Mid Kansas Federal Savings & Loan Ass'n of Wichita v. Dynamic Development Corp.

804 P.2d 1310

MID FEDERAL KANSAS SAVINGS

AND LOAN ASSOCIATION OF WICH-

ITA, corporation organized and exist-

ing under the laws of the States United America, Plaintiff-Appellee,

DYNAMIC DEVELOPMENT CORPO-

RATION, corporation, an Arizona

Defendant-Appellant.

No. CV-89-0447-PR.

Supreme Arizona, Court of

En Banc. 10, 1991.

Jan.

veloper and whether a lender recover owing balance the first notes it title to the foreclosure its second sale of deed of trust. 23, Ariz.R.Civ.App.P., Rule 17B We Const, jurisdiction have Ariz. under art. 5(3) and A.R.S. 12-120.24. FACTS AND PROCEDURAL HISTORY A. Background Factual Dynamic Development Corporation (Dy- namic) developer is a that builds and sells property. residential and commercial May 1985, Dynamic secured financing from Savings Mid Kansas Federal As- Loan Apker, Apker, Haggard by & Kurtz (Mid Kansas) sociation for the construction Phoenix, Apker, B. David for plaintiff-ap- “spec” ten on Dynamic homes lots pellee. in owned a Prescott subdivision. The total Laird, Law Offices by of Mitchell C. P.C. loan, $803,250, amounting to was disbursed Laird, Steele, Phoenix, Mitchell C. Jerry separate loans, the form of ten each defendant-appellant. by separate evidenced a note and secured Gust, by separate deed trust on a by Rosenfeld & Henderson Brent Moody, Steiner, Margaret unimproved F. L. complete Robert L. lot. Unable to con- Stewart, Jr., Phoenix, curiae, for amici Ari- struction with the amounts financed under Ass’n, Valley Bank, zona Bankers’ Nat. notes, the first Dynamic obtained an addi- Bank, First Interstate Sec. Pacific Bank. $150,000 tional loan from Mid Kansas January of 1986. This loan was evidenced Roger Cohen, Feller by & Cohen L. Kathi single promissory note and a blanket Phoenix, Sandweiss, M. for amicus curiae remaining deed of trust on the seven lots Southwest Sav. & Loan Ass’n. unsold. first and second notes came due OPINION the summer of 1986. Two more lots were FELDMAN, Vice Chief Justice. sold and from the released liens. In the fall of Mid Kansas Dynamic notified A held notes construction lender secured remaining properties that the five would be by first and second deeds of trust on a if sold at a trustee’s sale the total on debt developer’s property. residential The lend- the first paid. and second notes was not er at a title to the trust- pay unable total bal- ee’s sale on the second trust deed and due, ance one prior but did sell more lot against thereafter brought action applied proceeds the trustee’s sale and developer for on the due balance to the second note. notes. The appeals court of held precluded doing lender was so under Mid Kansas noticed trustee’s sale 33-814(G)1 and the rationale remaining properties, the four each Gardner, our decision in Baker improved which was then a substan- 770 P.2d 766 tially finished residence. At the time sale, Dynamic We the trustee’s owed must Mid Kan- determine whether the anti-de- ficiency $102,000 apply approximately sas a residential de- the second 33-814(E). 1. Then codified as § Ludi, $425,000 on the four first notes. Loan Ass’n v.

note Southwest Sav. & (1979). Dynamic 594 P.2d 92 Originally, the sales on the first deeds were argued prohibited any attempt that Baker day scheduled for the after the sale on security and sue on the note to waive the 20, 1987, January second deed. On deficiency. There- disguised as a action for second-position blanket deed trust was fore, could not both foreclose Mid Kansas parcels. the sale of the four foreclosed by power the second deed of sale and elect purchased with a covering Dynamic on the first notes to sue credit bid of the balance owed on the sec- property. the same first-position ond note. The four sales appeals and re- The court of reversed postponed ultimately never held. were entry judgment for manded the case for Having property, title to the thus Dynamic. Mid Kansas Fed. Sav. & Loan to Mid Kansas now seeks waive the securi- Corp., Ariz. Dynamic Ass’n v. Dev. ty of the first liens and sue for the balance (Ct.App.1989). 787 P.2d 132 The court first notes. due on the Baker, held that under Mid Kansas’s at-

