchaser of property grants a deed of trust shortly before acquiring title to the property and was not intended to revive liens extinguished by a foreclosure sale. While the court agreed that this may have been the original intent, it stated, “. . . the literal terms of the statute are not so restrictive. The Guerreros, as trustors under Transamerica’s 1987 deed of trust, bought the property from Lafferty after the trustee’s sale. Thus, they acquired an interest in the property subsequent to the execution of the 1987 trust deed. Pursuant to this statute, that interest ‘inured[d] to the trustee as security for the contract.’” The court then reviewed other cases from other jurisdictions, including the case of Jensen v. Duke, 71 Cal.App. 210, 234 P. 876 (1925), and concluded that “[P]laintiff’s case is within the purview of the statute; and to hold otherwise would involve a strained construction, where every consideration of justice forbids that the mortgagor should hold his title obtained from Abbott free of plaintiff’s mortgage lien.” The court examined Transamerica’s position that in addition to the revival of its lien, its lien had priority over the purchase money liens acquired in the sale of the property to the Guerreros. Transamerica’s theory was that the instant the Guerreros obtained title to the property from Lafferty, its lien re-attached and, therefore, the Guerreros, giving a lien to Lafferty occurred after they acquired title and thus, the property was subject to Transamerica’s lien. The court of appeals disagreed, stating, “The common law rule applicable to purchase money mortgages is equally applicable to Lafferty’s purchase money deeds of trust. That rule is: [A] mortgage on land executed by the purchaser of the land contemporaneously with the acquirement of the legal title thereto, or afterwards, but as a part of the same transaction, is a purchase money mortgage, and entitled to preference as such over all other claims or liens arising through the mortgagor, though they are prior in point of time; and this is true without reference to whether the mortgage was executed to the vendor or to a third person. (as authored by Thomas A. Stoops)

US Bank NA v. JPMorgan Chase Bank NA, 1 CA-CV 16-0253, 6/29/17. Under the doctrine of replacement, a new mortgage retains the priority of a senior mortgage only to the extent new proceeds are used toward repayment of the senior mortgage. In general, an earlier-recorded lien, such as a mortgage or note secured by a deed of trust, has priority over a laterrecorded lien. Under the doctrine of replacement, however, a new lien retains the same priority as a senior lien released in the same transaction (i.e., a refinancing) to the extent of the balance owed on the senior lien. Under the doctrine of equitable subrogation, when a new lender applies funds to fully discharge an older loan, the new lender is substituted into the position of the older lender, but only if the more senior loan is fully discharged, or the new lender negotiates a full settlement of the obligation for less than face value.

Applying the doctrines together, if a new lender in a refinancing uses proceeds to only partially satisfy
another senior loan, such as a preexisting home-equity loan, and does not otherwise negotiate a settlement of the loan, the new lender would receive the benefit of replacement but not equitable subrogation. As a result, the new lender would not have priority over the non-fully-discharged loan beyond the extent of the balance owed on the original, replaced loan.


Bank of America vs FELCO. (1 CA-CV 16-0099, 8/29/17) This appeal is from a declaratory action by lienholder Bank of America, N.A. (“BofA”) against intervening lienholder Felco Business Services, Inc. 401(K) Profit Sharing Plan and FBS Sedona, LLC (collectively, “Felco”). After Felco foreclosed on its deed of trust and sold the subject property at a trustee’s sale, BofA sued for a declaration that its deed, recorded after Felco’s, was equitably subrogated to a position superior to Felco’s. Felco moved for partial summary judgment, arguing that BofA waived its equitable subrogation claim by not raising it as an objection to the trustee’s sale pursuant to A.R.S. § 33 –811(C). Without addressing whether equitable subrogation applied, the trial court agreed with Felco, holding that BofA’s equitable subrogation claim was a pre-trustee’s sale defense or objection that it waived by not asserting it before the sale.
On review, we hold that a n equitable subrogation claim is not a defense or objection to a trustee’s sale and is therefore not waivable under A.R.S. § 33–811(C). Accordingly, we reverse the trial court’s granting of partial summary judgment in Felco’s favor and remand to the trial court to determine whether equitable subrogation is appropriate in this case.
Holding:  Claim of lien priority by application of equitable subrogation is not waived under A.R.S. § 33-811 (C) if trustee’s sale of competing lien is held.

