Resolution Trust Corp. v. Segel

• Decision Date: 03 September 1992
• Docket Number: CA-CV,No. 1,1
• Citation: 173 Ariz. 42,839 P.2d 462
• Parties: RESOLUTION TRUST CORPORATION, as Receiver of Southwest Savings and Loan Association, F.A., a Federal savings and loan association, Plaintiff-Appellant, Cross-Appellee, v. Howard SEGEL, a single man, Defendant-Appellee, Cross-Appellant. 90-440.
• Court: Arizona Court of Appeals

Page 462

839 P.2d 462

173 Ariz. 42

RESOLUTION TRUST CORPORATION, as Receiver of Southwest Savings and Loan Association, F.A., a Federal savings and loan association, Plaintiff-Appellant, Cross-Appellee, v. Howard SEGEL, a single man, Defendant-Appellee, Cross-Appellant.

No. 1 CA-CV 90-440.

Court of Appeals of Arizona Division 1, Department D.

Sept. 3, 1992.

Gammage and Burnham by Ellen Harris Hoff and F. William Sheppard, Phoenix, for plaintiff-appellant, cross-appellee.

Hunter & Lehman, P.C. by Marshall A. Lehman, Phoenix, for defendant-appellee, cross-appellant.

OPINION

GRANT, Judge.

This appeal arises out of a suit by Southwest Savings and Loan Association ("Southwest") against Howard Segel ("Segel") for the balance due under four promissory notes executed by Segel payable to Southwest. The trial court granted summary judgment in favor of Segel, holding that Southwest was precluded under Baker v. Gardner, 160 Ariz. 98, 770 P.2d 766 (1988), from suing directly on the notes. The issue on appeal is whether Southwest, a non-purchase money lender who made four loans secured by deeds of trust on residential property, was entitled to waive its security and sue directly on the notes. We hold that Southwest was entitled to sue directly on the notes and therefore reverse and remand to the trial court with instructions to enter judgment in favor of Southwest.

FACTS AND PROCEDURAL HISTORY

The facts are not in dispute. In 1987, Southwest made non-purchase money loans to Segel in the aggregate amount of $66,320.00. The indebtedness was evidenced by four promissory notes signed by Segel and made payable to Southwest. The four promissory notes were each secured by a deed of trust on a piece of real property of less than 2 1/2 acres on which there is a one- or two-family residence. Each of Southwest's deeds of trust was junior to a first deed of trust held by another, unrelated lender.

Segel defaulted on the Southwest promissory notes as well as the notes secured by the first deeds of trust. The principal due on the Southwest promissory notes is $62,955.03. The first lenders scheduled trustee's sales of the residences, and both Segel and Southwest Savings received notices of the pending sales.

On September 13, 1989, Southwest sued Segel to recover the amounts due on the promissory notes. Southwest and Segel both filed motions for summary judgment, and the trial court ruled that Segel was entitled to judgment as a matter of law. The trial court also denied Southwest's motion for reconsideration. Southwest appealed. Segel cross-appealed from the trial court's denial of his request for attorney's fees. Because we reverse the trial court's judgment in favor of Segel, we need not reach the issue raised in Segel's cross-appeal. We have jurisdiction pursuant to Ariz.Rev.Stat.Ann. ("A.R.S.") section 12-2101.B.

DISCUSSION

Southwest argues that the trial court erred in ruling that, even though it was a non-purchase money lender, it could not waive its security and sue Segel directly on the promissory notes. Pursuant to A.R.S. section 33-722, the holder of a note secured by a mortgage or deed of trust may waive its security interest in the property and sue directly on the note. See Universal Inv. Co. v. Sahara Motor Inn, Inc., 127 Ariz. 213, 619 P.2d 485 (App.1980) (trustee may elect to treat deed of trust as mortgage and then may elect remedy pursuant to A.R.S. section 33-722). However, in Baker v. Gardner, the Arizona Supreme Court held that the mortgage and deed of trust anti-deficiency statutes, which were enacted after A.R.S. section 33-722, limit a creditor's right to waive its security. The court ruled in Baker that a lender may not waive its security and sue directly on the note when Arizona's anti-deficiency statutes preclude a deficiency judgment. 160 Ariz. at 104, 770 P.2d at 772.

