Sourcecorp v. Norcutt
| Decision Date | 02 August 2011 |
| Docket Number | No. 1 CA–CV 10–0212.,1 CA–CV 10–0212. |
| Citation | 227 Ariz. 463,614 Ariz. Adv. Rep. 24,258 P.3d 281 |
| Parties | SOURCECORP, INCORPORATED, Plaintiff/Appellee,v.Dean D. NORCUTT and Stacey L. Norcutt, husband and wife, Intervenors/Appellants. |
| Court | Arizona Court of Appeals |
OPINION TEXT STARTS HERE
Steptoe & Johnson L.L.P. By Bennett Evan Cooper, Douglas D. Janicik, Phoenix, Attorneys for Plaintiff/Appellee.Mariscal, Weeks, McIntyre & Friedlander, P.A. By Michael R. Scheurich, Anne L. Tiffen, Robert C. Brown, Phoenix, Attorneys for Intervenors/Appellants.
¶ 1 Dean and Stacey Norcutt appeal the trial court's summary judgment in favor of Sourcecorp, Incorporated (“Sourcecorp”). The judgment allows Sourcecorp to proceed with a forced sale of the Norcutts' home (“the Property”) in partial payment of a money judgment Sourcecorp obtained against Steven and Rita Shill, the former owners of the Property. The Norcutts contend the trial court erred in finding they were not equitably subrogated to a first lien position by paying off the Shills' mortgage with Zions Bank.
¶ 2 Existing Arizona law recognizes the right of one lender to pay off a senior real property lien and thereby become equitably subrogated to that senior position over a junior lienholder. Under the facts presented here, we extend the doctrine to allow a cash purchaser who pays off a senior mortgage to be equitably subrogated into that position over a junior judgment lienholder. Accordingly, and as more fully set forth below, we reverse the judgment in favor of Sourcecorp and remand with directions to enter judgment in favor of the Norcutts.
¶ 3 In September 2004, Sourcecorp obtained a judgment against the Shills in the amount of $3,052,488.27. At the time, the Shills owned the Property, which is located in Prescott, Arizona. In an effort to perfect a judgment lien against the Property, Sourcecorp recorded the judgment in Yavapai County in October 2004, but failed to include the separate information statement required when recording a money judgment. See Ariz.Rev.Stat. (“A.R.S.”) § 33–961(C) (2000). In early January 2005, Sourcecorp filed an amendment to the recorded judgment that included the required information statement.
¶ 4 In the meantime, the Norcutts purchased the Property from the Shills for $667,500.00 in cash in November 2004. The majority of those funds—$621,307.36—were used to pay off a first position lien on the Property held by Zions Bank, which accepted the funds in satisfaction of the Shills' outstanding debt of $688,868.78. The purchase price also paid off senior tax liens. The Norcutts' title insurer, First American Title Insurance Company (“First American Title”) failed, however, to discover Sourcecorp's judgment lien before the Norcutts purchased the Property.
¶ 5 In late January 2005, the Norcutts filed a Motion to Intervene, Application for Temporary Restraining Order and Preliminary Injunction, and Motion to Quash Writ of General Execution to stop a sheriff's sale of the Property initiated by Sourcecorp. In their motion, the Norcutts asked the trial court to declare that Sourcecorp had no valid lien against the Property because (1) Sourcecorp had not recorded a judgment information statement along with the judgment, (2) the Property was exempt from execution by operation of the homestead laws, and (3) Sourcecorp's judgment was subject and inferior to the Norcutts' interest based on equitable subrogation.
¶ 6 The trial court granted the Norcutts' motion to quash the writ of general execution, finding that the priority of Sourcecorp's judgment lien would date from the time the judgment information statement was filed, the priority applied to purchasers as well as competing liens on the Property, and the Norcutts had a prior interest, making their interest in the Property superior to that of Sourcecorp. Sourcecorp appealed, and in September 2006 this court vacated the judgment, finding that Sourcecorp's failure to attach the money judgment information statement did not invalidate its lien and the trial court “erred in construing the word ‘priority’ to include not only competing lienholders, but also subsequent purchasers.” Sourcecorp, Inc. v. Shill, 1 CA–CV 05–0425, at *13, ¶ 16 (Ariz.App. Sept. 26, 2006) (mem. decision).
