Old Republic: Deficiency Judgment

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Old Republic: Deficiency Judgment

Postby Riser Adkisson LLP » Fri Jun 22, 2012 9:19 pm

Old Republic Ins. Co. v. Stephenson, 2012 WL 1939735 (Ariz.App. Div. 1, Unreported, May 29, 2012). http://goo.gl/cVQyg


Court of Appeals of Arizona, Division 1, Department D.

OLD REPUBLIC INSURANCE COMPANY, a foreign corporation, Plaintiff/Appellee,


Ty M. STEPHENSON, Defendant/Appellant.

No. 1 CA–CV 11–0581.

May 29, 2012.

Appeal from the Superior Court in Maricopa County; Cause No. CV2010–002428; The Honorable Edward O. Burke, Retired Judge. AFFIRMED.

Hammerman & Hultgren, P.C. By Jon R. Hultgren and Jennifer R. Spiegel, Phoenix, Attorneys for Plaintiff/Appellee.

Curry Pearson & Wooten, PLLC By Daniel Seth Riley, Phoenix, Attorneys for Defendant/Appellant.



*1 Para. 1 Defendant/Appellant Ty M. Stephenson appeals the superior court's judgment for Plaintiff/Appellee Old Republic Insurance Company on its claim for breach of contract. For the following reasons, we affirm.


Para. 2 Stephenson purchased a home in Peoria in March 2005.FN1 He financed the entire purchase price of $330,000 with two loans from Fieldstone Mortgage; one for eighty percent of the purchase price and a second loan for the remaining twenty percent. Fieldstone recorded deeds of trust on the property to secure the loans.

FN1. Stephenson is the only person identified on the warranty deed, the only signer of the relevant documents, and the only defendant who has appeared in this action. It is therefore ordered amending the caption to remove Jane Doe Stephenson as a defendant/appellant. The above caption shall be used on all further documents filed in this appeal.

Para. 3 In late 2005, GB Home Equity, L.L.C., issued a line of credit to Stephenson for $114,000 (the "Loan"). He used $70,017.61 of the Loan monies to pay the balance of the second mortgage held by Fieldstone and received an additional $40,000 in cash.FN2 Thereafter, GB Home Equity assigned the Loan to M & I Bank.

FN2. Stephenson borrowed an additional $1,578 to pay fees associated with the Loan, for a total of $111,595.61.

Para. 4 In 2008, Fieldstone initiated a non-judicial foreclosure and the Peoria house was sold at a trustee's sale. M & I Bank received no proceeds from the foreclosure sale because the price the trustee obtained at auction was less than Stephenson's indebtedness on Fieldstone's first mortgage. M & I Bank then assigned its rights in the Loan to Old Republic.

Para. 5 Old Republic filed this action for breach of contract arising out of Stephenson's failure to pay the Loan as agreed, and moved for summary judgment. Stephenson cross-moved for summary judgment on the grounds that Old Republic's action was barred because the Loan was a non-recourse purchase money loan under Arizona's purchase-money anti-deficiency statute, Arizona Revised Statutes ("A.R.S.") section 33–729(A) (2007).FN3 The superior court ruled that the Loan could be bifurcated for purposes of applying the anti-deficiency statute and entered a judgment for Old Republic in the amount of $40,000 plus pre-judgment and post-judgment interest. Stephenson timely appealed.

FN3. "Arizona has two anti-deficiency statutes: 1) A.R.S. sec. 33–729(A), which applies to purchase money mortgages and to purchase money deeds of trust that are judicially foreclosed, Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1989); and 2) A.R.S. sec. 33–814(G), which applies to all deeds of trust foreclosed by trustee's sale whether or not they secure purchase money obligations ." Tanque Verde Anesthesiologists, L.T.D. Profit Sharing Plan v. Proffer Group, Inc., 172 Ariz. 311, 313, 836 P.2d 1021, 1023 (App.1992). The parties do not dispute that A.R.S. sec. 33–729(A) is the statute applicable in this case.

Para. 6 We have jurisdiction pursuant to A.R.S. sec. 12–2101(A)(1) (Supp.2011).