tempt security and sue on the waive deficiency, debt was an action for a barred Background B. Procedural 33-814(G). after a trustee’s sale under § complaint Mid Kansas’s amended stated result, Judge Brooks concurred in the but recovery causes of action for of the balance argued that the case should have been de- promissory due under each of four according principles cided to the partial moved for sum- notes. Mid Kansas extinguishment, and rather than under the mary judgment on the four debt claims. statute, anti-deficiency he because was granted The trial court the motion and developer persuaded “not that a residential against statutory protection claim the judgment pursuant entered for Mid Kansas deficiency judgments afforded to home- 54(b), Ariz.R.Civ.P., to Rule 16 A.R.S. owners under Baker v. Id. at Gardner.” Dynamic The court found that inwas (Brooks, J., concur- 787 P.2d at 138 default on the four in construction notes ring). $425,250 principal plus amount of inter- petitioned for in this review percent. rejected est at thirteen The court court, following presenting the issues for Dynamic’s claim that Mid Kansas had “ar- our consideration: tificially deficiency created a and now developers 1. commercial Whether deficiency judgment against seeks a residential who borrow for busi- maker notes.” The court deter- purposes are entitled to the benefit of ness mined that anti-deficiency stat- Arizona’s consumer holding under the Savings Southwest utes, 33-729(A) 33-814(G). and A.R.S. §§ Ludi, and Loan v. [594 anti-deficiency Arizona’s Whether (1979)], P.2d 92 Plaintiff can maintain prop- apply when the encumbered notwithstanding action on these notes actually used as residences. erties are by there was a Trustee’s Sale instituted a lender’s election to waive Whether separate Plaintiff on a deed in- of trust upon security and sue a construction volving subject properties. the [same] by of trust consti- loan note secured a deed deficiency prohibited for a tutes an action appeal, Dynamic argued On that Mid statutes, anti-deficiency Arizona’s prohibited recovering Kansas was from 33-729(A) 33-814(G). A.R.S. and §§ promissory itself. Id. ciency judgment sue on or can the note judgment then execute on the resultant but the not be Baker held that lender should bring simultaneously. cannot actions both anti-deficiency allowed to circumvent the Washburn, Legisla- The Judicial and See electing sue the by statute to the debtor on Response Inadequacy tive to Price note, thereby realizing be- any difference Sales, 53 Mortgage Foreclosure S.CAL.L. tween the value of the real 843, REV. The election statute the our the owed on debt. As amount intended the debtor mul- protect is to from supplemental pointed out, opinion Baker’s tiple grant suits and at the same time the holding applies whenever the anti-deficien- security. creditor the of the benefit cy apply not al- statutes and therefore is ways purchase money the situa- limited to statute alters tradi election 106-07, at 774- tion. 160 Ariz. at 770 P.2d tional common rule that a holder of a law Assuming that the deed of trust falls mortgage right by note secured a has the statutes, anti-deficiency within one of the alone, on the to on the to sue note foreclose deficiency af- prohibited an for a is action property, pursue or to both remedies trust ter a sale on deed of trustee’s (although may only once there one re judicial purchase and after foreclosure debt). Ins., covery on the See Paramount money 33- deeds of trust. See A.R.S. §§ 644, Ray Smitley, Inc. v. son & Nev. 814(G) 33-729(A). If lender holds a a 530, (1970).2 P.2d the reach trust, non-purchase money may deed he mortgag to applied as most deficiency through recover a does so es, quite t/he Mangels, is In Smith v. limited. judicial an foreclosure because action 168, (1952), 73 Ariz. 240 P.2d 33-729(A)applies purchase only to § this court statute does not held the election course, case, money In this latter liens. preclude a action subsequent foreclosure protections judi- debt, receives the judgment the case the debtor on the is scheme, applicable of trust. statutory ute within the law to deeds provisions 2. Under the lender lost mortgages (chapter does not contend that the within the law of 6 of A.R.S. 33) among applicable law to elect its reme- Title are not to trust common deeds of generally Sahara judicially dies. Universal Inv. Co. v. unless the of trust is See deed foreclosed Inc., 213, 215, Inn, 