Morgan AZ Financial, L.L.C. v. Gotses
235 Ariz. 21
Ariz. Ct. App.2014Background
- William Gotses executed promissory notes secured by deeds of trust on two undeveloped lots and defaulted. Morgan AZ Financial, LLC (successor-in-interest) conducted nonjudicial trustee’s sales and acquired title.
- Gotses did not seek to enjoin the trustee’s sales before they occurred.
- After the sales, Morgan sued Gotses for deficiency judgments under A.R.S. § 33-814(A); Gotses asserted fraud-based and other common-law defenses to liability on the notes.
- Gotses sought determinations of fair market value at the sales but produced no evidence; the trial court adopted Morgan’s uncontested appraisals.
- Morgan moved for summary judgment, relying on A.R.S. § 33-811(C) to argue that Gotses waived defenses by failing to enjoin the sale; the superior court granted summary judgment and awarded a large deficiency.
- On appeal the court considered whether § 33-811(C) bars a borrower from asserting common-law defenses in a post-sale deficiency action and reversed, remanding for further proceedings on the merits of the defenses.
Issues
| Issue | Plaintiff's Argument (Gotses) | Defendant's Argument (Morgan) | Held |
|---|---|---|---|
| Whether A.R.S. § 33-811(C) waives a borrower’s defenses to liability on the note in a post-sale deficiency action when the borrower failed to enjoin the trustee’s sale | § 33-811(C) only waives defenses "to the sale"; defenses to enforceability of the note survive and may be litigated in a deficiency action | Failure to enjoin the sale waives all defenses connected to enforcement of the debt; deficiency action is a continuation of the same enforcement process, so defenses are waived | The statute waives only defenses and objections to the sale itself; common-law defenses to note liability generally survive and may be asserted in a deficiency action (reversed and remanded) |
| Whether a trustee’s sale constitutes a judicial determination of breach/enforceability of the note | A nonjudicial sale does not adjudicate breach or enforceability; those issues remain for the court in a deficiency action | Trustee’s sale is ancillary but part of a continuous enforcement process tied to the note | The trustee’s sale is not a judicial determination of breach/enforceability; deficiency actions are separate judicial proceedings where enforceability may be litigated |
| Whether prior case law (e.g., Schwartz) requires treating sale and deficiency as a single process | Schwartz recognizes the note as the source of debt but does not fuse sale and deficiency into one proceeding | Relied on Schwartz to argue continuity between sale and deficiency | Court rejected that extension of Schwartz; nonjudicial foreclosure and deficiency actions are distinct mechanisms |
| Whether the trial court properly granted summary judgment under § 33-811(C) without addressing merits of note defenses | The summary judgment was improper because § 33-811(C) does not strip defenses to note liability; merits must be litigated | Summary judgment appropriate because defenses waived by failure to enjoin sale | Summary judgment reversed; remand for adjudication of defenses on the merits |
Key Cases Cited
- BT Capital, LLC v. TD Serv. Co. of Ariz., 229 Ariz. 299 (statute construed to waive defenses to sale when trustor fails to enjoin)
- National Bank of Arizona v. Schwartz, 230 Ariz. 310 (note is source of debt; foreclosure ancillary to collection)
- Sitton v. Deutsche Bank Nat’l Trust Co., 233 Ariz. 215 (Section 33-811(C) contemplates waiver only of defenses to the sale)
- Hogan v. Wash. Mut. Bank, N.A., 230 Ariz. 584 (describing nonjudicial trustee’s sale process)
- Patton v. First Fed. Savs. & Loan Ass’n of Phx., 118 Ariz. 473 (statutory waivers construed strictly in favor of trustors)
- Bothell v. Two Point Acres, Inc., 192 Ariz. 313 (standard of review on appeal from summary judgment)