US Bank v. JPMorgan (Div 1, AzCtApp : No. 1 CA-CV 16-0253 6/29/2017).  Issues revolved around deeds of trust, subornation and partial payoffs. “In this dispute between two lenders, we address the doctrines of “replacement” and equitable subrogation as they apply to respective lien rights. We affirm the superior court’s application of the replacement doctrine to a claim by US Bank, N.A. for declaratory relief. We vacate the court’s application of equitable subrogation and remand for entry of judgment in favor of Chase, on US Bank’s second claim for declaratory relief. We also remand for consideration of US Bank’s remaining claims.”

Resolution Trust Corp. v. Segel, 173 Ariz. 42, 839 P.2d 462 (App.1992), we examined the impact of the Baker holding on non-purchase-money loans that were secured by second-position deeds of trust on residential property of less than two and one-half acres with a one- or two-family residence. In Segel, the court held that because the lender did not institute trustee’s sale proceedings and the deeds of trust secured non-purchase-money obligations, the lender was entitled to waive its security and sue directly on the notes under A.R.S. section 33-722. Id. at 44-45, 839 P.2d at 464-65.


Suit on the note: Following a judicial foreclosure by a senior lienholder, a junior lienholder can sue on Note (unless property is anti-deficiency in character) A.R.S. 33-722 Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 101 (App. 1995). Lender may waive its security in the real property and sue on the note. Darnell v. Denton, 137 Ariz. 204, 669 P.2d 81 (App. 1990). Also, foreclosure of a senior lien extinguishes the junior lien, therefore no need to “release” the junior lien. Wells Fargo, supra. Lender may not sue on the Note so long as the property fits within the anti-deficiency statutes (dwelling, 2 ½ acres or less, one or two family dwelling – ARS Section 33-814) Baker v. Gardner, 160 Ariz. At 105, 770 P.2d at 773 (1988) (first and second purchase money debts). First lender noticed trustee’s sale and second (Bakers) elected to sue on Promissory Note). Clarification in a supplemental opinion that the court did NOT mean to prohibit the non-PMSI creditor from waiving the security and suing on the note.


Suit on Promissory Note or “Show me the Note”: A lender may waive their lien on real property and sue on the Promissory Note. That waiver is an “abandonment and release” of the lien and must be “evidenced by a recorded release of the lien”. ARS Section12-1566(F) All limitations of Baker v Gardner and Mid Kansas apply. But see: Smith v. Mangels, 240 P.2d 168 (1985) and Deming v. Walraven, 651 P.2d 1203 (App. 1982) (Mortgage not waived by going to judgment on the Note)


Lender accepts less than what is owed on residential property, releases deed of trust, then sues borrower for deficiency. TANQUE VERDE ANESTHESIOLOGISTS, L.T.D. PROFIT SHARING PLAN, 836 P.2d 1021, 172 Ariz. 311 (App. 1992) “Although no trustee’s sale occurred in this case, we agree with Proffer (borrower) that, based on the holdings of Baker, supra, and Mid Kansas, supra, and absent evidence of an agreement to the contrary (emphasis added), when Tanque Verde (lender) signed the deed of release and reconveyance, it thereby waived its right to seek a deficiency judgment.” ((The assuming lender (Tanque Verde) signed the deed of release and included in the release language that the borrower is not released on the underlying debt. The borrower (Proffer) did not sign the deed of release. Nor, was there any other signed agreement where the borrower acknowledged that the debt was not released. Correct conclusion. This outcome will be different for short sales because there is almost always a new contract which details the agreement between the seller and the lender. That short sale contract is signed by the seller/borrower, therefore will be binding on the seller/borrower.