33-807(A). mortgage pursuant to A.R.S. Motor as a (deed (Ct.App.1980) of trust statute does is See 33-805. election statute sale, Therefore, chapter trustee’s but allows stat- mandate foreclosure within election bring option mortgage applicable foreclose as or action ute is not to deeds of to trust foreclosed sale, debt). analogous trustee’s and there is no stat- the second proceed by trustee’s sale under foreclosure, including statutory re- cial right.3 deed of trust. demption therefore, together, Read With- Properties Included B. Persons and following scheme: statutes enact Statutory Definitions money deed of non-purchase holder of a in A.R.S. type described trust of the Dynam- argues that neither sale, 33-814(G) non-judicial forecloses ic, property under developer, as a nor the protects statute the borrower anti-defi- protected by is construction therefore The lender deficiency judgment. Neither of the statutes ciency statute. sue on the security may not waive homeowners rather limited to individual P.2d Baker, 160 Ariz. at note. Rather, developers. than residential however, may, seek 774. The holder protect any mortgagor, apparently if it the deed of trust as were foreclose provided subject is a 33-814(E); if he mortgage, allowed dwelling on two-family residential one- or so, redemption is allowed does the debtor less.4 and one-half acres or two 12-1281 rights under 33-726 and §§ protected both anti-deficien- through 12-1289 and is thus As we noted bids, along the holder cy from low credit but enacted in statutes were deficiency judgment differ designed protect recover a with several other laws —the of the debt and ence between balance Ariz. at 770 P.2d at consumers. 160 pur price the note is a the sale virtually 769. As with all —unless case, obligation. In the latter money chase statutes, de- provisions Arizona were protected by borrower signed temper the effects economic statute, 33-729(A), A.R.S. § mortgagors by precluding “ar- recession on money applies only purchase obli which resulting from forced tificial deficiencies Baker, 106, P.2d gations. 160 Ariz. at 770 Balentine, (quoting Boyd and sales.” Id. at 774. Legislation: Win- Arizona’s Consumer ..., 14 ARIZ.L.REV. ning the Battle But Thus, if the facts of under Baker and 627, (1972)). Anti-deficiency statutes 654 protected this case is an anti- on the lender or seller to put the burden statute, deficiency Mid Kansas could not extending fairly property value security and sue on the elect to waive its loan, often recognizing that consumers having already first notes after chosen to Scheme, Arizona, Antideficiency 57 CAL.L. statu- In the debtor has no of California 218, (1969). tory redemption after the deed of trust is fore- REV. 232 33-811(B). by trustee's sale. A.R.S. § closed California, (relevant portions the rule in where defi- This is also statutes read as follows The ciency judgments prohibited are fore- emphasized): following com- sale. The closure trustee’s 33-729(A): A.R.S. § regarding inform ments the California statute given payment to secure the a [I]f 33-814(G): discussion of A.R.S. § our pinchase price, or to balance of the of the put nonjudi- purpose ... was to [statute’s] pur- part pay all a loan to or secure par trust on a cial enforcement of a deed of parcel property price, real two chase of a of sale____ judicial [Prior with foreclosure is limited to acres or less which one-half pri- preferred to its ... enactment] [creditors single one-family a or either and utilized for statutory period it avoided a vate sale because dwelling single two-family shall be [there ... exercising power redemption. By in- deficiency judgment] ... no foreclosing judicially, the creditor stead of 33-814(G): A.R.S. § deficiency judgment a as well could obtain property acres or If trust two one-half redemption-free proceeds enhanced of a to and either less which is limited utilized for procedure the creditor to sale. This allowed dwelling single one-family single two-family or unfairly low himself at an bid in the price sale, power pursuant to the trustee's is sold opportunity to someone offer that —or any may be maintained to recover no action knowledge any defi- else—secure in the the amount obtained difference between personal ciency in a would be recoverable Comment, of the indebtedness and sale and the amount against principal. judgment interest, expenses. Exonerating Surety: Implications costs and 128 tected, specific expression equipped

