ANDRA R MILLER DESIGNS LLC, Plaintiff/Appellee, v. US BANK NA, et al., Defendants/Appellants.
No. 1 CA-CV 16-0723
IN THE ARIZONA COURT OF APPEALS DIVISION ONE
FILED 2-13-2018
Appeal from the Superior Court in Maricopa County No. CV2015-051479 The Honorable Aimee L. Anderson, Judge REVERSED AND REMANDED
COUNSEL
Ramras Legal PLC, Phoenix
By Ari Ramras
Counsel for Plaintiff/Appellee
Quarles & Brady LLP, Phoenix
By Scott A. Klundt, Lauren E. Stine (argued), Amelia B. Valenzuela
Counsel for Defendant/Appellant
MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
OPINION
Judge Paul J. McMurdie delivered the opinion of the Court, in which Presiding Judge Lawrence F. Winthrop and Judge Jennifer B. Campbell joined.
¶1 U.S. Bank NA (“Bank“) appeals the superior court‘s grant of summary judgment in favor of Andra R Miller Designs, LLC (“Miller“) and the resulting final judgment. We reverse and remand to the superior court for further proceedings consistent with this opinion and hold that: (1) a purchaser of real property acquired at an execution sale under
FACTS AND PROCEDURAL BACKGROUND
¶2 The real property in question is a home located in Paradise Valley (“Property“) in the Clearwater Hills Improvement Association (“HOA“). In July 2006, Don Davis (“Borrower“) executed an Adjustable Rate Note (“Note“) in favor of Washington Mutual Bank, FA (“WAMU“) in the principal amount of $1,940,000. The Note was secured by a Deed of Trust (“Deed“) encumbering the Property in the same amount. The Deed and Note allowed the lender to accelerate the debt upon default as follows:
“If the default is not cured . . . Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and may invoke the power of sale and any other remedies permitted by Applicable Law.”
¶3 Borrower failed to make the monthly payment due on September 1, 2008, and failed to cure his default after notice by WAMU. The notice sent by WAMU also contained a reference to the acceleration clause. In January 2009, the trustee recorded a Notice of Trustee‘s Sale (“2009 Notice“), but no sale was held. On March 5, 2012, the trustee recorded a “Cancellation of Notice of Sale, of Declaration of Default and Demand for Sale, and of Notice of Breach and Election to Cause Sale” (“2012 Cancellation Notice“), which included the following clause (Acceleration Revocation Clause):
NOW THEREFORE: Notice is hereby given that the Beneficiary and/or the Trustee does hereby rescind, cancel and withdraw said Declaration of Default and Demand for Sale and said Notice of Breach and Election to Cause Sale; it being understood, however, that this cancellation shall not in any manner be construed as waiving or affecting any breach or default past, present or future, under said Deed of Trust, or as impairing any right or remedy thereunder, but is, and shall be deemed to be, only an election, without prejudice, not to cause a sale to be made pursuant to said Declaration and Notice, and shall in no way jeopardize or impair any right, remedy or privilege secured to the Beneficiary and/or the Trustee, under said Deed of Trust, nor modify nor alter in any respect any of the terms, covenants, conditions or
obligations thereof, and said Deed of Trust and all obligations secured thereby are hereby reinstated and shall be said and remain in force the same as if said Declaration and Notice had not been made and given.
¶4 In February 2013, the HOA obtained a Judgment and Decree of Foreclosure and Order of Sale for unpaid planned community assessments, and other costs, in the amount of approximately $16,000. The Property was to be sold at a sheriff‘s sale, but the sale was not held at that time.
¶5 In May 2013, the trustee recorded a new Notice of Trustee‘s Sale (“2013 Notice“). In January 2014, the loan servicer sent Borrower a Notice of Default—Right to Cure (“Right to Cure Notice“), notifying Borrower he had the right to cure his default by paying $1,033,052.10 by February 22, 2014. The Right to Cure Notice stated that the lender could accelerate the debt if the borrower failed to cure the default. In June 2014, the trustee recorded a “Cancellation of Notice of Sale” (“2014 Cancellation Notice“) to cancel the 2013 Notice. The 2014 Cancellation Notice contained the same Acceleration Revocation Clause as the 2012 Cancellation Notice.
¶6 In December 2014, the trustee recorded a new Notice of Trustee‘s Sale. In February 2015, Miller purchased the HOA Judgment. On March 26, 2015, a sheriff‘s sale was executed on the HOA Judgment, and Miller purchased the Property for the sum of $41,000. On March 27, 2015, Miller filed to enjoin Bank from foreclosing on its lien and conducting the trustee‘s sale of the Property. Both sides moved for summary judgment. The court granted summary judgment in favor of Miller, finding Bank‘s claim was barred by the statute of limitations based on Bank‘s acceleration of the debt in the 2009 Notice. Bank filed for reconsideration.