Vasquez v Saxon Mortgage, Deutsch Bank, AZ Supreme Ct, No. CV-11-0091-CQ (11/2011) certified question from Bankruptcy Court No. 4:08-bk-15510-EWH Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. § 33-808 when the assignee holds a promissory note payable to bearer? The answer is no; Arizona law imposes no such requirement.


“Show Me The Note” Hogan v Long Beach Mortgage CoCV 11-0115-PR (covers to trustee sales by Deutsche Bank and Washington Mutual) “show me the note” – Supreme Court accepted cert, argued 1/23/2012; We granted review to decide whether a trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

Non-judicial foreclosure sales are meant to operate quickly and efficiently, “outside of the judicial process.” Vasquez, 228 Ariz. at 359 ¶ 4 n.1, 266 P.3d at 1055 n.1 (citing Gary E. Lawyer, Note, The Deed of Trust: Arizona’s Alternative to the Real Property Mortgage, 15 Ariz. L. Rev. 194, 194 (1973)). The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the “mortgage foreclosure process . . . time-consuming and expensive,” id. (internal quotation marks omitted), and re-inject litigation, with its attendant cost and delay, into the process, see Transamerica Fin. Servs., 175 Ariz. at 313-14, 856 P.2d at 1191-92 (citing I.E. Assocs. v. Safeco Title Ins. Co., 702 P.2d 596 Cal. 1985)).

III. CONCLUSION For the reasons set forth above, the superior court’s orders dismissing Hogan’s complaints are affirmed and, although we agree with the result reached by the court of appeals, its opinion is vacated.

ISSUE ADDRESSED BY THE COURT OF APPEALS: Can a lender foreclose its deed of trust without owning the note which the deed of trust secures? Answer – yes. ISSUE NOT ADDRESSED BY THE COURT OF APPEALS: What is the legal effect of an assignment of a deed of trust without the corresponding note?


Lender conducts trustee’s sale but may not have promissory note: Hogan vs Washington Mutual, CA-CV 10-0385 (Div 1, AZ Court of Appeals, filed 3/29/11) “We hold that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.” Therefore, the trustee may foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed secures. App Ct affirms lower court. Deed of trust is a creature of statute and not a negotiable instrument. Therefore, UCC does not apply. Lender can conduct trustee’s sale without the promissory note. Zadrozny v. Bank of New York Mellon, No. 11-16597 Dismissal of a complaint in which plaintiffs alleged that defendants improperly initiated non-judicial foreclosure proceedings after plaintiffs failed to comply with the mortgage obligations financing their residence, is affirmed, where: 1) Arizona courts have rejected plaintiffs’ claim that non-judicial foreclosures require production of the promissory note prior to a sale, their claim that successor trustees are unauthorized to initiate foreclosure proceedings, or that non-judicial foreclosure sales must comport with the Uniform Commercial Code; and 2) plaintiffs failed to provide any legal authority for their constitutional challenge to A.R.S. section 33-811(b); and 3) plaintiffs waived any challenge to the district court’s dismissal of their fraud and misrepresentation claims as untimely.

Foresight Investments Group vs Leader Mortgage Company (LMC), CV 2003-000195, LMC permits a trustee’s sale to go forwarding knowing it should not have been held. Court decides that the trustee was effectively a seller of real estate and that the buyer at the sale had entered into a contract for the sale of the subject property. In that LMC could not transfer the subject property because the debt had already been paid, the trustee’s sale was a sale of realty and the buyer at the trustee’s sale was entitled to a benefit of the bargain measure of damages the difference between the fair market value of the property and the price bid by the buyer. (case was settled).