are not to make such estimations. there is textual Memel, Spangler 7 Cal.3d generally type property protected. See v. Both as to the 812-13, 603, 807, Cal.Rptr. 102 498 P.2d (1) property be require that the 1055, 1060-61(1972); Leipziger, Deficiency less, (2) limited to two and one-half acres or Supreme Judgments in (3) dwelling single and utilized for a that is California: 22 Again, Court Tries U.C.L.A. L.REV. one-family single two-family or nature. 753, (1975). Indeed, the articulated 759-61 long held applying we have 33-729(A) (and purpose behind A.R.S. § given their ordi- that its words are to be presumably behind its deed of trust coun legislature nary meaning, unless Baker) terpart, pro as we held or it offered its own definition of the words deficiency judg tect “homeowners” from appears special from the context that 101, ments. 160 Ariz. at 770 See meaning was intended. State Tax P.2d at 769. 394, 395, Peck, 476 106 Ariz. Comm’n 849, P.2d

However, express limiting absent language explicit in the or statute evidence 33-814(G) calls for the intent, legislative cannot hold that we “limited to” a one- or two-fami- developers. statute excludes residential ly dwelling. “dwelling” is sus- The word language plain of a statute is Where the depend- ceptible interpretations, to several generally unambiguous, courts must ing context of use. See C.J.S. Kansas, follow the text as written. Mid (1941 Supp.). Dwelling and 1990 (citing 163 Ariz. at 787 P.2d at 137 principal in all such definitions element Agency Rent- Farm Mut. Ins. Co. v. State building for “purpose is the or use of a 201, 203, A-Car, Inc., P.2d abode,” meaning the structure human (Ct.App.1983); Ritchie v. cf. wholly partially occupied by persons or Rides, 165 Ariz. Canyon Scenic Grand lodging night therein at or intended for (1990) (rule inapplicable Id.; such use. see also v. Second Smith result)). produce absurd where it would Christ, Scientist, Church of legislature’s can infer that the While we (1960) (defining P.2d protect was to individual primary intent building resi- “dwelling” as “a suitable for rather than commercial devel homeowners purposes”). dential opers, statutory legis text nor neither the history evinces an intent to exclude lative anti-deficiency require not Indeed, type mortgagor.5 any other only property limited to dwell- that Supreme Court decided to North Carolina ing also that it be “utilized purposes, but anti-deficiency statute to a apply a similar purposes. In Northern Arizona for” such borrower, finding that the stat commercial Pinetop Properties Group, Properties v. expressed ute no intent to exclude commer invest- appeals the court of held that an that cial transactions and therefore condominium, occasionally ment which not read in such an intent. court could occasionally occupied by the owners and Boardman, 313 N.C. Barnaby v. persons, fell within the rented out to third Therefore, (1985). we hold S.E.2d Ariz. 725 P.2d statutory definition. 151 subject properties fit long as the that so deciding (Ct.App.1986). In that definition, identity statutory within dwelling for in- applied to a used statute or mortgagor as either a homeowner mortga- purposes and not as the vestment developer is irrelevant. residence, em- gor’s principal the court “dwelling” in Web- ployed the definition of legislative the lack of contrast to Dictionary and Collegiate mortgagor pro- ster’s Ninth New type limitation as to the property, in trust legislature to transfer his interest 5. We that the take notice of the fact only property applies to trust that is limited has included such a limitation in other dwelling units and that is not statutory provisions. example, and utilized for For 33-806.01(D), purposes. used for commercial which deals with a trustee’s 23(c), Rule housing “a shelter ... for our consideration under in several codes as A.R.S., issue Hence, although Ariz.R.Civ.App.P., 17B as an people live.” in which investment, appeals that it not decided the court of but was held as an condominium (utilized) to be if the court dwelling. would need addressed used as a Id. was also appeals’ opinion were reversed.7 Ari In contrast to the Northern Merger Estates case, ques Properties property zona noted, Dynamic As has never had been used as a dwell tion here for two provide case the basis facts this in fact yet susceptible not ing, and was theory is the merger arguments. The first dwelling. as a is a differ being used There Generally, when one merger of estates. property for even ence between intended lesser and a person greater obtains both dwelling utilized tual use as and no inter property, interest the same dwelling. We hold that commercial person, a mediate interest exists in another properties mortga held residential merger interest occurs the lesser gor for construction and eventual resale POWELL, extinguished. 3 R. THE LAW dwellings are not within definition of Rev.). (1990 OF REAL PROPERTY 459 “limited to” for” properties and “utilized Thus, mortgag merger occur when a dwellings. single-family and the are owned ee’s interest fee title dwelling as a it is unfin not utilized when person. potential for in, the same Id. The ished, being been has never lived and is merger mortgagee ac arises whenever a occupant by to its held for sale redemp mortgagor’s equity of quires the occupy has no owner who intent to ever merger tion. even if a would property. Proper Northern Arizona Cf. law, contrary or occur at intent prop otherwise (mortgagors occupy ties intended may preclude this out). equitable considerations occasionally and erty rent it appropriate circumstances. result under Therefore, terms, we hold its JONES, THE L. LAW OF MORTGAGES anti-deficiency apply statute does not (8th 1928). long ed. This court in this case general recognized these rules of 33-814(G) preclude Kansas does Mid Cook, Ariz. Bowman v. of estates. waiving bringing a security (1966); Hathaway 419 P.2d 723 action on the debt notes.6 Neal, 251 P. 173 assume, therefore, arguing to no one We Merger The Doctrine of and Extin- C. contrary, Mid Kansas ac- guishment title on the foreclosure of its second quired merged lien, rights Because we hold the that under lien were 367, Bowman, the apply, statute does not reach Ariz. at we must in the title. See 101 us, merger extinguishment is question issue that at 724. The before 419 P.2d however, Today of the in the we concurring opinion the basis is somewhat different. appeals. Dynamic rights if Mid under court of that issue must consider Kansas’s listed case, pro- in Baker Dynamic we conclude not Ludi is not direct conflict with 6. Because is judicial pro- the do not tected reach the issue of we because the lender Ludi used a action whether Mid Kansas’s ceeding foreclose its of trust before first deed an on the first notes would have constituted second, bringing non-purchase on an action the deficiency action for under an action Baker or 227, money obligation. Id. P.2d at 93. at 594 "independent obligation” on an under Ludi Baker, Ludi, as in two notes were secured the response, this In its characterizes real estate. the same unlike involving unjust as one enrichment issue given in Ludi was second note improvement to obtain a home into of remedies. The doctrine takes election "indepen- loan and therefore both, prop- a little of but is more consideration note, given first dent from" the to secure extinguish- merger erly characterized Ludi, purchase money deed of trust. ment. 228, that, at at 94. We note 130 Debt, Mortgage ac- 95 Judgment

