In Morgan AZ Financial, LLC v Gotses, the Arizona Appellate Court reversed a summary judgment for the “lender,” holding that common-law defenses to a borrower’s liability on the note survive the trustee’s sale, despite the “waiver” provisions of ARS 33-811(c).
This is good news for borrowers who are facing deficiency actions because they aren’t covered by the anti-deficiency protections (i.e. lot more than 2.5 acres, other exceptions), and who failed to obtain an injunction prior to the trustee’s sale.
Morgan now attempts to extend the reasoning
of BT Capital to support the proposition that a borrower who does not
enjoin the sale loses his right to litigate any defenses to a potential postsale
deficiency action. We conclude that this contention is unsupported
by the plain language of the statute and is inconsistent with the process
and purpose of nonjudicial foreclosures.
¶8 Section 33-811(C) provides that “[t]he trustor . . . shall waive
all defenses and objections to the sale not raised in an action that results in
the issuance of [an injunction against the sale].” (Emphasis added.) The
plain language prescribes waiver only of defenses and objections “to the
sale,” and we must strictly construe this language in favor of trustors.
Patton v. First Fed. Savs. & Loan Ass’n of Phx, 118 Ariz. 473, 477, 578 P.2d
152, 156 (1978). A completed trustee’s sale does not operate to deprive the
trustor of the ability to pursue claims or defenses that are independent of
the sale. See Sitton v. Deutsche Bank Nat’l Trust Co., 233 Ariz. 215, 218, ¶ 13,
311 P.3d 237, 240 (App. 2013) (“Section 33-811(C) contemplates the waiver
of ‘defenses and objections to the sale’ only . . . .”); see also Snyder v. HSBC
Bank, U.S.A., N.A., 913 F. Supp. 2d 755, 770 (D. Ariz. 2012) (“Section 33-
811(C), however, does not prevent Plaintiff from asserting claims for relief
independent of voiding the trustee sale.”).