Paramount Windows Corp. v. OneWest Bank FSB

• Decision Date: 04 September 2012
• Docket Number: 1 CA-CV 11-0331
• Parties: PARAMOUNT WINDOWS CORPORATION, an Arizona corporation, Plaintiff/Appellant, v. ONEWEST BANK FSB, FSB fka INDYMAC BANK, Defendant/Appellee.
• Court: Arizona Court of Appeals

PARAMOUNT WINDOWS CORPORATION, an Arizona corporation, Plaintiff/Appellant, v. ONEWEST BANK FSB, FSB fka INDYMAC BANK, Defendant/Appellee.

1 CA-CV 11-0331

COURT OF APPEALS STATE OF ARIZONA DIVISION ONE DEPARTMENT D

Filed: September 4, 2012

NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED

EXCEPT AS AUTHORIZED BY APPLICABLE RULES.

See Ariz. R. Supreme Court 111(c); ARCAP 28(c);

Ariz. R. Crim. P. 31.24

MEMORANDUM DECISION

(Not for Publication -

Rule 28, Arizona Rules of

Civil Appellate Procedure)

AMENDED PER ORDER FILED 9/19/12

Appeal from the Superior Court of Maricopa County

Cause No. CV2009-028189

The Honorable J. Richard Gama, Judge

AFFIRMED

Kercsmar & Feltus PLLC

By Todd Feltus

And Christopher M. Goodman

Attorneys for Plaintiff/Appellant

Scottsdale

Gust Rosenfeld P.L.C.

By Timothy W. Barton

And Scott A. Malm

Adam L. Wilkesy

Attorneys for Defendant/Appellee

Phoenix

THOMPSON, Judge¶1 Paramount Windows (Paramount) appeals the trial court's summary judgment in favor of OneWest Bank (OneWest) and the subsequent award of attorneys' fees in this lien priority dispute involving the building of a home in Paradise Valley. Finding no unresolved questions of fact and no legal error as to the grant of summary judgments or attorneys' fees, we affirm

FACTUAL AND PROCEDURAL BACKGROUND

¶2 In July 2006, William Lane¹ (Lane) borrowed $980,000 from Joan Sullivan (Sullivan) secured by a recorded deed of trust on his Paradise Valley property (property). In June 2007, OneWest (formerly IndyMac) agreed to loan Lane $3,092,880 for the project. OneWest financed the project and paid off the Sullivan Loan. OneWest received and recorded its deed of trust on July 5, 2007. This first OneWest deed of trust had an inaccurate legal description of the property. OneWest recorded a release and reconveyance of the Sullivan deed of trust shortly thereafter.

¶3 Fox Custom Homes (Fox) was the general contractor on the home and work began on or about May 2008. On or about January 2009, Paramount entered into subcontract with Fox forwindows and doors. Paramount was not paid the $66,000 provided for under the contract.² Fox recorded a mechanic's and materialmen's lien pursuant to Arizona Revised Statutes (A.R.S.) § 33-993 (2007) on the subject property on June 17, 2009; the outstanding principal amount was $187,824.89.³ Paramount likewise recorded its lien on June 26, 2009; the outstanding principal amount was $66,000.⁴ Paramount did a title search in August 2009 which did not reveal OneWest's deed of trust. Paramount filed the instant lawsuit against various defendants including Fox and Lane asserting breach of contract and seeking to foreclose its mechanic's lien on September 2, 2009.⁵ Thecomplaint did not name OneWest or IndyMac. Paramount recorded a lis pendens on September 3, 2009.

¶4 On September 23, 2009 OneWest recorded a notice of trustee's sale intending to foreclose upon its 2007 deed of trust; that sale did not occur. On November 10, 2009, OneWest recorded an amended deed of trust with the correct legal description. Paramount filed its first amended complaint on January 21, 2010. OneWest was not listed as a defendant. OneWest recorded a second notice of trustee's sale on January 26, 2010. Paramount did not receive notice of the first trustee's sale and received notice of the second nearly a month after the notice was recorded but two months prior to the scheduled sale. On March 29, 2010, Paramount filed both a motion to amend the complaint to add OneWest as a defendant and a request for preliminary injunction as to OneWest's trustee's sale.⁶

¶5 Litigation then ensued to determine the priority of the liens. OneWest moved for summary judgment on the issue of equitable subrogation and asserting that it held priority by virtue of succeeding to the 2006 Sullivan position; Paramount filed a cross-motion for summary judgment to determine lienpriority based on OneWest's failure to include a proper legal description in its deed of trust.⁷ While these motions were pending, OneWest filed a motion for summary judgment asserting Paramount failed to timely name OneWest in this lien foreclosure action as required by A.R.S. § 33-998.

¶6 The trial court found in favor of OneWest and granted its motions for summary judgment while denying Paramount and Fox's cross-motions. The trial court denied Paramount's motion for new trial and granted OneWest's attorneys fees, joint and severally, against Paramount and Fox in the amount of $12,000.⁸ Paramount filed a timely notice of appeal.