¶ 7 On remand to the trial court, the Norcutts reasserted their arguments that the Property was protected from execution by the homestead exemption and that by equitable subrogation they held the priority position previously held by Zions Bank, which they maintained was superior to the position held by Sourcecorp. The Norcutts asserted they had paid off the Zions Bank first position lien and, by equitable subrogation, were therefore substituted into that priority position, despite the recording of the intervening judgment lien.
¶ 8 Sourcecorp argued that the Shills had abandoned the homestead and equitable subrogation could not be applied to allow a purchaser of property to acquire the rights of an extinguished lien ahead of a creditor whose lien existed at the time of the purchase. Sourcecorp maintained that equitable subrogation did not apply because the Norcutts were consumers and not lenders when they purchased the Property, that as owners in fee of the Property the Norcutts had no need to protect their interests with a lien, and that the Norcutts were “volunteers” because they were not forced to pay another's debt to protect their own interest given that they had no prior interest in the Property. Sourcecorp further noted that the Norcutts had paid cash for the Property and none of the documentation associated with the sale indicated anyone was to receive a security interest in the Property.
¶ 9 The trial court granted summary judgment in favor of Sourcecorp, finding that equitable subrogation could not be applied and the Shills had abandoned their right to claim a homestead exemption:
The Court does not and cannot conclude that the Norcutts can hold a lien on their own house for having paid cash and supposedly obtaining equitable subrogation by paying of[f] the first lienholder, Zions Bank.
Arizona's homestead exemption did not preclude Plaintiff's judgment lien was recorded [sic]. Moreover, this Court concludes that the Shills abandoned their right to claim a homestead exemption to the Prescott property. The simple fact is that the Shills waived their homestead exemption rights by selling their home and using it as a source of restitution payments.
¶ 10 The trial court granted Sourcecorp's request for attorneys' fees pursuant to A.R.S. § 12–341.01(A) (2003). The Norcutts appealed from the court's final judgment. We have jurisdiction pursuant to A.R.S. § 12–2101(A)(1) (West 2011).1
¶ 11 Summary judgment may be granted when “there is no genuine issue as to any material fact and [ ] the moving party is entitled to a judgment as a matter of law.” Ariz. R. Civ. P. 56(c). In reviewing a motion for summary judgment, we determine de novo whether any genuine issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App.2000). We view the facts and the inferences to be drawn from those facts in the light most favorable to the party against whom judgment was entered. Prince v. City of Apache Junction, 185 Ariz. 43, 45, 912 P.2d 47, 49 (App.1996).
¶ 12 The Norcutts argue that the trial court erred in finding they were not equitably subrogated to the first lien position of the Zions Bank mortgage, which was paid off as part of the purchase. Sourcecorp asserts that the Norcutts' equitable subrogation argument is refuted by the statutes and case law governing judgment liens. Pursuant to A.R.S. § 12–1553(2) (2003), a judgment creditor holding a lien upon real property “can satisfy the judgment out of the real property belonging to the judgment debtor on the day when the judgment became a lien or at anytime thereafter.” The creditor may therefore seek to satisfy the judgment from the property even if the debtor transfers the property to a third party. Byers v. Wik, 169 Ariz. 215, 219, 818 P.2d 200, 204 (App.1991). The creditor's right to levy on the property exists “to the exclusion of the rights of others that may have attached subsequent to the judgment lien.” Freeman v. Wintroath Pumps–Div. of Worthington Corp., 13 Ariz.App. 182, 184, 475 P.2d 274, 276 (1970), quoted in Byers, 169 Ariz. at 218, 818 P.2d at 203.
¶ 13 These statutes and principles do not, however, necessarily compel the rejection of the Norcutts' equitable subrogation argument. The very nature of equitable subrogation is to substitute a party into the position of another. If the Norcutts are entitled to equitable subrogation as they claim, then they would be substituted into the position of Zions Bank, and their interest would be deemed to have attached before the judgment lien.
¶ 14 “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). Its application allows someone who pays off a primary and superior encumbrance to be substituted into the priority position of the primary lienholder, despite 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). Equitable subrogation has four primary 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) no injustice will be done to the other party by allowing subrogation. Id. at ¶ 8. Further, for equitable subrogation to apply,
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