Wells Fargo Credit Corp. v. Tolliver
| Decision Date | 30 May 1995 |
| Docket Number | No. 1,CA-CV,1 |
| Citation | 183 Ariz. 343,903 P.2d 1101 |
| Parties | WELLS FARGO CREDIT CORPORATION, a California corporation, Plaintiff-Appellant, v. Donald L. TOLLIVER and Sheila Ann Tolliver, husband and wife, Defendants-Appellees. 93-0287. |
| Court | Arizona Court of Appeals |
Wells Fargo Credit Corporation ("Wells Fargo") appeals from the trial court's grant of summary judgment in favor of defendants Donald and Sheila Tolliver. This appeal presents the following issues:
1. Does either Ariz.Rev.Stat.Ann. ("A.R.S.") section 12-1566 or section 33-814 preclude Wells Fargo from instituting an action on its promissory note after its lien had been extinguished by a trustee's sale conducted by a senior lienholder?
2. If section 12-1566 or 33-814 applies, did the trial court err in granting summary judgment in favor of the Tollivers?
3. Did the trial court err in denying Wells Fargo's motion for summary judgment?
We hold that neither section 12-1566 nor section 33-814 bars Wells Fargo from suing on its note after its junior lien had been extinguished when the senior lienholder instituted non-judicial foreclosure proceedings, and that Wells Fargo is entitled to summary judgment. Accordingly, we reverse the trial court's judgment in favor of the Tollivers and remand for entry of judgment in favor of Wells Fargo.
On appeal from summary judgment, both the facts and the record are to be viewed in the light most favorable to the losing party below. Gulf Ins. Co. v. Grisham, 126 Ariz. 123, 124, 613 P.2d 283, 284 (1980). Viewed in that light, the facts are as follows. The Tollivers executed a promissory note in favor of Wells Fargo as payee. The note was secured by a second deed of trust on an apartment complex. Wells Fargo's deed of trust was junior to a first deed of trust held by Lomas Mortgage Corporation ("Lomas").
In September 1991, Lomas conducted a trustee's sale of the encumbered property. At the time, the amount owed Lomas totaled approximately $60,145.00, and the amount due Wells Fargo equalled $59,342.00.
Wells Fargo later brought this action against the Tollivers for the amount due under the promissory note. The parties filed cross-motions for summary judgment. The trial court denied Wells Fargo's motion for summary judgment and granted the Tollivers' motion. The court stated:
THE COURT FINDS that A.R.S. § 12-1566(F) is applicable to the case at bar and that the second sentence in this paragraph would be rendered meaningless if plaintiff were allowed to release its recorded lien at this time. The Court believes that the Legislature intended for the junior lienholder to release its recorded lien at the time of the trustee sale conducted by the senior lienholder.
The court entered judgment for the Tollivers, thereby leaving Wells Fargo without recourse against the Tollivers for the $59,342.00 debt. After its motion for reconsideration or a new trial was denied, Wells Fargo brought this appeal.
We must first determine whether A.R.S. section 12-1566 precludes Wells Fargo from initiating an action on its promissory note after its security interest had been foreclosed by a senior lienholder's trustee's sale. Because this issue involves statutory interpretation and application, it is a question of law that we review de novo. See Libra Group, Inc. v. State, 167 Ariz. 176, 179, 805 P.2d 409, 412 (App.1991).
In interpreting a statute, we look primarily to the language of the statute and give effect to the statutory terms according to their ordinary meanings, unless the legislature has provided a specific definition or the context of the statute indicates a term carries a special meaning. Mid Kansas Fed. Sav. and Loan v. Dynamic Dev. Corp., 167 Ariz. 122, 128, 804 P.2d 1310, 1316 (1991). If the statutory language is clear and unambiguous, we will give effect to the statute's plain language without resorting to other rules of statutory construction. Janson v. Christensen, 167 Ariz. 470, 471, 808 P.2d 1222, 1223 (1991).
The Tollivers argue that section 12-1566 requires Wells Fargo, as a junior lienholder, to affirmatively release its lien on the property prior to the trustee's sale commenced by the senior lienholder before it can maintain a direct action on its note. The Tollivers rely specifically on section 12-1566(F), which provides:
F. This section shall not abate, suspend or bar the right of the holder of a debt secured by real property to abandon and release the lien on the real property which secures the debt and proceed against any borrower or guarantor. Abandonment and release shall be evidenced by a recorded release of the lien.