the lien were affected when it Personal for 89, (1935)(citing quired by foreclosure on its second A.L.R. 104-105 Belleville title Reis, 242, 26 N.E. 646 lien. Sav. Bank v. 136 Ill. (1891)); Magirl, McDonald v. Iowa 484; (1896); Wright, 66 N.W. 904 253 N.W. Merger Rights of GLENN, see MORTGAGES also G. mortgagee the same Where (1943). at 1408 mortgage and second holds both first mortgagor’s land, pur the and becomes the merger of The basis the at the foreclosure sale of one of chaser rights purchaser the at a doctrine is that merger mortgages, question of of junior foreclosure sale of a lien takes sub extinguishment— rights called Club, ject to all senior liens. Ren-Cen —often merger rights ad- arises. The doctrine 434; 487; Wright, N.W.2d at N.W. question dresses the narrow of whether Burkhart, supra, see 40 VAND.L. also mortgagor’s personal liability on the senior Although purchaser REV. at 377. does discharged. v. Wright debt has been personally liable on the senior become Anderson, 62 S.D. 253 N.W. (as assuming grantee), debt does (1934). primary issue in the doctrine purchaser pay must it to avoid the risk rights is whether the lender losing to fore newly his land unjustly per- if he were would be enriched closure the senior lienholder. There generally mitted to enforce the debt. See fore, primary the land fund becomes Burkhart, Freeing Mortgages Merger, debt, purchaser for and the is the senior VAND.L.REV. the amount of presumed to have deducted liens from the amount he bids the senior mortgagee’s pur Although the Bank, 449 Tri-County for the land. chase of the at the foreclosure of in Wright N.W.2d at 541.8 As the court mortgage extinguish the the senior will not mortgagee holds explained, when the same junior mortgage, debt secured mortgages junior and senior both the junior mortgage is true where the reverse buys the foreclosure sale of the land and holding junior is foreclosed. If one both mortgage: junior mortgages junior and senior forecloses the mortgagor equitable has an ... purchases property at the fore mortgage pay the land to have sale, that, long-standing rule closure liability upon personal his is called before contrary agreement, mortga absent a permitted purchaser will not be and the gor’s personal liability for the debt secured retain the land ... and enforce extinguished. by the first G. mortgagor personally. against the same WHITMAN, D. REAL NELSON & ES Similarly, at 487. the court 253 N.W. 6.16, (2d TATE LAW at 467 FINANCE noted that Club Ren-Cen 1985). The rule has been followed ed. presumed indebtedness will be Trustees generations. See Board [t]he discharged, so soon as have been Sys. Retirement Ren-Cen Indoor Gen. Club, with title to Mich.App. holder of it becomes invested Racquet Tennis & charged, on (1985), denied, upon which it is appeal the land 377 N.W.2d 432 (1986); party may sue him- principle that a not 680 425 Mich. 388 N.W.2d Tri purchaser Watts, equity. or in self at law Trust Co. v. 234 County Bank & bought (1989); presumed to have the land at 537 Annota is Neb. 449 N.W.2d value, less the amount of indebted- tion, Mortgage Title to and Fee Union of thereon, not equity will Right ness secured Affecting as to Same Person mortgage, of the land.” "subject the debt is to be satisfied out to” the senior that 8. In a transfer 5.3, WHITMAN, supra, "the trans- the essence of the transaction is that at 271. § NELSON & transferor, agrees, feree as between her and her