The lender in Baker had made a purchase money loan secured by a deed of trust on residential property. 160 Ariz. at 99, 770 P.2d at 767. The lender sought to waive its security and sue directly on the note. The court held that the lender was prohibited from doing so under A.R.S. section 33-814(E) (now, A.R.S. section 33-814(G)), the deed of trust anti-deficiency statute. That statute provides as follows:

E. If trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to a trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses. ¹

160 Ariz. at 100, 770 P.2d at 768.

The court in Baker concluded that, where the anti-deficiency statute applies, the creditor may not waive the security and sue directly on the note, because such action would conflict with the legislature's objective of protecting certain homeowners from the financial disaster of losing their homes plus all their other nonexempt property for a deficiency judgment. 160 Ariz. at 104, 770 P.2d at 772. Therefore, the lender in Baker was not permitted to waive its security and sue on the note.

Although the particular deed of trust at issue in Baker secured a purchase money loan, the court did not originally clarify whether its holding also applied to deeds of trust securing non-purchase loans. However, three months later the court issued a supplemental opinion specifically to address the question of whether Baker may be read to prohibit all creditors, including those who have made non-purchase money loans secured by deeds of trust, from waiving the security and electing to sue on the note under A.R.S. section 33-722. 160 Ariz. at 106-107, 770 P.2d at 773-775.

In the supplemental opinion, the court explained that the essence of the Baker opinion was that the election of remedies permitted under A.R.S. section 33-722 did not apply to security covered by the later enacted anti-deficiency statutes. 160 Ariz. at 106, 770 P.2d at 774. While the mortgage anti-deficiency statute, A.R.S. section 33-729(A), ² applies only to purchase money mortgages, the deed of trust anti-deficiency statute is not so limited. Id. The court stated that this apparent conflict is not significant, however, because a beneficiary under a deed of trust may foreclose the deed of trust judicially as a mortgage. Id. If the beneficiary does so, the mortgage statutes, including the mortgage anti-deficiency statute, are applicable. Id. Therefore, the beneficiary under a non-purchase money deed of trust who chooses to proceed by judicial foreclosure under A.R.S. section 33-814(D) (now A.R.S. section 33-814(E)) may obtain a deficiency judgment against the borrower. 160 Ariz. at 107, 770 P.2d at 735. The court concluded that, because such a creditor could obtain a deficiency judgment if it chose to foreclose judicially, it could also elect to waive the security under A.R.S. section 33-722 and sue directly on the note. Id.

Segel argues that Southwest, in relying on the supplemental opinion in Baker, has ignored the original opinion. However, as Segel notes in his brief, the supplemental opinion did not reverse the original holding, but merely explained its scope. The supplemental opinion in Baker deals with the issue of whether Baker applies to deeds of trusts securing non-purchase money obligations, while the lender in Baker was a purchase money lender. The opinion was obviously intended to be a guide for future conduct. Therefore, this court must follow the direction given by the supreme court. See State v. Fahringer, 136 Ariz. 414, 415, 666 P.2d 514, 515 (App.1983) (statements which might otherwise be considered dicta are authoritative where court expressly declares them to be guide for future conduct).

Segel also argues that a beneficiary under a deed of trust securing a non-purchase money loan is prohibited from suing on the note under A.R.S. section 33-814(G), the deed of trust anti-deficiency statute, because that statute does not differentiate between purchase money and non-purchase money liabilities. Segel notes that A.R.S. section 33-729, the mortgage anti-deficiency statute, which is only applicable to purchase money obligations, was enacted in the same year as A.R.S. section 33-814, and claims that, if the legislature had wanted the two statutes to have the same effect, it would have used the same language. However, Segel ignores the fact that the supreme court in Baker held that, when a deed of trust beneficiary either chooses to foreclose judicially or to sue directly on the note, it is the mortgage anti-deficiency statute that applies. See Baker, 160 Ariz. at 106, 770 P.2d at 774. Segel's argument that, by permitting a lender such as Southwest to waive its security, sue directly on the note and treat the deed of trust as a mortgage, courts would effectively eliminate the deed of trust anti-deficiency statute, is also clearly incorrect. A.R.S. section 33-814(G) would, as it expressly states, still serve to prohibit deficiency judgments after a lender exercises its right of non-judicial foreclosure whether a purchase money or a non-purchase money obligation is involved.

Because Southwest did not institute trustee's sale proceedings and the mortgage anti-deficiency statute would not have prevented Southwest from obtaining a deficiency judgment against Segel, Southwest was entitled to waive its security and sue directly on the notes under A.R.S. section 33-722.

Although the trial court apparently did not reach this issue in granting summary judgment in favor of Segel, Segel had also argued before the trial court that Southwest was prohibited from suing directly on the notes because non-judicial foreclosure proceedings had been instituted by the trustees under the first deeds of trust encumbering the properties. In other words, Segel argued below that, because the senior lenders had noticed trustee's sales, and Southwest had notice of the proceedings and an...