¶7 In its Motion for Reconsideration, Bank claimed it had paid $453,277 in property taxes and insurance on behalf of the Property, $62,596 of which was paid on or after April 1, 2015. Bank argued the later amount entitled it to initiate a foreclosure action, even if suit on the original loan amount was barred by the statute of limitations. See Deutsche Bank Tr. Co. Americas v. Beauvais, 188 So. 3d 938, 941 (Fla. 3d DCA 2016) (en banc) (holding that even though a lender‘s right to foreclose a previously accelerated loan balance was barred by the statute of limitations, the lender was not barred from initiating foreclosure based on different acts if the new foreclosure action was brought within the applicable statute of limitations); Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007 (Fla. 2004) (lender permitted to maintain a separate action for foreclosure for a default which occurred after acceleration on an earlier default). The superior court denied reconsideration, and entered a final judgment holding that Bank‘s lien was unenforceable. Bank timely appealed. We have jurisdiction pursuant to
DISCUSSION
¶8 Bank argues the superior court erred by granting summary judgment because (1) Miller had no standing to raise the statute of limitations defense against Bank‘s enforcement of its lien; (2) if Miller does have standing, Bank revoked the debt‘s acceleration, which reset the statute of limitations on its foreclosure action; (3) the loan documents authorized Bank to pay for insurance and property taxes after the 2009 Notice, and the superior court should have considered Bank‘s argument even if it was first raised in a motion for reconsideration; and (4) it was error to hold that the lien was “unenforceable.”
¶9 In reviewing an order granting summary judgment, we view the facts in the light most favorable to Bank, the party against which summary judgment was granted, and determine “de novo whether there are any genuine issues of material fact and whether the trial court erred in its application of the law.” Galati v. Lake Havasu City, 186 Ariz. 131, 133 (App. 1996) (quoting Gonzalez v. Satrustegui, 178 Ariz. 92, 97 (App. 1993));
I. Miller Had Standing to Raise the Statute of Limitations Defense.
¶10 Bank argues the superior court erred by finding the applicable statute of
A. The Applicable Statute of Limitations.
¶11 An action to collect a debt evidenced by a written contract “shall be commenced and prosecuted within six years after the cause of action accrues, and not afterward.”
¶12 “The deed of trust scheme is a creature of statutes.” Zubia v. Shapiro, ___ Ariz. ___, 2018 WL 387772, *4, ¶ 15 (Jan. 12, 2018) (quoting BT Capital, LLC v. TD Serv. Co. of Ariz., 229 Ariz. 299, 300, ¶ 9 (2012)); Manicom v. CitiMortgage, Inc., 236 Ariz. 153, 156, ¶¶ 8-9 (App. 2014) (“[T]he Arizona‘s Deeds of Trust Act,
limitation period for an action in rem to the same period applicable to an action on the contract.” Stewart v. Underwood, 146 Ariz. 145, 150 (App. 1985). Section 33-816 specifies:
The trustee‘s sale of trust property under a trust deed shall be made, or any action to foreclose a trust deed as provided by law for the foreclosure of mortgages on real property shall be commenced, within the period prescribed by law for the commencement of an action on the contract secured by the trust deed.
B. Miller‘s Interest in the Property Entitles It to Invoke a Statute of Limitations Defense.
¶13 When real property is sold under execution at a public auction to the highest bidder, see
¶14 Miller foreclosed on its junior lien, the HOA Judgment, and purchased the Property at a sheriff‘s sale, see
C. The Statute of Limitations Had Not Expired Before the Filing of this Case.
1. The Statute of Limitations Was Initially Triggered by Bank‘s Acceleration of the Debt.
¶15 When a creditor has the power to accelerate a debt, the six-year statute of limitations begins to run on the date the creditor exercises that power. See Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 495 (App. 1996) (“[I]f the acceleration clause in a debt payable in installments is optional, a cause of action as to future nondelinquent installments does not accrue until the creditor chooses to take advantage of the clause and accelerate the balance. Unless the creditor exercises the option, the statute of limitations applies to each installment separately, and does not begin to run on any installment until it is due.“); Wheel Estate Corp. v. Webb, 139 Ariz. 506, 508 (App. 1983) (cause of action accrues when holder exercises option to accelerate). To exercise its option to accelerate a debt, the creditor “must undertake some affirmative act to make clear to the debtor it has accelerated the obligation,” even if the parties contractually agree the option to accelerate a debt need not require a notice to the debtor. Baseline Fin. Servs. v. Madison, 229 Ariz. 543, 544, ¶ 8 (App. 2012) (emphasis added) (citing cases). Demand of a full payment before all installments fall due constitutes a sufficiently affirmative act of acceleration. See Jones, 187 Ariz. at 495. The commencement of foreclosure likewise operates as an affirmative act of acceleration. Prevo v. McGinnis, 142 Ariz. 298, 302 (App. 1984) (citing Barnett v. Hitching Post Lodge, Inc., 101 Ariz. 488 (1966)).