131 precludes merger that no shall occur often him to hold the land still permit mortgagor. finding by & such the court. NELSON collect the debt the WHITMAN, 6.16, (citing supra, at 467 (quoting N.W.2d 435 Belleville Sav 377 at Co., 115 Loan Mortgage Toston v. Utah Reis, 26 N.E. Bank 136 Ill. ings 1940); (C.C.A.Idaho F.2d Continental 560 (1891) omitted)). (citations 647 Devlin, 58 Title Co. v. 209 Pa. & Trust Thus, rights merger the of doc (1904); A. Van Woerden v. Union merged holds the is trine that senior lien Co., 555, 287 P. Improvement 156 Wash. extinguished by title ac into—or —the course, (1930)). mortgag- the Of where acquires quired by lienholder he the when acquires property through to ee title the equity redemption mortgagor’s of un the conveyance, such fore- involuntary course, junior der a sale on the lien. Of closure, parties obviously will not have the only into play this rule comes the concerning intent the con- formed a mutual redemption extinguished. of is equity See enforceability tinued of the debt. Burk- 487; JONES, supra, at Wright, N.W. hart, 40 VAND.L.REV. supra, Although at 514. the deed of trust post that relatively is a new instrument an intent be such Belleville, Wright dates cases such as implied under circumstances that would merger find the of and extin we doctrine finding merger inequitable the make a to guishment compelling more under a even Wright, in parties. The dissent trust which modern deed of cuts stance, argued mortgagee that the where redemption equity off the borrower’s property paid the full value of the without time of trustee’s sale. See lien, prior deducting the amount of the 33-811(B). In Patton v. First Federal merger apply. rule of not N.W. should Ass’n, Savings & Loan we commented on J., dissenting). argu (Polley, at 489 This unique features of deed of trust adopted that ment a recent decision required a strict construction favor to its claim for the allowed a bank retain borrower: deficiency remaining on the first unsecured purchased mortgage though even the bank Compared mortgage requirements, the at the foreclosure sale on the procedures Deed Trust authorized Richardson, mortgage. second In re statute it far lenders to make easier for E.D.Tenn.1985). The (Bkrtcy, R.B. forfeit interest in the real the borrower’s had tried to court found that the bank loan, securing abrogate estate also advantage take of the debtor be- unfair redemption guar- after sale had reflected the value of the cause its foreclosure____ bid mortgage anteed under a addition, had, in the bank property and Trust, [Ujnder a Deed of the trustee be- debtors with amount credited the power permitting holds of sale him to reselling it yond bid received sell the out of court with no A result property. Id. at 142. different necessity judicial The Deed of action. mortgagee per- where the would obtain strip Trust thus borrowers of keep land is worth much mitted many protections under a available al- as the debts and also two mortgage. Therefore, must lenders on the senior debt. lowed to collect strictly of Trust comply with Deed situation, mortgagee latter would statutes, and the Deeds of statutes and enriched, unjustly and the doctrine strictly in favor Trust must be construed destroy applied the sen- appropriately of the borrower. WHITMAN, supra, ior NELSON & debt. 473, 477, 152,156 6.16, at 467-68. noted, previously As even we have where illus law, clearly facts in case merger at this would otherwise occur require application of the doctrine express agreement parties trate and between merger extinguishment; they and also held first by of and that the debt secured equitable exception mortgage discharged demonstrate that no when the senior mortgagee acquires Kansas held the sale appropriate property here. Mid at a mortgage price of and the second on the at four first deeds trust second and the depressed blanket deed of trust on the four lots. Mid foreclosure sale is to reflect See, outstanding mortgage. pieces proper e.g., of purchased Kansas all four Club, 432; N.W.2d Tri- ty the amount on Ren-Cen with a credit bid of due Bank, 537; lien, $101,986.67. County 449 N.W.2d see also Mid the second Kansas Annot., supra, in authorities cited clear title im acquired thus free and to at 104-105. A.L.R. apparently proved property worth between $608,000.9 $555,750 accepting and Even figure, apparent

