By: Ben Reeves
Arizona’s trustee’s sale statutory scheme provides for the waiver of all defenses and objections to a trustee’s sale that: (i) are not raised prior to the sale, and (ii) do not result in an injunction against the sale going forward. See A.R.S. § 33-811(C). In other words, if you have an objection to a trustee’s sale, you must seek and obtain an injunction prior to the sale or your objection will be waived.
Arizona’s Court of Appeals previously held that notwithstanding this statutory waiver, “common law” defenses to repayment of the debt survive a non-judicial foreclosure even in the absence of an injunction prior to the sale. See Morgan AZ Financial, L.L.C. v. Gotses, 235 Ariz. 21, 326 P.3d 288 (Ct. App. 2014). Our analysis of the Morgan decision can be found here.
In Zubia v. Shapiro, 243 Ariz. 412, 408 P.3d 1248 (2018), the Arizona Supreme Court revisited the issue of what claims survive a trustee’s sale, and clarified that if a person fails to enjoin a trustee’s sale prior to its occurrence, then that person waives any and all damages claims dependent upon a trustee’s sale. That person does not, however, waive damages claims that are independent of the sale. Thus, determining what types of claims are “dependent” versus “independent” of a trustee’s sale is of critical importance to lenders and borrowers alike.
In Zubia, a wife and her husband purchased a single family residence as joint tenants in 1995. After the couple separated, the husband signed a $150,000 promissory note in favor of the Shapiros, and secured repayment of the note with a deed of trust against the home. Although signatures for both the husband and wife appeared on the note and deed of trust, the wife alleged that her signatures were forged and that she did not know about the loan until 2013—at or about the time the loan went into default.
After the default occurred, the Shapiros noticed a trustee’s sale. A month before the sale was scheduled to take place, the wife filed an action against the husband, the Shapiros, and others seeking to quiet title. She did not, however, seek or obtain an injunction to stop the sale. Ultimately, that pre-sale action was dismissed for lack of prosecution. The Shapiros subsequently conducted the trustee’s sale, purchased the property with a credit bid, and recorded a trustee’s deed transferring title to themselves.
After the sale, the wife filed a new action reasserting her forgery allegations. In this post-sale action, the wife sought: (i) damages under Arizona’s wrongful recordation statute (A.R.S. § 33-420), (ii) to quiet title to the property, and (iii) damages for “wrongful foreclosure.” The Shapiros successfully moved to dismiss, arguing that the wife waived these claims by failing to obtain an injunction prior to the sale.
On appeal, the Supreme Court affirmed. In its analysis, the Supreme Court concluded that each cause of action attacked the validity of the trustee’s sale itself. Indeed, the wife argued that since the note and deed of trust were forged, the Shapiros never obtained a valid security interest. Accordingly, she argued that the trustee’s deed was invalid as a matter of fact and law. This argument was the underpinning of all three of the wife’s claims.
Although her argument seems plausible on its face, the claims attacked the validity of the sale itself. Indeed, if the wife succeeded, then the sale would necessarily be declared invalid. As such, A.R.S. § 33-811(C) barred the wife’s claims, because—as the Supreme Court held—A.R.S. § 33-811(C)’s express language “requires enjoining the sale as a prerequisite to any claim arising out of the sale.” Consequently, the wife’s failure to obtain an injunction prior to the sale constituted a waiver of any and all claims that challenged the validity of the sale.
Although the Supreme Court affirmed the dismissal of the wife’s complaint, it specifically noted that the holding “does not preclude [the wife] from pursuing an action against [the husband] or others for claims independent of the sale.” Accordingly, the wife “may still have a claim for damages arising from the recording of the deed of trust considering the alleged forgeries” so long as the claim “does not depend on whether a trustee’s sale occurred.”
Zubia provides guidance on what types of claims are “dependent” versus “independent” of a trustee’s sale. In essence, if the claim exists as a result of the trustee’s sale (like the claims asserted by the wife did), then those types of claims will likely be waived absent an injunction. If, however, the claims exist notwithstanding the trustee’s sale (such as the wife’s potential forgery claims), then A.R.S. § 33-811(C) likely does not apply.
 Of interest, the Supreme Court noted that Arizona has not recognized the tort of “wrongful foreclosure.” Although it left the door open for this type of claim to be recognized in the future, the Supreme Court declined to add that claim to Arizona’s common law at this time. Regardless, because the “wrongful foreclosure” claim arose out of the execution and recordation of the trustee’s deed, it objected to the validity of the sale and consequently was barred under A.R.S. § 33-811(C).