ISSUES

¶7 Paramount raises three essential issues on appeal:

1. The trial court erred in finding equitable subrogation by allowing OneWest to assume Sullivan's priority when the deed filed by OneWest had an erroneous legal description and such finding prejudiced Paramount;

2. Paramount was not required to name OneWest because a lis pendens was filed before OneWest gained its interest; and3. The trial court erred entering two final judgments and in awarding OneWest its fees in the second.

Paramount asserts summary judgment should be entered in its favor on the priority issue.

¶8 OneWest asserts:

1. That the trial court properly determined that OneWest was equitably subrogated to the Sullivan deed of trust;

2. The trial court properly held that Paramount failed to timely name OneWest in its lien foreclosure action as required by A.R.S § 33-998(A); and

3. The trial court was within its discretion to grant OneWest's timely application for attorneys' fees.

DISCUSSION

¶9 On appeal from summary judgment, we must determine whether any material factual disputes exist and, if not, whether the trial court correctly applied the law. In re Estate of Johnson, 168 Ariz. 108, 109, 811 P.2d 360, 361 (App. 1991) (citation omitted). We view the evidence in the light most favorable to the party against whom summary judgment was granted. Estate of Hernandez v. Flavio, 187 Ariz. 506, 509, 930 P.2d 1309, 1312 (1997). In this matter, therefore, we view the facts in the light most favorable to Paramount. We review whether the trial court correctly applied the law de novo.

Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000).

A. EQUITABLE SUBROGATION

¶10 "Subrogation is the substitution of another person in the place of a creditor, so that the person in whose favor it is exercised succeeds to the rights of the creditor in relation to the debt." Mosher v. Conway, 45 Ariz. 463, 468, 46 P.2d 110, 112 (1935). Subrogation substitutes someone who pays off a superior encumbrance into that party's priority position, even where there is recordation of an intervening lien. Lamb Excavation, Inc. v. Chase Manhattan Mortgage Corp., 208 Ariz. 478, 480, ¶ 6, 95 P.3d 542, 544 (App. 2004); Restatement (Third) of Prop.: Mortgages § 7.6 (1997) ("One who fully performs an obligation of another, secured by a mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment. Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee.").

¶11 Equitable subrogation has four elements: (1) the party asserting subrogation has paid the debt; (2) the party asserting subrogation was not a volunteer; (3) the party asserting subrogation was not primarily liable for the debt; and (4) noinjustice will be done to the other party by allowing subrogation. Lamb, 208 Ariz, at 480, ¶ 8, 95 P.3d at 544. This court has held

Further, for equitable subrogation to apply, '[t]here must exist a claim or obligation against the debtor; an original right to that claim on the part of him in whose place substitution is sought, and some right belonging to him who seeks the substitution which will be protected thereby. So when one, being himself a creditor, pays another creditor, whose claim is preferable to his, it is held that the person so paying is subrogated to the rights of the other creditor.

Sourcecorp, Inc. v. Norcutt, 227 Ariz. 463, 466-67, 258 P.3d 281, 284-85 (App. 2011) citing Mosher, 45 Ariz, at 468, 46 P.2d at 112. Equitable subrogation applies only to the extent of the prior lien. Lamb, 208 Ariz, at 483, ¶ 19, 95 P.3d at 547.

¶12 Paramount argues that the incorrect legal description in OneWest's deed of trust was fatal to any claim of priority.⁹"Our recording statutes are for the protection of persons dealing in real property without actual notice." Hall v. World Sav. and Loan Ass'n, 189 Ariz. 495, 503, 943 P.2d 855, 863 (App. 1997) citing County of Pinal v. Pomeroy, 60 Ariz. 448, 455, 139 P.2d 451, 454 (1943). Even an unrecorded instrument is fully enforceable between the parties to the transaction. See A.R.S § 33-412 (2007); 3502 Lending, LLC v. CTC Real Estate Service, 224Ariz. 274, 277, 229 P.3d 1016, 1019 (App. 2010) (action to quiet title involving deed of trust recorded but missing legal description of the property) (citing Maddox v. Hardy, 187 P.3d 486, 492 & n. 20 (Alaska 2008) and 14 Richard R. Powell, Powell on Real Property § 82.01[3], at 82-13 (Michael Allan Wolf rev. ed. 2005). An unrecorded instrument is enforceable against a creditor with notice. See A.R.S. § 33-412.

¶13 In addressing the priority of liens on cross-motions for summary judgment, the trial court went through the test stated in Lamb and determined:

It is clear from these circumstances that OneWest Bank agreed to advance money to discharge a prior encumbrance on the property with the reasonable expectation of receiving a security interest in the property. Its motivations in facilitating the loan transaction were purely commercial. Secondly, the Lien Claimants will not be prejudiced by this subrogation. They will remain in the same position they occupied before subrogation. . . . In fact, without subrogation, the Lien Claimants would receive a windfall if elevated to a higher priority status, a result this equitable doctrine was designed to negate.

¶14 We find no error...