the lower it is that the CONCLUSION ($527,- junior of the and senior liens sum costs) 236.67—exclusive of interest time—the date property 33-814(G), the relevant apply Dynamic to in does not probably foreclosure sale—was less

of the under con- this case because the homes Kan property. single-family than value of the Mid struction not utilized for were obviously dwellings. appeals’ sas tendered a credit bid the court of We vacate opinion judg- the amount of the senior trial court’s was discounted and reverse the Therefore, Mid Kansas be ment. The remanded to the trial liens. would case is proceedings to it to court for consistent with this unjustly enriched were we allow remand, $100,000, opinion. parties have On will acquire, for worth over opportunity present as to $500,000 evidence and also sue for another property at the time of the $400,000 the value of the Mid Kan under the first notes. they If foreclosure sale. the facts are it sas does not contend that record, require appear equity on this will acquired worth less than the total exception merger and no to the doctrine of on the first and second liens. owed extinguishment. Dynamic prevails, If it facts, doctrine On these we hold that the eligible attorney’s will for its fees sub- extinguishment applies. 21, Ariz.R.Civ.App.P., 17B ject to Rule Club, at 436 Ren-Cen 377 N.W.2d See obtaining in (equity plaintiff will not assist advantage purchasing price at a GORDON, C.J., and MOELLER disad- second sale without the CORCORAN, JJ., concur. vantage having satisfy se- debt mortgage). the first Because the cured CAMERON, Justice, dissenting part, in title, lien free holder of the senior concurring part. equity redemption, on the fore- lien, majority ulti I concur the result the junior closure of the the doctrine my mately reaches. because merger extinguishes liability the maker’s Gardner, sup- This result is dissent Baker v. on the senior notes.10 (1988), separately. I applied 770 P.2d 766 write ported by other courts that have agree majority I extinguishment did not with merger and Baker the doctrine of this "clerical error” and has since properties, listed on the tributes 9. The value of the Acquisition “corrected” the forms. or Abandonment IRS Statements of Kansas, Property Mid to- of Secured filed $555,750. apprais- legislature specifically talled Mid Kansas submitted 10. We note that our estimating ability judgment the value of the als to the trial court curtailed a lender’s to obtain lots, plans completed against if with the in excess of the fair value in accordance the debtor $608,000. Ironically, deficiency judg- specifications, land in those cases where a 33-814(A). permitted. We Kansas stated that ment is See A.R.S. IRS statements filed Mid unjust legislative proscription against personally for re- find this the "borrower was not liable debt,” holding. persuasive present although in our payment at- enrichment reasoning my guage. By applying the 33-722 conflicted with A.R.S. that A.R.S. § more 33-814(E).11 have easi- 33-729(A) dissent we could and Id. at § result, then, clearly majority’s the my ly and reached P.2d 774. It was belief statutory empty having to extend now, the without right creditor has under that I that the anti-deficien- protection. believe elect either to foreclose on the 33-722 to not to cover com- cy statutes were intended to sue on the note. mortgage or Id. therefore, and, developers Mid mercial at 774. Once the creditor chooses right to elect to foreclose Kansas foreclose, anti-deficiency ap statutes first or to sue on the note. deficiency judg seek a ply, and he cannot ment. Id. agree majority’s ultimate dis- I with the position of this case. Mid Kansas should majority The reiterates the rationale of experience not be allowed to windfall Baker, noting anti-deficiency that if the foreclosing note and later on second Dynamic, include Mid Kansas suing majority first note. As the waiving precluded from would be its securi- out, points gave a credit bid not sue the first ty and could note equal to the due on the second note amount having foreclosed on the second note. ($101,986) improved property and received Next, majority Dy- determines whether $550,000-$600,000. approximately worth namic, developer, pro- as a commercial due They now want to collect the balance tected statutes. Not- By using the doctrine of on the note. ing purpose protect statutes’ was to extinguishment, majority deficiency judgments “homeowners” result. reached not protect consumers who were enough sophisticated to value loan, seeking a majority

