CSA 13-101 Loop, LLC v. Loop 101, LLC
341 P.3d 452
Ariz.2014Background
- Loop 101, LLC borrowed $15.6 million in 2007; loan secured by a deed of trust and guaranteed by four individuals. Promissory note, deed of trust, and guarantees contained advance waivers of A.R.S. § 33-814(A)’s fair market value credit.
- Loop defaulted in 2009 with about $11.2 million outstanding; MidFirst Bank assigned the loan to CSA, which bought the property at trustee’s sale via a $6.15 million credit bid.
- CSA sought a deficiency judgment for roughly $5 million; Loop and guarantors counterclaimed and sought a court determination of the property’s fair market value.
- The superior court denied CSA/MidFirst’s motion to enforce the contractual waivers, held FMV was $12.5 million, and ruled no deficiency existed; the court of appeals affirmed in relevant part.
- The Arizona Supreme Court granted review to decide whether A.R.S. § 33-814(A)’s FMV credit can be prospectively waived and ultimately held such prospective waivers unenforceable.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether A.R.S. § 33-814(A)’s fair market value credit can be prospectively waived | CSA: Omitting an express anti-waiver provision implies legislature permits waiver; parties may contractually waive statutory protections | Loop: FMV credit furthers public policy protecting debtors and preventing artificial deficiencies; prospective waivers would eviscerate that protection | Prospective waiver of § 33-814(A) is unenforceable; parties may forgo the right after foreclosure commences but not prospectively |
| Whether statute applies to guarantors as well as borrowers | CSA: public-policy concerns less acute as to guarantors; waiver should be allowed vis-à-vis guarantors | Loop: § 33-814(A) plainly applies to guarantors; protections extend equally | § 33-814(A) applies to guarantors; public-policy protection covers them too |
| Whether a lender foreclosing may rely on contractual waiver instead of statutory scheme | CSA: lender chose foreclosure but can rely on contract terms negotiated with borrower/guarantors | Loop: Foreclosure recovery is governed by a statutory scheme that limits recovery; waiver undermines statutory scheme | Because deed-of-trust recovery is statutory, parties cannot prospectively contract out of the statutory FMV offset |
| Whether prior out-of-state authority requires permitting waiver | CSA: Fifth Circuit/Texas decisions (LaSalle/Moayedi) allow waiver; Arizona should follow | Loop: Those cases are distinguishable; Arizona’s statutes and policy differences permit finding an implied prohibition on waiver | Arizona declines to follow those authorities and holds prospective waiver unenforceable |
Key Cases Cited
- Krohn v. Superior Court, 203 Ariz. 205 (discusses deed-of-trust scheme as statutory creature) (Arizona Supreme Court)
- Mid Kan. Fed. Sav. & Loan Ass’n v. Dynamic Dev. Corp., 167 Ariz. 122 (explains § 33-814 applies regardless of borrower sophistication) (Arizona Supreme Court)
- Baker v. Gardner, 160 Ariz. 98 (context on anti-deficiency protections and creditor election) (Arizona Supreme Court)
- Forbach v. Steinfeld, 34 Ariz. 519 (historic statement of public policy protecting debtors) (Arizona Supreme Court)
- LaSalle Bank Nat’l Ass’n v. Sleutel, 289 F.3d 837 (5th Cir. 2002) (held waiver of FMV credit permissible under Texas law)
- Moayedi v. Interstate 35/Chisam Rd., L.P., 438 S.W.3d 1 (Tex. 2014) (Texas Supreme Court endorsing LaSalle’s reasoning)