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Arizona Statutory Safe Harbors and Trustee Liability

Posted By USFN, Wednesday, February 6, 2013
Updated: Monday, November 30, 2015

February 6, 2013


by James Galbraith
Routh Crabtree Olsen, P.C. – USFN Member (Oregon, Washington)

The Arizona Supreme Court has unanimously reaffirmed that Arizona law immunizes a completed foreclosure from challenge based on pre-sale objections. The court, however, did hint at trustee liability for improper “refusal to accept payment” of a successful bid. BT Capital LLC v. TD Service Company of AZ, 229 Ariz. 299, 275 P.3d 598 (2012).

Some background: In 2009, TD conducted a trustee’s sale where it made a $1 million credit bid on behalf of the beneficiary of the deed of trust, Point Center Financial, Inc. (PCF). The auction was re-done later the same day after BT Capital (BT) contended that the first sale was conducted earlier than the noticed time. In the subsequent sale, BT was the highest bidder at one dollar above TD’s initial one million dollar credit bid after the trustee mistakenly failed to make a further bid on PCF’s behalf. When BT tried to pay the one million plus one dollar bid, TD rejected it, contending that the second auction was void because there had been a mistake in communicating correct bid instructions.

BT sued TD and PCF. During the litigation, TD scheduled a new sale. BT received notice of the sale, but did not secure an injunction “before 5:00 pm … on the last business day before the scheduled date of the sale.” ARS § 33-811(C). TD conducted the sale and PCF acquired the property.

The court considered two main questions: (1) Do the Arizona statutes or does common law govern BT’s claims; and (2) Did the final sale eliminate BT’s claims? The court held that because the “deed of trust scheme is a creature of statutes,” § 33-811(C) prohibited BT from challenging the completed sale “based on pre-sale defenses or objections.”

§ 33-811(C) stops “the trustor, its successors or assigns, and all persons to whom the trustee mails a notice of sale” from judicially undoing a completed sale unless they obtain an injunction before the sale. The court’s reaffirmation of this protection is good news for trustees and lenders: as soon as you complete a sale, any objecting party waives all pre-sale defenses or objections. This also means that postponing a sale gives an objecting party more time to successfully sue based on their pre-sale defenses or objections.

The court continued on to state, “If [the trustee’s] refusal to accept payment was improper (an issue we do not decide), BT might have brought an action seeking to compel [the trustee] to complete the sale consistent with its statutory obligations.” Because the issue was not decided, the court’s language is arguably dicta and not binding. Nevertheless, it does warn trustees and beneficiaries that there may be situations where “refus[ing] to accept payment [is] improper.”

Bottom line: If you are concerned about a state law challenge, the sooner the sale is completed, the sooner § 33-811(C) is applicable. In any event, be sure that the sale is conducted properly so that you don’t find out firsthand what a court considers an “improper refusal of payment.”

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