Opinion
No. CV-10-1657-PHX-FJM.
July 13, 2011
ORDER
We have before us defendant First American Title Company's ("FATCO") motion for summary judgment (doc. 71), plaintiff's amended response (doc. 83-2), and defendant's reply (doc. 81). We also have plaintiff's motion for leave to file a second amended complaint (doc. 74), defendant FACTO's response (doc. 75), and plaintiff's reply (doc. 78), as well as plaintiff's unopposed motion to amend its response and statement of facts in opposition to defendant's motion for summary judgment (doc. 83).
I
Plaintiff moves for leave to amend its response and statement of facts in opposition to defendant FATCO's motion for summary judgment (doc. 83). Plaintiff seeks to correct its failure to comply with LRCiv 56.1(b). We grant this unopposed motion.
II
Plaintiff purportedly loaned Cheryl Davis $171,000, which she purportedly used to purchase property for $190,000. In connection with the loan, plaintiff purchased a title insurance policy from defendant FATCO, which covers loss or damage sustained or incurred by the insured by reason of "the invalidity or unenforceability of the lien of the insured mortgage upon the title." Response, ex. 1, "Policy of Title Insurance" at 4 (doc. 79-2). FATCO also issued a closing protection letter. Plaintiff received total loan payments of $7,426.89 until March, 2008, when the payments stopped. The note and deed of trust used to obtain the loan were actually forged, and not signed by Davis, and plaintiff subsequently discovered that Davis had not authorized the purchase of the property. On January 2, 2009, plaintiff recorded a Notice of Trustee Sale, and on June 9, 2009, plaintiff obtained title through a credit bid at the trustee sale. In July, 2009, plaintiff brought a deficiency action against Davis, but voluntarily dismissed the action in June, 2010. On October 21, 2009, plaintiff notified FATCO that it believed it had a claim for defect in the title based on fraud and forgery. FATCO has not paid plaintiff's claim. On November 17, 2009, plaintiff sold the property for $22,920.67, resulting in a total loss of $140,652.44, plus expenses.
Plaintiff asserts four causes of action against defendant FATCO: (1) a declaration that plaintiff's policy with FATCO insures its interest under the commitment letter and policy, pursuant to 28 U.S.C. § 2201; (2) breach of written contract; (3) breach of the covenant of good faith and fair dealing; and (4) breach of obligation under the closing protection letter. FATCO moves to dismiss on the grounds that: (1) plaintiff has no damages recoverable under the policy; (2) plaintiff waived its claim that the deed of trust is invalid; (3) plaintiff did not timely bring a deficiency action as required by A.R.S. § 33-814(D); and (4) the proceeds of the trustee sale are deemed to have fully satisfied the obligation.
Plaintiff asserts the cause of action under the closing protection letter in its amended complaint. See Second Amended Complaint at 17 (doc. 74-1).
A
FATCO argues that plaintiff's claims are for noncompensable deficiency damages. A deficiency action includes any claim for the deficiency amount from "any person directly, indirectly or contingently liable on the contract for which the trust deed was given as security including any guarantor of or surety for the contract and any partner of a trustor or other obligor which is a partnership." A.R.S. § 33-814(A). A deficiency judgment is for the amount owed on the date of the sale minus either the fair market value of the property or the sale price, whichever is higher. Id.
FATCO argues that plaintiff's claims against it are for its deficiency from the property sale, and the title policy does not cover deficiency damages. According to defendant, because there was no competing interest in the title and plaintiff was able to successfully claim title to the property, plaintiff has no damages compensable under the policy. Plaintiff contends that as a result of the forgery, the lien was void, and therefore plaintiff's action is not for a deficiency because there was no mortgage, and therefore no deficiency. See Arizona Central Credit Union v. Holden, 6 Ariz. App. 310, 313, 432 P.2d 276, 279 (1967) ("The effect of this conclusion is that the subsequent mortgage and notes, upon which the defendant's name was forged, were totally void and therefore precluded the plaintiff's action in this case."). Plaintiff notes that the amount of the deficiency would be $150,487.64, the $183,666.85 still owed on the loan, less the credit bid of $33,179.21. In contrast, plaintiff's claim for $140,652.44 is for its actual losses resulting from the invalidity of the lien, as determined by the value of the loan less the amount it received from the mortgage payments and the property sale.
