296 P.3d 993
Ariz. Ct. App.2013Background
- Destiny appeals a grant of summary judgment for Brimet in a quiet title action about lien priority on property secured by a blanket deed of trust.
- First Horizon loaned Destiny Holdings II $438,750 (acquisition loan) secured by a blanket deed of trust; Destiny recorded a Memorandum of Option in second position behind the acquisition loan.
- First Horizon later funded a construction loan secured by a blanket deed of trust recorded after the Option; funds largely paid off the acquisition loan.
- Northern Trust refinanced the construction loan, securing a blanket deed of trust recorded after the Option; Northern foreclosed and purchased the property.
- Brimet, the purchaser from Northern, pursued the quiet title action; the trial court held replacement and equitable subrogation wiped out Destiny’s Option, granting Brimet summary judgment.
- Destiny appeals, and the appellate court reverses and remands for entry of summary judgment in Destiny’s favor.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Brimet have standing to pursue quiet title? | Brimet claims rights as Northern’s grantee, asserting Destiny’s lien is extinguished. | Brimet contends it holds the interest free of Destiny’s Option due to subrogation/priority. | Brimet has standing to pursue quiet title. |
| Are replacement and equitable subrogation applicable to extinguish Destiny's Option? | Destiny argues Northern’s lien supersedes the Option via subrogation. | Brimet asserts subrogation applies to priority but only to the extent of funds paid. | Evidence shows the construction loan replaced the acquisition loan to the extent of $442,296.12; after payments exceeded that amount, the Option remained senior; Brimet failed to extinguish the Option. |
| Did the apportionment theory apply to allocate loan payments among lots? | Brimet urges apportionment per CS & W; payments should reduce the loan balance on the property generally. | Brimet asserts per-lot apportionment; would resurrect extinguished lien. | Apportionment is not applicable to blanket loans; payments applied to principal were general, not per lot. |
| Who has priority after payments and refinance, and did the Option get extinguished by Northern’s foreclosure? | Destiny contends its Option remained senior after extinguishment of the principal loan balance. | Brimet argues Northern’s lien, post-recording after the Option, could subrogate. | With $442,296.12 the senior lien, and subsequent payments extinguishing that lien, the Option remained senior and was not extinguished by Northern’s foreclosure. |
Key Cases Cited
- Cosper v. Valley Bank, 28 Ariz. 373, 237 P. 175 (Ariz. 1925) (grantor’s meritorious defense may be asserted in quiet title)
- CS & W Contractors, Inc. v. Sw. Sav. & Loan Ass’n, 180 Ariz. 167, 883 P.2d 404 (Ariz. 1994) (apportionment of liens among lots in subdivision)
- Orme Sch. v. Reeves, 166 Ariz. 301, 802 P.2d 1000 (Ariz. 1990) (summary judgment standard and de novo review of questions of law)
- Cont’l Lighting & Contracting, Inc. v. Premier Grading & Utils., LLC., 227 Ariz. 382, 258 P.3d 200 (Ariz. Ct. App. 2011) (replacement and equitable subrogation analyzed; priority determined de novo)