when includes developers mortgagors

commercial as with- protection.

in statutory devel- Commercial however,

opers, people are business who capable valuing

are their business enter-

prises seeking con- commercial or unsophis-

struction loans. They are neither ticated consumers nor “homeowners.” P.2d After determining Dynamic falls CORPORATION, SOUTHERN LEASING persons protected by within the class of corporation, a Delaware statutes, majority notes that the then Appellee, Plaintiff/ question fit not the statu- does tory language. majority stated “commercial properties residential held TUFTS, man, William C. mortgagor even- construction and Defendant/Appellant. dwellings tual as resale are within properties ‘uti-

definition ‘limitedto’ and 90-0167. No. CA-CV dwellings.” lized for’ P.2d ... At Arizona, Appeals Court of developers gener- at 1317. Commercial are 2, Department B. Division ously mortgagors un- included covered statutes, der the but excluded due to Jan. type property they Again, hold. I be- wrong. majority’s lieve this is inter-

pretation “dwelling” for” “utilized developer’s prop-

means that a commercial

erty the statutory will never meet lan- 33-814(G). 33-814(E) now codified notes the Arizona anti- statute, 33-814(G). deficiency Af- A.R.S. § DISCUSSION Baker, opinion ter the release of our Applicability of the Anti-Deficien- A. supplemental filed a brief assert- cy Statutes ing longer that Ludi could no be read to permit a residential holder to anti-deficiency Arizona has two statutes. 33-729(A) security applies purchase waive its and sue on the note. See A.R.S. § money purchase money See, mortgages e.g., some other states. Neb.Rev. judicially pursu- deeds of foreclosed (1989); trust Stat. and 25-2143 N.Y. 25-2140 §§ 33-807(A). to the authority ant of A.R.S. (McKinney Prop.Acts.Law § Real 33-814(G)applies to A.R.S. deeds of trust 1979); 21-47-5 Laws Ann. S.D.Codified §§ sale, re- that are foreclosed trustee’s and 21-47-6 represent pur- gardless they of whether we held the election statute money obligations. Both sections chase subsequently limited enacted deficiency judgment a sale of prohibit purchase anti-deficiency money mortgage parcel of of two one-half “property 33-729(A), barred A.R.S. which limited to utilized acres or less which is waiving security lender one-family single or two- for either suing the debt. Ariz. at 33-729(A), family 33- dwelling.” §§ P.2d holding, joined at 772. In so we 814(G). courts of California and North Carolina Arizona an election of remedies also has finding that such an election is inconsistent general applicable law statute within the statutes, with lim- which 33-722, mortgages. Under recovery it the land lender to from the mortgagee foreclose and seek a defi- can

Case Details

Case Name: Mid Kansas Federal Savings & Loan Ass'n of Wichita v. Dynamic Development Corp.

Court Name: Arizona Supreme Court

Date Published: Jan 10, 1991

Citation: 804 P.2d 1310

Docket Number: CV-89-0447-PR

Court Abbreviation: Ariz.