 Zubia v. Shapiro, CV-16- 0255-PR, 1/12/18.  A homeowner who fails to obtain an injunction before a trustee’s sale may not bring claims for damages that depend on the sale’s invalidity. When a home loan is secured by a deed of trust and the borrower defaults, a lender may seek to force a trustee’s sale of the home. Under A.R.S. §33-811(C), a trustor or other person to whom the trustee mails notice of the sale waives all “objections to the sale” unless that person obtains an injunction before the sale. Although a post-sale claim for money damages does not seek to undo the sale, claims that depend on the sale’s invalidity—claims that would necessarily call into question the validity of the sale—are “objections to the sale” and are therefore waived unless the borrower obtains an injunction before the sale.

Helvetica Servicing, Inc. v. Gold, No. 1 CA-CV 11-0100 deals with redemption rights after judicial foreclosure. One defendant requested fair market value determination which exceeded the price Helvetica bid at the sheriff’s sale. Thus protecting both borrowers from a deficiency claim. Court would not allow the other defendant to get the protection of the fair market value AND be able to redeem the property. “We hold that ARS 12-1566(c) operates to eliminate all rights of redemption when any debtor applies for an FMV determination.”

*VA Loans: DEFICIENCY allowed. Connelly v.J Dervinski, 961 F.2d 129 (9th Cir, 1991) Once again we are asked to determine, once again, whether a state anti-deficiency scheme is preempted by Department of Veteran Affairs (VA) regulations that authorize the VA to collect deficiencies on VA-guaranteed home loans. This case involves Oregon law, which forbids a deficiency judgment after either a judicial or a non-judicial foreclosure sale. See Or.Rev.Stat. § 86.770(2). Same result in Shepherd v. Dervinski, 961 F.2d 132 (9th Cir, 1992) (an Arizona case) also see In United States v. Rossi, 342 F.2d 505 (9th Cir.1965), we held that a California anti-deficiency law, which in all material respects is identical to Oregon law, is preempted by the VA regulations. Id. at 506. Subsequently, in Whitehead v. Derwinski, 904 F.2d 1362 (9th Cir.1990), we held that a Washington anti-deficiency law, which permits a deficiency judgment after a judicial, but not a non-judicial sale, is not preempted by the VA regulations. Id. at 1369. In Whitehead, we distinguished the Washington anti-deficiency law from the California anti-deficiency law. Id. at 1368. Because the Oregon anti-deficiency law is materially different from the Washington anti-deficiency law, but identical to the California anti-deficiency law, we hold that this case is controlled by Rossi and that the Oregon law is preempted by the VA regulations.

It is evident that a state’s anti-deficiency statute is irrelevant to VA-guaranteed home loans. This is consistent with the basic principle that federal law governs the rights of private citizens who contract in loans transactions with the United States. United States v. Kimbell Foods, Inc., 440 U.S. 715, 727, 99 S.Ct. 1448, 59 L.Ed.2d 711 (1979). There is nothing to suggest that this principle and the analysis undertaken in Carter would not also apply to other federal loan programs. See United States v. Einum, 821 F.Supp. 1283, 1284 (W.D.Wis.1992) (FmHA loans).

U.S. v. Rezzonico, 32 F. Supp. 1112 (D.Ct. Ariz. 1998) that sheds a little more light on the issue. In that case the FmHA guaranteed the loan, and the court follows Carter v Derwinski, 987 F.2d 611 (9th Cir.), a case in which the court held that “the VA always has a right of indemnity against the veteran for the amount of guarantee paid to the lender….[t]he VA’s right to indemnity derives from a contract independent of the mortgage. As indemnitor the veteran is in the same position as the guarantor….” Rezzonico, at 1115 (quoting Carter, 987 F.2d at 616-7). The Rezzonico court applied the same reasoning to the FhMA as the line of cases finding no preemption with respect to the VA.
Throw Cippolline, Medtronic, and the Chevron two part defenses into the mix and you have a first class briefing nightmare on any preemption issue. Predicting the outcome in these cases is anybody’s guess.