We agree that plaintiff's claims against FATCO arise out of the invalidity of the lien, and are not for a deficiency judgment. The title insurance policy covers losses caused by the "the invalidity or unenforceability of the lien of the insured mortgage upon the title." Policy of Title Insurance at 4. Had the lien been valid, plaintiff might have collected all the money it was owed, and not suffered any damages. However, the lien was not enforceable against any party because it was obtained through forgery. Having made a loan for $171,000 and lacking a valid note, plaintiff's recourse was to sell the property for as much as it could, which resulted in a loss. We disagree with FATCO's assertion that because plaintiff claimed title to the property, it suffered no compensable damages. Plaintiff's ability to foreclose on the property does not mean it suffered no damages due to the invalidity of the lien. We reject the contention that the only compensable losses that could be caused by the invalidity of the lien would arise out of competing title claims and that any other losses are uninsured deficiency damages. A lien could be unenforceable due to competing title claims, or due to a problem with the loan documents, such as forgery. The insurance policy does not limit its applicability to the former by explicitly excluding the later. As a direct result of the invalidity of the lien, plaintiff suffered damages, and the policy plainly covers such losses. It is not relevant that these damages are approximately equal to those that could be sought in a deficiency action. We conclude that plaintiff's claims against defendant FATCO are for insured losses related to the invalidity of the lien, not for deficiency damages. They may be compensable under the title insurance policy.
B
FATCO argues that by certifying that the trustee sale was in compliance with all statutory requirements, and then foreclosing on the property and selling it, plaintiff waived any argument that the deed of trust was invalid. Motion at 3. FATCO notes that when plaintiff recorded the Notice of Trustee's Sale on January 2, 2009, and when it certified the Trustee Deed upon Sale, it asserted that the sale was in compliance with the trust sale statutes, A.R.S. § 33-801 et seq. FATCO argues that if plaintiff wanted to maintain that the lien was invalid or unenforceable, it should not have performed the trustee's sale, obtained title, and sold the property. According to defendant, if plaintiff had notified FATCO before the trustee sale, FATCO could have pursued a judicial foreclosure of a constructive or equitable lien, but that now it has waived the right to assert invalidity. Plaintiff argues that it did not intend to waive its rights under the policy when it foreclosed on the property, but rather to mitigate its damages.
We cannot conclude that as a matter of law, plaintiff waived its claim under the insurance policy. "A waiver is a voluntary and intentional relinquishment of a known right, or such conduct as warrants an inference of the relinquishment of such right. . . . Where a waiver is not express but must be inferred from conduct, it is essentially a matter of intention." Southwest Cotton Co. v. Valley Bank, 26 Ariz. 559, 563, 227 P. 986, 988 (1924). Where reasonable minds may differ about whether the conduct evidences intent, waiver is an issue of fact. Id. Plaintiff attempted to bring a deficiency action against Davis. When that failed because the lien was void, plaintiff sought to reduce its damages by foreclosing on the property and selling it. The question of whether plaintiff improperly certified that the sale was in compliance with state requirements is not before us. Plainitff's attempt to recoup its losses does not demonstrate intent to waive its claims under the title policy, but instead may have been a good faith effort to mitigate to the extent possible. Reasonable minds could differ as to whether this conduct evidences intent to waive its claims under the policy, and therefore FATCO is not entitled to summary judgment on the issue of waiver.
