Everyone Wins When a Foreclosure Sale Generates Excess Proceeds

By: Ben Reeves

Introduction

When a foreclosure sale generates more money than needed to pay off the lien, the excess proceeds usually go first to creditors in the order of their priority, and second to the owner after creditors are paid in full. So, in truth, not everyone wins when a foreclosure sale brings in too much money.  Amusingly, in Steinmetz v. Everyone Wins, the court awarded excess sale proceeds to….you guessed it…Everyone Wins, despite the owner’s argument that Arizona’s anti-deficiency statutes barred it from recovering anything.

In addition to supplying a clever title for this post, Steinmetz v. Everyone Wins provides an important analysis of how Arizona’s anti-deficiency statutes, homeowner’s assessment lien statutes, and foreclosure statutes apply when determining who “wins” when it comes to excess sale proceeds.… Read More »

Author: Ben Reeves | Leave a comment Tagged , ,

Share this Article:

Conflicts of Laws, Deficiency Actions, and Statutes of Limitations – Oh My!

By: Ben Reeves

What law governs a deficiency action if the choice-of-law provisions in the note and deed of trust conflict? The Arizona Court of Appeals answered that very question in ZB, N.A. v. Hoeller, No. 1 CA-CV 16-0071 (Ct. App. April 15, 2017).  It turns out, the note controls.

The Facts

In ZB, ZB, N.A. (ZB), a Utah bank, lent money to the Hoellers to purchase a commercial property in Missouri.  The note included a choice-of-law provision stating that Utah law governed the debt.  The deed of trust securing the commercial property, however, provided that Missouri law controlled “procedural matters related to the perfection and enforcement of [ZB’s] rights and remedies against the [p]roperty.”  In 2012, the Hoellers defaulted, and the bank recovered the property through a trustee’s sale.… Read More »

Author: Ben Reeves | Leave a comment Tagged , , ,

Share this Article:

Arizona Supreme Court Holds a Credit Bid at a Trustee’s Sale Should Not be Credited to a Title Insurer Under a Standard Lender’s Title Policy To the Extent the Bid Exceeds the Collateral’s Fair Market Value

By:  Richard H. Herold

The Arizona Supreme Court recently addressed what impact, if any, a lender’s credit bid at an Arizona trustee’s sale has on an insurer’s liability under Sections 2, 7 and 9 of the standard’s lender’s title policy (“Policy”), holding in Equity Income Partners, LP v. Chicago Title Insurance Company, 241 Ariz. 334, 387 P.3d 1263 (February 7, 2017) as follows:

  1. Section 2 of the Policy, entitled “Continuation of Insurance,” not Section 9, entitled “Reduction of Insurance; Reduction or Termination of Liability,” applies when a lender acquires property at a trustee sale by “either a full- or partial-credit bid” since Section 2 directly addresses the existence and amount of coverage in such circumstances.
Read More »
Author: Richard Herold | Leave a comment Tagged , ,

Share this Article:

California’s One-Action Rule May Apply to Federal Lenders

By: Anthony J. Carucci

California’s one-action rule provides that “[t]here can be but one form of action for the recovery of any debt or the enforcement of any right secured by mortgage upon real property or an estate for years therein . . . .” Cal. Code Civ. Proc. § 726(a). In other words, the one-action rule prescribes that the only process for recovery of a debt secured by a mortgage or deed of trust is to foreclose on the lien. The rule aims to prevent a multiplicity of actions and vexatious litigation, and to force a beneficiary to look to all of the security as the primary fund for payment of a debt before looking to the trustor’s other assets.… Read More »

Author: acarucci | Leave a comment Tagged , , , , , , , , , ,

Share this Article:

Guarantors Can Waive Anti-Deficiency Protections

By:  Richard H. Herold and Ben Reeves

In Arizona, guarantors can now be held liable for deficiencies even where borrowers avoid liability due to Arizona’s anti-deficiency statute.

Arizona courts have been active in the last few years in addressing the law governing post-trustee’s sale deficiencies under Arizona’s anti-deficiency statute, A.R.S. §33-814(G), which provides that no deficiency action may be maintained “if trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling is sold pursuant to [a] trustee’s…sale.” The deficiency is determined by crediting the borrower and guarantor with the higher of: (a) the fair market value of the property on the date of the trustee’s sale; or (b) the sale price at the trustee’s sale, to reduce the total balance due and owing.… Read More »

Author: Ben Reeves | Leave a comment Tagged , , , ,

Share this Article:

If Receiver’s Sales Aren’t Foreclosures, What Are They?