Servicemembers Civil Relief Act (SCRA) (this may be out of date – check the current law)
Section 303 – Mortgages and trust deeds

(a) MORTGAGE AS SECURITY- This section applies only to an obligation on real or personal property owned by a servicemember that–
(1) originated before the period of the servicemember’s military service and for which the servicemember is still obligated; and
(2) is secured by a mortgage, trust deed, or other security in the nature of a mortgage.

(b) STAY OF PROCEEDINGS AND ADJUSTMENT OF OBLIGATION- In an action filed during, or within 90 days after, a servicemember’s period of military service to enforce an obligation described in subsection (a), the court may after a hearing and on its own motion and shall upon application by a servicemember when the servicemember’s ability to comply with the obligation is materially affected by military service–
(1) stay the proceedings for a period of time as justice and equity require, or
(2) adjust the obligation to preserve the interests of all parties.

(c) SALE OR FORECLOSURE- A sale, foreclosure, or seizure of property for a breach of an obligation described in subsection (a) shall not be valid if made during, or within 90 days after, the period of the servicemember’s military service except–
(1) upon a court order granted before such sale, foreclosure, or seizure with a return made and approved by the court; or
(2) if made pursuant to an agreement as provided in section 107.

(d) PENALTIES-
(1) MISDEMEANOR- A person who knowingly makes or causes to be made a sale, foreclosure, or seizure of property that is prohibited by subsection (c), or who knowingly attempts to do so, shall be fined as provided in title 18, United States Code, or imprisoned for not more than one year, or both.
(2) PRESERVATION OF OTHER REMEDIES- The remedies and rights provided under this section are in addition to and do not preclude any remedy for wrongful conversion otherwise available under law to the person claiming relief under this section, including consequential and punitive damages.

Anti-deficiency protection does not apply to waste of the property. “failure to exercise ordinary care to preserve and protect the property.” A.R.S. Section 729(B) and 333 West Thomas Medical Building v Soetantyo, 976 F. Supp. 1298 (D. Ariz. 1997).

CSA 13-101 Loop, LLC vs Loop 101, 1 CA-CV 12-0167 (9/10/13 AZ Court of Appeals Div 1) “This case requires this Court to decide, among other questions, whether a borrower or guarantor can contractually waive its right to a determination of fair market value in a deficiency action (after a foreclosure – explanation added). Because we agree with the trial court that this right cannot be waived, and reject the other claims raised on appeal, we affirm the trial court’s granting of summary judgment.” Good decision for the borrower and/or guarantor.

Can Borrower Waive Anti-deficiency Protection? No, as determined in Parkway v. Zivkovic, 1 CA-CV 12-0612 (7/2013) This appeal presents the issue whether the anti-deficiency protections afforded by Arizona Revised Statutes (A.R.S.) section 33-814(G) (Supp. 2012) may be prospectively waived by the trustor. Because we conclude that such protections serve an important public purpose and may not be waived, we vacate the partial summary judgment for Parkway Bank and Trust Company (Parkway) and remand for proceedings consistent with this Opinion.

Partnership assets: Lender may collect a deficiency from community property of a general partner and spouse without the spouse signing the loan documents or partnership agreement. MacCollum v. Perkinson, 185 Ariz. 179, 913 P.2d 1097 (App. 1996) (Partners community property liable for deficiency even though spouse did not sign loan documents); Chase Bank of Arizona vs Acosta, 179 Ariz. 563, 880 P.2d 1109 (App. 1994) (General partnership in bankruptcy, lender could sue general partner.)


Guarantor separate liability: Tenet v. Silver, 52 P.3d 786 (App. 2002) (lender’s trustee’s sale did not extinguish guarantors separate liability for the debt)


Long v. Corbet, 181 Ariz. 153, 888 P.2d 1340 (Ariz. App. Div. 1, 1994) This issue is whether a creditor who has received excess funds from a trustee’s sale held by a senior creditor is precluded by Arizona’s anti-deficiency statute, Ariz.Rev.Stat.Ann. (“A.R.S.”) section 33-814(G), from pursuing a guarantor for satisfaction of the remainder of the debt. Because we conclude that the anti-deficiency statute does not apply in this situation, we affirm the trial court’s grant of summary judgment to the creditor.