C
FATCO also argues that because plaintiff's claim is a deficiency action, it is not timely under Arizona's antideficiency statute, which requires that an action to recover a deficiency judgment must be maintained within ninety days of the property sale. A.R.S. § 33-814(A). The statute prevents the recovery of a deficiency in "any action" if no action is maintained within ninety days. However, as explained above, plaintiff's claim is not for a deficiency, but for the losses caused by the invalidity of the lien. Because plaintiff's claim is not a deficiency action, the statutory bar is not applicable.
We need not reach plaintiff's argument that the deficiency action that it brought against Davis and then voluntarily dismissed satisfies the statutory requirement that it "maintain" a deficiency action.
D
FATCO contends that because plaintiff did not bring a timely deficiency action, its full credit bid precludes any recovery. Pursuant to A.R.S. § 33-814(D), if no deficiency action is timely maintained, "the proceeds of the sale, regardless of amount, shall be deemed to be in full satisfaction of the obligation and no right to recover a deficiency in any action shall exist."We conclude that while the antideficiency statute would prevent plaintiff from seeking a deficiency judgment against any party, it does not preclude an action for recovery of insured losses caused by the invalidity of a lien. The precedent on which defendant relies is distinguishable. In Universal Mortg. Co., Inc. v. Prudential Ins. Co., 799 F.2d 458, 461 (9th Cir. 1986), the United States Court of Appeals for the Ninth Circuit concluded that under California law, a mortgagee's full credit bid at a foreclosure sale precluded recovery by the mortgagee under a fire and casualty insurance policy because the bid extinguished the secured debt.See also 333 W. Thomas Med. Bldg. Enters v. Soetantyo, 976 F. Supp. 1298, 1301 (D. Ariz. 1995) (aff'd 333 W. Thomas Med. Bldg. Enters v. Soetantyo, 111 F.3d 138 (9th Cir. 1997)) ("Because Plaintiff tendered a full-credit bid, Plaintiff cannot establish damages necessary to maintain a waste action."). But casualty insurance and the title insurance policy at issue here are not the same. One is related to problems with the property itself, while another specifically addresses the mortgagee's lien. For purposes of this motion, we may assume that in Arizona, as in California, upon the entry of a full-credit bid, "the mortgagee no longer has any interest in insurance on the property." Altus Bank v. State Farm Fire and Cas. Co., 979 F.2d 854, *2 (9th Cir. 1992). It does not then follow that a mortgagee may not be compensated for the damages it incurred as a result of the invalidity of the lien. While it may make sense that a full credit bid should extinguish any right to demand further compensation related to the value of the property, losses arising from the unenforceability of the lien are separate, and may be resolved independently.
III
Plaintiff moves for leave to amend its complaint to add a cause of action for liability under the closing protection letter and to remove Cheryl Davis as defendant, whom we previously dismissed pursuant to plaintiff's motion (doc. 74). See Order of February 22, 2011 (doc. 70). Defendant FATCO opposes the motion on grounds of futility. It argues that because plaintiff's debt was deemed satisfied, it cannot recover damages under the title policy or closing protection letter. See Response at 1 (doc. 75). In the closing protection letter, FATCO agreed to reimburse plaintiff for losses incurred in connection with the closing as a result of the issuing agent's failure to comply with the closing instructions or the agent's fraud or dishonesty. See Complaint, ex. 5, "Closing Protection Letter" at 2-3 (doc. 1-5). As we have determined, plaintiff's full credit bid does not preclude claims related to problems with the lien. Therefore, plaintiff's claim under the closing protection letter is not futile.
FATCO alternatively requests that its motion for summary judgment be applied to plaintiff's amended complaint. Accordingly, we have considered the motion for summary judgment as applied to the second amended complaint.
IV
IT IS ORDERED DENYING defendant First American Title Company's motion for summary judgment (doc. 71).
IT IS ORDERED GRANTING plaintiff's motion for leave to file a second amended complaint (doc. 74).
IT IS FURTHER ORDERED GRANTING plaintiff's motion for leave to file an amended response and statement of facts (doc. 83).