Contrary to the Tollivers' contention, we believe subsection (F) was designed simply to reassure secured creditors that section 12-1566 does not interfere with their right to elect remedies.
Under Arizona law, creditors who hold promissory notes secured by real property have two remedies available when a debtor defaults on the obligation: (1) foreclose their security; or (2) elect to waive the security and sue directly on the promissory note. See A.R.S. § 33-722; Darnell v. Denton, 137 Ariz. 204, 206, 669 P.2d 981, 983 (App.1983). The creditors may foreclose their mortgages judicially under A.R.S. sections 33-725 and 33-727. Deeds of trust may be foreclosed through trustee's sale proceedings or judicially. See A.R.S. §§ 33-721 et seq. and 33-801 et seq.
In a judicial foreclosure proceeding, the court grants judgment in favor of the creditor for the amount due and orders the property sold to satisfy the judgment. If the sales price does not satisfy the judgment, the court issues a deficiency judgment against the debtor for the balance. In a non-judicial foreclosure proceeding, the creditor causes the encumbered property to be sold in a trustee's sale. See A.R.S. § 33-807. The creditor may then obtain a deficiency judgment to the extent that the debt exceeds the sales price or the fair market value of the property, whichever is greater. See A.R.S. § 33-814(A).
In 1990, the legislature sought to protect debtors from excessive deficiency judgments resulting from the forced sales of the encumbered properties by adding section 12-1566 and amending sections 33-725, 33-727 and 33-814. Judgment debtors are now entitled to a credit against the judgment in the amount of the greater of either the fair market value of the real property sold or its sales price. See A.R.S. § 12-1566(B). They may apply to the court for a determination of the property's fair market value after it is sold in either judicial or non-judicial foreclosure proceedings. See A.R.S. § 12-1566(C).
The legislature has defined the scope of section 12-1566 as follows:
A. This section applies to execution upon real property under a judgment obtained pursuant to § 33-725 or obtained pursuant to § 33-814 or obtained against a guarantor or any other person directly or indirectly or contingently liable on a debt for which a judgment under § 33-725 or 33-814 may be obtained.
(Emphasis added). The statutory language clearly limits the application of this statute to the execution upon real property under a judgment obtained under three circumstances: (1) judicial foreclosure proceedings pursuant to section 33-725; (2) deficiency actions pursuant to section 33-814; or (3) against a guarantor or any other person directly, indirectly, or contingently liable on a debt for which a judicial foreclosure or deficiency judgment may be obtained. The provisions of section 12-1566 are thus relevant only when a deed of trust has been foreclosed and the creditor has obtained or can obtain a deficiency judgment.
However, the provision on which the Tollivers rely to support their argument, A.R.S. section 12-1566(F), does not address deficiency actions. This provision guarantees secured creditors who do not desire to undergo foreclosure proceedings that their right to an election of remedies under section 33-722 has not been abolished by section 12-1566. Specifically, subsection (F) provides that "[section 12-1566] shall not abate, suspend or bar the right of the holder of a debt secured by real property to abandon and release the lien on the real property which secures the debt and proceed against any borrower or guarantor."
By its language, this subsection merely reassures lienholders that the fair market value provisions do not interfere with their right to waive their liens and proceed against the debtors personally. If the lienholders make such an election, they must record the release of the liens. However, the statutory language does not indicate an intent to impose an affirmative obligation on a junior lienholder to release or abandon its lien simply because the senior lienholder had elected to foreclose on its security. The language that "Abandonment and release shall be evidenced by a recorded release of the lien" in subsection (F) merely clarifies that a release shall be recorded.
In fact, to find a requirement that the junior lienholder release its lien would result in an irrational construction of the statute. See Dunn v. Industrial Comm'n, 177 Ariz. 190, 195, 866 P.2d 858, 863 (1994) (). When the senior lienholder forecloses on its lien through non-judicial proceedings, the junior lender's security interest becomes extinguished by operation of law. See A.R.S. § 33-811(C) 1; Long v. Corbet, 181 Ariz. 153, 157, 888 P.2d 1340, 1344 (App.1994). Consequently, the junior lender no longer has a security interest on the property. It...
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