Miller Designs v. US Bank et al CA-CV 16-0723 (Arizona Court of Appeals, Div. One, 2/13/18)   Held: that a purchaser of real property acquired at an execution sale has standing to assert a statute of limitations defense, and no additional contractual privity is needed. In addition, a creditor may unilaterally revoke its acceleration of debt, which requires an affirmative act by the creditor that is communicated to the debtor. Recording the notice of cancellation of trustee’s sale with language revoking the acceleration constitutes sufficient notice that the creditor has revoked the debt’s acceleration.

See ARS 33-714 (enacted after De Anza). The relevant part of De Anza is the part of its holding that the SOL does not extinguish the debt, it merely bars an action on the debt or to foreclose. De Anza Land & Leisure Corp. v. Raineri, 137 Ariz. 262, 266, 669 P.2d 1339, 1343 (App. 1983) (“In the case at bar, however, the debt is not extinguished; rather, the remedy for an action on the debt is merely barred.”)

Junior wiped out by senior’s foreclosure or trustee’s sale – NO DEFICIENCY if also purchase money lien Nydam v. Crawford, 181 Ariz. 101, 887 P.2d 631 (App. 1994). DEFICIENCY – consolidated second loan, used to pay off original second, plus credit cards, etc. Am. Gen. Fin.Serv. V. Dinwiddie, 2008 WL 4182862 (Ariz. Ct. Apps. 2/26/2008) (unreported)

One lender – multiple notesMid Kansas Fed. Sav. & Loan vs Dynamic Dev. Corp, 167 Ariz. 122, 804 P.2d 1310 (1991): Vice Chief Justice Feldman summarized the anti-deficiency statutes: “Read together, therefore, the statutes enact the following scheme: when the holder of a non-purchase money deed of trust of the type described in ARS Section 33-814(G) forecloses by non-judicial sale, the statute protects the borrower from a deficiency judgment. The lender therefore may not waive the security and sue on the Note.” Baker, 160 Ariz. at 106, 770 P.2d at 774. The holder may, however, seek to foreclose the deed of trust as if it were a mortgage, as allowed by Section 33-814(E); if it does so, the debtor is allowed redemption rights under Sections 33-726 and 12-1281 through 12-1289 and is thus protected from low credit bids, but the holder may recover a deficiency judgment – the difference between the balance of the debt and the sale price – unless the note is a purchase money obligation. In the latter case, the borrower is protected by the mortgage anti-deficiency statute ARS Section 33-729(a), which applies only to purchase money obligations. Id, at 127, 804 P.2d at 1315. (Emphasis added)

SUPPLEMENTAL OPINION: Summary and Application: “Where the creditor chooses non-judicial foreclosure, he cannot obtain a deficiency judgment if the collateral is within the class protected by the deed of trust anti-deficiency statutes. Where, however, the creditor chooses judicial foreclosure, he can obtain a deficiency judgment in all cases except those involving purchase money loans on the type of real property that the mortgage foreclosure statute describes. Therefore, where the creditor can obtain a deficiency judgment he can also elect to waive the security under ARS Section 33-722 and sue on the Note. By choosing judicial foreclosure, the creditor can obtain a deficiency judgment in all cases except those dealing with purchase money collateral on the residential property described in Section 33-729(a). He may, therefore, proceed under Section 33-722 in all cases that do not fall within Section 33-729(A)”


Multiple lenders with multiple notes: Junior lender can sue on Note after foreclosure by first lender unless property is purchase money, 2 ½ acres or less and utilized as a one or two family dwelling. Wells Fargo Credit v Tolliver, 183 Ariz. 343, 903 P.2d 1101 (App. 1995); W.D. Lang v Corbet, 181 Ariz. 153 (888 P.2d 1340 (App. 1994) (junior could pursue sue on note and collect excess sale proceeds from sale of first lender).