¶16 The recordation of the 2009 Notice was an affirmative act of the debt‘s acceleration, see Prevo, 142 Ariz. at 302, which triggered the statute of limitations on Bank‘s right to foreclose its security interest, see
2. Bank Revoked its Acceleration of the Debt.
¶17 Bank argues the superior court erred by ruling Bank did not revoke the acceleration of the debt. Bank contends that each notice of cancellation canceled both the trustee‘s sale and the underlying acceleration of the debt; and that the Right to Cure Notice, which demanded payment of the delinquency and not all unpaid amounts under the note, also indicated the debt‘s acceleration had been cancelled.
¶18 Pursuant to Arizona‘s statutory scheme, a trustee‘s sale is cancelled, if it is
¶19 Bank argues the language of the Cancellation Notices, in addition to the fact they were recorded, “reinstated the obligations secured by the Deed of Trust as though the Notices of Trustee‘s Sale had never been recorded,” effectively restarting the limitations on the default and placing Bank in the position to exercise its power to accelerate the debt at its discretion.2 We agree.
¶20 As noted above, to exercise its power to accelerate the debt, the creditor “must undertake some affirmative act to make clear to the debtor it has accelerated the obligation.” Madison, 229 Ariz. at 544, ¶ 8. The parties acknowledge that acceleration of the debt can be revoked
unilaterally by the creditor.3 See Fed. Nat. Mortg. Ass‘n v. Mebane, 618 N.Y.S.2d 88, 89 (N.Y. App. Div. 1994) (“[A] lender may revoke its election to accelerate all sums due under an optional acceleration clause in a mortgage provided that there is no change in the borrower‘s position in reliance thereon.“). Both the acceleration of a debt and the acceleration‘s revocation have equally important effects on a debtor‘s financial decision-making based on knowledge of the actual amount due. We thus hold that a unilateral revocation of the debt‘s acceleration requires an affirmative act by the creditor that communicates to the debtor that the creditor has revoked the debt‘s acceleration. See Mebane, 618 N.Y.S.2d at 89.
¶21 The mere recordation of a cancellation notice is not, by itself, an affirmative act sufficient to revoke the acceleration of the debt, although it cancels the trustee‘s sale. See Madison, 229 Ariz. at 544, ¶ 8; Mebane, 618 N.Y.S.2d at 89 (court‘s dismissal of action to collect on accelerated obligation not “an affirmative act by the lender to revoke its election to accelerate” and does not affect running of limitations period). A cancellation notice filed under § 33-813, by itself, does not communicate an intent to revoke acceleration. For the cancellation of the trustee‘s sale to become an affirmative act by the creditor sufficient to revoke the debt‘s acceleration, the notice of cancellation must also contain a statement that the acceleration of the debt has been withdrawn. Because recording the notice of cancellation of trustee‘s sale is a public notice available to any party, we hold that, if the cancellation notice contains a statement revoking the acceleration, it provides sufficient notice “to the debtor,” and to any third party investigating title, that the acceleration has been cancelled. See Madison, 229 Ariz. at 544, ¶ 8; see also
¶22 Because Bank inserted the Acceleration Revocation Clause into the 2012 and 2014 Notices of Cancellation, it sufficiently communicated to the Borrower, and to any third party investigating title to the property, that Bank was also revoking the debt‘s acceleration. The Acceleration Revocation Clause informed the Borrower that the “Beneficiary and/or the Trustee does hereby rescind, cancel and withdraw said Declaration of Default and Demand for Sale and said Notice of Breach and Election to Cause Sale
made and given.” Because the Declaration and Notice caused the acceleration, its withdrawal (“as if [it] had not been made“) constituted the affirmative act and revoked the debt‘s acceleration. See Madison, 229 Ariz. at 544, ¶ 8. The additional language, although not a model of clarity, merely informed the Borrower of its continuing default on the loan and Bank‘s rights secured by the Deed.
¶23 Therefore, no genuine dispute can be maintained about the effect of the 2012 and 2014 Cancellation Notices. See
II. Attorney‘s Fees on Appeal.
¶24 Both parties request we award their attorney‘s fees incurred on appeal pursuant to
CONCLUSION
¶25 For the reasons stated above, we reverse the judgment and remand for further proceedings consistent with this opinion. We award Bank its taxable costs incurred on appeal upon compliance with
AMY M. WOOD Clerk of the Court
FILED: AA