Para. 7 Stephenson argues the superior court erred in ruling that A .R.S. sec. 33–729(A) applies only to purchase money amounts, and does not protect non-purchase money loan funds included in a purchase-money transaction.FN4

FN4. Stephenson also argues that A.R.S. sec. 33–729(A) applies when a borrower has refinanced an existing purchase money loan with a new lender. However, the superior court held that Arizona's anti-deficiency statutes apply to the portion of the Loan monies that Stephenson used to pay the balance of his second loan from Fieldstone, and Old Republic did not cross-appeal from that ruling. We therefore do not address it. ARCAP 1; 13(b)(3); In re Estate of Friedman, 217 Ariz. 548, 551, 177 P.3d 290, 293 (App.2008) (stating a party aggrieved by only part of a judgment can appeal only the part adversely affecting the party). Nevertheless, we note that we recently held in Helvetica Servicing, Inc. v. Pasquan, –––Ariz. ––––, ––––, paras. 19–23, ––– P.3d ––––, –––– (App.2012), that refinancing a purchase money obligation does not destroy the purchase money status of the loan for purposes of protection under Arizona's anti-deficiency statutes, at least to the extent that the loan proceeds are used to satisfy the original obligation.


Para. 8 In reviewing a summary judgment, our task is to determine de novo whether any genuine issues of material fact exist and whether the trial court incorrectly applied the law. L. Harvey Concrete, Inc. v. Agro Constr. & Supply Co., 189 Ariz. 178, 180, 939 P.2d 811, 813 (App.1997). We view the facts in the light most favorable to the party against whom summary judgment was entered, and give that party the benefit of all favorable inferences fairly arising from the evidence. Id. We review the superior court's interpretation and application of a statute de novo. Schwarz v. City of Glendale, 190 Ariz. 508, 510, 950 P.2d 167, 169 (App.1997).

Para. 9 This case concerns the application of Arizona's purchase-money anti-deficiency statute to loan monies used both as purchase money for a residence and for other purposes. The relevant statute provides:

*2 [I]f a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real 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, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary.

A.R.S. sec. 33–729(A). The Arizona legislature enacted the statute to protect certain borrowers against deficiency judgments arising from purchase money mortgages and purchase money deeds of trust that had been judicially foreclosed. Helvetica Servicing, Inc. v. Pasquan, ––– Ariz. ––––, –––– para. 9, ––– P.3d ––––, –––– (App.2012). As we recently discussed in Helvetica, the legislation reflects a public policy decision to protect consumers and place the risk of inadequate security on lenders, rather than borrowers. Id. Anti-deficiency protection "is intended to discourage purchase money lenders from over-valuing real property by requiring them to look solely to the collateral for recovery in the event of foreclosure." Id.

Para. 10 In this case, Stephenson applied a portion of the Loan monies ($70,017.61) to repay his obligation on Fieldstone's prior purchase-money loan, but received another portion of Loan monies ($40,000) in cash and did not apply those funds toward the purchase of the residence. The superior court ruled that the Loan could be bifurcated and held that Stephenson was entitled to the protection of the statute for that portion of the Loan monies he applied toward Fieldstone's prior loan, but not for that portion he received as cash. Stephenson argues the court misapplied the law and asserts that because he used a portion of the Loan monies to repay a purchase-money loan, the entire Loan should be treated as a non-recourse obligation.

Para. 11 We addressed the issue of whether the anti-deficiency protection set forth in A.R.S. sec. 33–729(A) applies to non-purchase money funds included in a purchase money transaction for the first time in Helvetica. Id. at –––, paras. 33–37, ––– P.3d at ––––. After considering the legislative history and the goal of Arizona's legislation, we concluded that it would be inappropriate to extend anti-deficiency protection to loan disbursements unrelated to the acquisition or construction of a qualifying residence. Id. at –––, para. 37, ––– P.3d at ––––. We therefore held that non-purchase money loan funds included in a purchase money transaction may be traced and segregated, and anti-deficiency protection would be afforded only to the purchase money amounts. Id.

*3 para. 12 The superior court's ruling, although issued prior to Helvetica, is fully consistent with Helvetica. We affirm the court's determination that Stephenson was not entitled to the protection of A.R.S. sec. 33–729(A) for the Loan proceeds that he received in cash and did not apply to repay his purchase-money obligation.


Para. 13 For the foregoing reasons, we affirm the judgment.

Para. 14 Old Republic requests an award of attorneys' fees and costs on appeal pursuant to A.R.S. sec. 12–341.01 (2003), which provides for a discretionary award of fees to the successful party in an action arising out of a contract. In the exercise of our discretion, we deny its request for an award of fees. However, we will award Old Republic the taxable costs it incurred in this appeal upon its compliance with Rule 21 of the Arizona Rules of Civil Appellate Procedure.


Ariz.App. Div. 1,2012.

Old Republic Ins. Co. v. Stephenson

Not Reported in P.3d, 2012 WL 1939735 (Ariz.App. Div. 1)

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