The principal of bifurcating actions pertaining to portions of loan monies is supported by Southwest Savings & Loan Ass’n v.Ludi, 122 Ariz. 226, 594 P.2d 92 (1979). The similarities yet significant differences between Ludi and Baker were noted by the Supreme Court of Arizona in Mid Kansas Federal Sav. & Loan Ass’n of Wichita v. Dynamic Development Corp., 167 Ariz. 122, 129 fn 6, 804 P.2d 1310, 1317 (1991) (In Banc); accord Cely v.DeConcini, McDonald, Brammer, Yetwin & Lacy, P.C., 166 Ariz. 500, 505-06, 803 P.2d 911, 916-17 (App. Div. 1 1990). While in Ludi and Baker the two notes were secured by the same real estate, “the second note in Ludi was given to obtain a home improvement loan and therefore was ‘independent from’ the first note . . . .” Id. (citation omitted). According to the Mid Kansas Court, Ludi was not in conflict with Baker because the action on the second deed of trust that involved the home improvement loan was “non-purchase money obligation.” Id. (citation omitted). Cited in American National Bank vs. Vatistas, 2010 WL 3115419 (2010) (Ariz.App.Div.1) As cited in appellants opening brief.

Mid Kansas had both first and second deeds of trust. Lender took title after trustee’s sale of second deed of trust by bidding full debt. Absent contrary agreement by the parties or intent not to merge, the borrower’s liability under the first deed of trust is extinguished as a result of the merger of fee simple title with lender’s beneficial interest under the first deed of trust. Mid Kansas, supra, at 130, 804 P2d at 1318.

Dobson Bay Club II DD, LLC v. La Sonrisa de Siena, LLC, 242 Ariz. 108 (2017)
Background: Borrower who defaulted on a balloon payment on a promissory note for a $28.6 million commercial loan filed action seeking a declaratory judgment that lender’s successor in interest was not entitled to recover late fee.
Holding: The court relied upon the Restatement (Second) of Contracts § 356 in holding that a five percent late fee on a balloon payment is an unenforceable liquidated damages provision. Restatement (Second) of Contracts § 356 states that parties do not have free rein in setting liquidated damages; because the central objective behind the system of contract remedies is compensatory, not punitive, parties cannot provide a penalty for a breach. Further, damages for breach by either party may be liquidated in the agreement but only at an amount that is reasonable in the light of the anticipated or actual loss caused by the breach. This case involved a note for $28.6 million which would result in a late fee of $1.4 million.

Law as of fall 2018: After a landlord retakes possession of a dwelling unit, if the tenant’s personal property remains in the unit, the landlord is required to hold the tenant’s personal property for 14 calendar days, instead of 10 days or 21 days if the tenant was evicted. The landlord is not required to store the tenant’s perishable items, plants and animals, and is permitted to remove and dispose of any personal property in the unit that is contaminated or poses a health and safety risk, at the landlord’s discretion. The tenant’s abandoned animals may be immediately removed and released to a shelter or boarding facility or the landlord is required to notify animal control. If after 14 days the tenant makes no reasonable effort to recover the personal property, the landlord is permitted to donate the personal property to a qualifying charitable organization (in addition to the current authorization to sell the personal property). A landlord that complies with statutory requirements for disposition of personal property is not liable for any loss to the tenant or any third party that results from moving, storing or donating any personal property left in the dwelling unit. If the tenant returns to the landlord the keys to the dwelling unit and there is personal property remaining in the unit, the landlord is permitted to immediately remove and dispose of the personal property without liability to the tenant or a third party unless the landlord and tenant have agreed in writing to some other treatment of the property.  S1376 (2018)

Tenants Facing Foreclosure Protected by 2018 Federal Law

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