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ZB, N.A. v. Hoeller - 4/25/2017

Arizona Court of Appeals Division One holds that when the promissory note’s choice-of-law provision conflicts with the choice-of-law provision in a related deed of trust, the promissory note’s provision controls in a deficiency action following a trustee’s sale.


Borrower purchased commercial real estate financed by Lender, and secured the loan with a deed of trust.  The promissory note for the purchase contained a Utah choice-of-law provision.  The deed of trust also specified that Utah law governed the sale, except that Missouri law would govern procedural matters related to the perfection and enforcement of Lender’s rights.  Borrower defaulted, Lender foreclosed on the property, purchased the property with a credit bid at a trustee’s sale, and initiated a deficiency action against Borrower for the remaining balance of the loan and interest.  The superior court rejected Borrower’s assertion that the deficiency action was time-barred under Utah’s statute of limitations and applied a longer statute of limitations under Missouri law.

On appeal, the Court of Appeals reversed, remanding for entry in Borrower’s favor.  Relying on the Restatement (Second) of Conflict of Laws, the Court reasoned that the choice-of-law provision in the promissory note—rather than the deed of trust—governed a deficiency action because that action stemmed from the underlying debt.  Under Utah law, specified in the promissory note, Lender had only 90 days from the date of the trustee’s sale to commence a deficiency action, rendering its filing untimely.  The Court further held that Lender could not invoke any other remedies contained in the deed of trust because that deed was extinguished after the trustee’s sale.

Judge Howe authored the opinion; Judges Winthrop and Thompson concurred.

Posted By:  William D. Furnish

Posted On: 5/2/2017