By:  Ben Reeves & Bob Olson

When no statute specifically authorizes a court-appointed receiver to sell real property, what type of sale is it?  The Supreme Court of Nevada recently addressed this question, holding that “a receiver sale of real property that secures a loan is a form of judicial foreclosure.”  U.S. Bank v. Palmilla Dev. Co., 131 Nev. Adv. Op. 9 (2015).

Facts

In U.S. Bank v. Palmilla, U.S. Bank made a $20.15 million loan to Palmilla Development Company secured by a development of townhomes.  Palmilla defaulted, and U.S. Bank applied for, and obtained, the appointment of a receiver over its real property collateral.… Read More »

Author: Ben Reeves | 1 Comment Tagged , , , ,

Share this Article:

Are Vacant Lots Protected Under Arizona’s Anti-deficiency Statutes?

By:  Ben Reeves

No, of course not.  Arizona’s anti-deficiency statutes only prohibit deficiency judgments after a trustee’s sale of a “dwelling”.[1]  Under no definition can a vacant lot constitute a “dwelling”.  This was the Arizona Supreme Court’s holding in BMO v. Wildwood Creek Ranch, LLC.

In BMO, Shawn and Kristina Rudgear (through their company Wildwood Creek Ranch, LLC) borrowed $260,000 to fund construction of a home on a vacant 2.26-acre lot.  This loan was secured by a deed of trust against the lot.

Construction of the home never began, the Rudgears defaulted, and BMO Harris Bank foreclosed via trustee’s sale. 

Read More »
Author: Ben Reeves | 2 Comments Tagged , , , ,

Share this Article:

Update – Prospective Waivers of “Fair Market Value” Hearings are Definitely Void.

fountain-390788_1280By:  Ben Reeves

In 2013, we blogged about the Arizona Court of Appeals’ determination that prospective contractual waivers of “fair market value” hearings are unenforceable as a matter of public policy.  The link to our prior blog post is here.  Although we noted some deficiencies in the Court of Appeals’ reasoning, we recognized that the holding reached a defensible legal result.  On review, the Arizona Supreme Court reached the same outcome…but with a more robust legal analysis.  See CSA 13-101 Loop, LLC v. Loop 101, LLC, et al., No. CV-14-0029 (Ariz. Dec. 31, 2014).[1]

The Arizona Supreme Court held that although Arizona’s anti-deficiency statutory scheme did not expressly prohibit contractual waivers of “fair market value” hearings, Arizona’s overall public policy behind the trustee’s sale process entitled borrowers and guarantors to the protection afforded by a “fair market value” hearing.… Read More »

Author: Ben Reeves | Leave a comment Tagged , , , ,

Share this Article:

Guarantors Score Two Victories Before the Nevada Supreme Court.

By:  Bob Olson and Nathan Kanute

On May 29, 2013, the Nevada Supreme Court issued two decisions that all real estate lenders need to be aware of because they have the potential to eliminate the ability of a lender to recover a deficiency judgment from a guarantor.

In Nevada it is common for lenders to commence foreclosure proceedings and, at the same time, sue all guarantors that have waived the benefit of Nevada’s one-action rule for the full amount of the debt they guaranteed.  Often the foreclosure sale will occur before lender obtains a judgment against the guarantor.  In Lavi v.Read More »

Author: Bob L. Olson | Leave a comment Tagged , , ,

Share this Article:

Nevada Supreme Court and District Court Issue Decisions Regarding Nevada’s Limitations on Deficiency Judgments.

By:  Bob Olson and Nathan Kanute

In 2011 the Nevada Legislature enacted Assembly Bill 273 (“AB 273”) which amended NRS 40.459 by limiting deficiency judgments to the difference between the amount the lender paid to acquire the loan or obligation and the larger of the market value of the property or the amount paid for the property at a foreclosure sale.  As one can imagine, a large number of borrowers and guarantors have tried to take advantage of this recent law to limit or in some cases eliminate their liability for deficiencies.  Creditors, on the other hand, have cried foul by arguing that, among other things, the law cannot be applied retroactively, it impairs the value of their pre-enactment paper and violates the Contracts Clauses of both the United States and Nevada Constitutions. … Read More »

Author: Bob L. Olson | Leave a comment Tagged , , , , ,

Share this Article:

Borrowers Can Avoid Liability Even After a Trustee’s Sale

By:  Ben Reeves

Since a lender must have a valid debt and valid lien to conduct a trustee’s sale, a borrower that allows the foreclosure sale to occur impliedly agrees that the debt and lien are valid.  In Madison v. Groseth and BT Capital, LLC v. TD Serv. Co. of Arizona, 229 Ariz. 299, 301, 275 P.3d 598, 600 (2012), Arizona appellate courts reached that exact conclusion, holding that under A.R.S. § 33-811(C), a borrower that does not obtain an injunction stopping a trustee’s sale waives all defenses to the validity of the sale and all defenses related to the sale. … Read More »

Author: Ben Reeves | Leave a comment Tagged , , ,

Share this Article:

Amendments to Arizona’s Anti-deficiency Statute Exclude Homebuilders from Anti-Deficiency Protection

By:  Ben Reeves

Last Tuesday, April 20, 2014, Arizona’s Governor, Jan Brewer, signed HB 2018 into law.  This bill closes a long-standing loophole that allowed commercial homebuilders to take advantage of Arizona’s anti-deficiency statute, even though the statute was originally enacted to protect only homeowners.  In sum, for loans secured by residences that are originated after December 31, 2014, commercial homebuilders will no longer be able to avoid liability based on Arizona’s anti-deficiency statute, A.R.S. § 33-814(G).

A.R.S. § 33-814(G) provides that after a trustee’s sale, a lender cannot sue to recover the difference between the value of a “dwelling” and the amount owed on the loan (i.e., the “deficiency”). … Read More »

Author: Ben Reeves | Leave a comment Tagged , , ,

Share this Article:

California Amends its Anti-Deficiency Statute

By:  Ben Reeves

As of January 1, 2014, California amended its anti-deficiency statute to stop mortgage lenders from “collecting” from homeowners on post-foreclosure debts.  Although the amendments were designed to tackle a purely consumer / residential real estate issue, only time will tell if the changes have unintended consequences beyond the consumer / residential realm.

Prior to the amendment, California’s anti-deficiency statute, Cal. Civ. Proc. Code § 580d, only barred lenders from obtaining a judgment against homeowners to recover the difference between the value of the home after foreclosure and the amount of the debt owed on the mortgage (i.e.Read More »

Author: Ben Reeves | Leave a comment Tagged , ,

Share this Article:

Arizona Court of Appeals Holds That Certain Residential Developers Are Not Protected By The Anti-Deficiency Statute After Foreclosure Of A Deed Of Trust On Vacant Land

By Eric Spencer and Adam Lang

Nearly three years ago, in M&I Marshall & Isley Bank v. Mueller, the Arizona Court of Appeals held that the Arizona anti-deficiency statute protects a borrower who started, but never completed, construction of a single-family dwelling before defaulting on its loan. This week, the same appellate court limited those anti-deficiency protections by holding in BMO Harris Bank v. Wildwood that a developer of vacant land – land on which no construction has begun – cannot invoke the anti-deficiency statute as a matter of law, regardless of whether the borrower intends to eventually reside on that land.… Read More »

Author: Adam Lang | Leave a comment Tagged , , , , , , , , , , ,

Share this Article:

Guarantors Beware! A.R.S. § 33-814 May Not Save You from a Deficiency Judgment

By:  Ben Reeves

In First Credit Union v. Courtney, 309 P.3d 929, 669 Ariz. Adv. Rep. 18 (Ct. App. 2013), the Arizona Court of Appeals rejected three creative arguments that A.R.S. § 33-814 protected the guarantors from paying on their guaranty.  The opinion provides a stark reminder that Arizona courts will usually enforce a guarantor’s contractual obligation to repay a debt.

In 2006, First Credit made a $3.56 million construction loan to Orange Grove I, L.L.C. (the “Borrower”).  First Credit secured the loan with a lien against commercial real property called the Appian Estates.  The Courtneys guaranteed repayment of the loan. … Read More »

Author: Ben Reeves | Leave a comment Tagged , , ,

Share this Article:

Can You Waive the Right to a “Fair Market Value” Hearing?

By:  Ben Reeves

We finally have an answer to the question of whether parties can contractually waive the right to a “fair market value” hearing under Arizona law – and the answer, according to the Court of Appeals – is “no.”

