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First Credit Union v. Courtney - 9/12/2013

Arizona Court of Appeals Division Two Holds That A Creditor May Sue a Guarantor Without A Prior Trustee’s Sale, Arizona’s Anti-Deficiency Statute Only Applies After A Trustee’s Sale Of A Qualifying Property Under A.R.S. § 33-814(G), And A Creditor May Recover a Deficiency Judgment Against A Guarantor Even When The Underlying Debt Against The Borrower Is Extinguished.

Defendants Craig and Janine Courtney executed a personal guaranty for a construction loan from First Credit Union to an entity named Orange Grove I, L.L.C.  The loan was secured by two pieces of property: the “Appian Estates” and “Citrine Property.”  Orange Grove defaulted on the loan, and First Credit requested a trustee’s sale of the Appian Estates property and then sued the Courtneys for a deficiency judgment on the loan.  The trial court granted partial summary judgment in First Credit’s favor as to liability and held a trial to determine damages.  The court entered a deficiency judgment against the Courtneys, who appealed the Court’s decision.

The Courtneys first argued that the deficiency action was premature under A.R.S. § 33-814(B)—which provides that any action must be brought within 90 days of a trustee’s sale—because First Credit did not request a trustee’s sale for the Citrine Property.  Subsection 33-814(C) provides that the balance due on a contract may be enforced “in an action regardless of whether a trustee’s sale is held.”  Therefore, because First Credit was not required to hold a trustee’s sale, the 90 day limitation did not apply.  The Court further noted that subsection (B) contemplates that a lender may not sell all of the collateral.  And finally, the Court explained that subsection (C) allows a guarantor to waive defenses and allow a creditor to collect a debt without selling the collateral, and stated that the language of the guarantor agreement waived the Courtney’s right to have First Credit exhaust the collateral first. 

The Courtneys then argued that A.R.S. § 33-814(G)—Arizona’s anti-deficiency statue—precludes First Credit from collecting a deficiency judgment against the Courtneys.  The Court explained that under this statute, a creditor can elect to forgo foreclosure and sue directly on the note, except in certain cases involving mortgages and deeds of trust.  Even though the Appian Estates property did not qualify because it was a commercial property—and the Citrine Property was not foreclosed on—the Courtneys argued that Mid Kanses Fed. Sav. & Loan Ass’n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122, 804 P.2d 1310 (1991), prohibits a deficiency judgment after a trustee’s sale of any deed of trust.  The Court rejected this argument and explained that the universal interpretation of cases addressing this statute allow a lender who has not foreclosed on qualifying collateral to waive its security and sue on the note.

Finally, the Courtneys argued that Orange Grove’s debt was extinguished under A.R.S. §33-814(D) because First Credit did not sue the entity within 90 days, and because the Courtneys were only liable for Orange Grove’s “indebtedness,” First Credit could no longer sue the Courtneys.  The Court rejected this third argument, and found that not only did the plain language of the guaranty waive any defenses given to guarantors other than actual payment, the plain language of subsection (D) does not specify against whom an action must be maintained in 90 days, and therefore does not limit a creditor’s rights to sue the guarantor directly. 

Note: The Court stated that it resolved this case by interpreting A.R.S. §33-814 and the Guaranty “without deciding whether, in general, a guarantor can waive protections afforded under the statute.” 

Chief Judge Howard authored the opinion; Presiding Judge Vásquez and Judge Miller concurred.

Posted by: Joshua Ernst

Posted On: 9/23/2013