In CSA 13-101 Loop, LLC v. Loop 101, LLC et al., No. 1CA-CV 12-0167 (Ariz. Ct. App. September 10, 2013), the Arizona Court of Appeals held that Arizona’s deficiency statute, A.R.S. § 33-814(A), prohibits a party from waiving the right to a “fair market value” hearing.  This statute generally entitles borrowers and guarantors to an evidentiary “fair market value” hearing to determine the value of foreclosed property that should be applied towards repayment of the debt that was secured by the foreclosed property. … Read More »

Author: Ben Reeves | 1 Comment Tagged , , , ,

Share this Article:

A Non-Purchase Money Second Deed of Trust is Not Protected by Arizona’s Anti-deficiency Statute

By:  Ben Reeves & Julie Maurer

Arizona anti-deficiency laws do not prohibit a non-purchase money lender from suing on its note after foreclosure by a senior lender.  In Wells Fargo Bank, N.A. v. Brewer, No. 1CA-CV 12-0383 (Ariz. Ct. App. May 21, 2013 unpublished), the Arizona Court of Appeals held that Arizona’s anti-deficiency statute, A.R.S. § 33-814, did not prevent Wells Fargo from suing on its note after a senior lender foreclosed on the borrowers’ multi-million dollar home.

In 2007, Wells Fargo agreed to lend the Brewers up to $1,000,000 and secured the loan with a second position deed of trust recorded against the Brewers’ home. … Read More »

Author: Ben Reeves | Leave a comment Tagged , , , ,

Share this Article:

A Lender Holding Two Liens Can Foreclose on the Senior Lien and Sue on the Junior Lien

By:  Ben Reeves

In Wells Fargo Bank, N.A. v. Riggio, No. 1CA-CV-12-0430 (Ariz. Ct. App. June 4, 2013), the Arizona Court of Appeals held:  (i) that the “merger of rights” doctrine does not “merge” a lender’s first and second lien into a single unitary interest upon the foreclosure of the first lien, and (ii) A.R.S. § 33-814 does not apply to an action on a junior loan.  In other words, Arizona law permits a lender holding two liens against the same property to foreclose on the senior lien, and then sue on the second loan outside of Arizona’s anti-deficiency statutory scheme.… Read More »

Author: Ben Reeves | 1 Comment Tagged , , ,

Share this Article:

Arizona’s Anti-deficiency Statute, A.R.S. 33-814(G), Cannot be Prospectively Waived Says the Court of Appeals

Money HouseBy:  Ben Reeves

In Parkway Bank & Trust Co. v. Zivkovic, 662 Ariz. Adv. Rep. 26 (Ct. App. 2013), the Arizona Court of Appeals held that provisions in loan documents purporting to waive the applicability of A.R.S. § 33-814(G) violate Arizona public policy and, therefore, are not enforceable under Arizona law.

A.R.S. § 33-814(G) provides that if a lender has a trustee’s sale foreclose of a “property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling . . . [then] no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.”  This statute is generally referred to as the “anti-deficiency” statute as it generally prevents lenders from suing homeowners for the difference between the amount owed on their mortgage and the value of their home.… Read More »

Author: Ben Reeves | Leave a comment Tagged , , , ,

Share this Article:

A Person Owning a Fractional Interest in a Vacation Home is Protected by Arizona’s Anti-deficiency Statute

CabinBy:  Ben Reeves

In Independent Mortgage v. Alaburda, the Arizona Court of Appeals held that Arizona’s anti-deficiency statute, A.R.S. § 33-814(G), precluded a lender from suing its borrowers for a deficiency after foreclosing on the borrowers’ fractional interest in a vacation home.  230 Ariz. 181, 281 P.3d 1049 (Ct. App. 2012).

If a lender conducts a trustee’s sale of “trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling,” then A.R.S. § 33-814(G) bars a lender from suing a borrower to recover any difference between the value of the property and the amount of debt owed (i.e.Read More »

Author: Ben Reeves | Leave a comment Tagged , , ,

Share this Article:

A.R.S. § 33-814(A) and Bankruptcy Proofs of Claim: To File or Not to File…Conflicting Cases Leave Creditors With No Clear Answer

By: Ben Reeves

Under Arizona law, does a secured creditor need to file a deficiency action within 90 days after a trustee’s sale to preserve the unsecured portion of its claim in a bankruptcy case? Or is filing (or amending) a proof of claim sufficient? Two recent cases out of Arizona provide conflicting answers.

The two cases reached the issue based on a similar fact pattern. In both cases, the debtors stipulated to relief from the automatic stay to allow a trustee’s sale to occur. In both cases, the sales resulted in substantial, unsecured deficiencies. In both cases, the trustees objected to the unsecured portion of the unsecured claims based on the lenders’ alleged failure to comply with A.R.S.Read More »

Author: Ben Reeves | Leave a comment Tagged , , , , , ,

Share this Article: