Opinion
2 CA-CV 2023-0031
04-05-2024
Joseph J. Tirello Jr., as trustee, Plaintiff, v. Maricopa County Treasurer, Defendant. Foreclosure Excess Proceeds, LLC, Applicant/Appellee, v. Level Up Investments, LLC, Applicant/Appellant.
John N. Moore, Glendale Counsel for Applicant/Appellee Windtberg Law PLC, Phoenix By Marc Windtberg Counsel for Applicant/Appellant
Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court
Appeal from the Superior Court in Maricopa County No. CV2022008289 The Honorable Thomas Kaipio, Judge Pro Tempore The Honorable Brian D. Kaiser, Judge Pro Tempore
John N. Moore, Glendale Counsel for Applicant/Appellee
Windtberg Law PLC, Phoenix By Marc Windtberg Counsel for Applicant/Appellant
Judge Gard authored the decision of the Court, in which Presiding Judge Eppich and Chief Judge Vasquez concurred.
MEMORANDUM DECISION
GARD, JUDGE
¶1 This case involves competing claims to the excess proceeds of a trustee's sale. Level Up Investments LLC applied for the proceeds based on its recorded agreement to purchase the subject property from Christopher Wendorff ("the trustor"). Foreclosure Excess Proceeds LLC applied for the proceeds on the trustor's behalf. The superior court dismissed Level Up's application and awarded the proceeds to Foreclosure. Level Up appeals that decision. We affirm.
Factual and Procedural Background
¶2 The trustor owned a parcel of real property in Glendale, Arizona ("the property"), subject to a deed of trust. In April 2022, the trustee under the deed sold the property at a trustee's sale. The trustee thereafter applied the sale's proceeds to the loan the deed of trust secured, as well as to certain fees and costs, after which $46,801.43 remained. The trustee deposited this sum with the Maricopa County Treasurer and filed a complaint in Maricopa County Superior Court. See A.R.S. § 33-812(C), (D).
¶3 In accordance with statutory requirements, see § 33-812(D)(4), the trustee described in the complaint the liens and encumbrances reflected on the trustee's sale guarantee report and analyzed their apparent order of priority. As relevant here, the trustee identified an "Affidavit and Memorandum of Agreement for Purchase and Sale" between Level Up and the trustor, which had been recorded in August 2021. The trustee served the complaint on the trustor and Level Up, in compliance with A.R.S. §§ 33-809 and 33-812(D).
The trustee also identified a recorded "UCC Financing Statement" relating to a solar-power system on the property, which is not at issue in this appeal.
¶4 The trustor assigned his rights to the excess proceeds to Foreclosure, see § 33-812(P), which thereafter applied on his behalf to receive them. Foreclosure acknowledged Level Up's interest in the property-describing it as a "purchase agreement that never closed"-but asserted that Foreclosure held the highest priority interest in the proceeds.
Level Up does not challenge the assignment's validity. Foreclosure accordingly stands in the trustor's stead in this matter and occupies his position in the priority order for distribution under § 33-812(A).
¶5 Level Up submitted a competing application, describing itself as the trustor's "creditor." It supported its application with a copy of its purchase agreement with the trustor and an escrow settlement statement. It relied on the latter document to establish that it had "arranged a sale of the property that would have netted a $45,000 payment," entitling it to receive an equivalent portion of the proceeds.
¶6 Foreclosure moved to dismiss Level Up's application, arguing that the purchase contract had not closed; that the agreed-upon deadline for closing had expired; and that, because the contract had expired, Level Up lacked any interest in the property. See § 33-812(G). Foreclosure further accused Level Up of seeking to bypass a breach-of-contract action and recover through the excess-proceeds statutes its "speculative lost profit" from its anticipated secondary sale. Level Up responded that the trustor had breached the contract by failing to close escrow; that the excess-proceeds statutes permit those with equitable interests to apply to receive proceeds; and that it held not just an equitable interest but an equitable lien, which amounted to an encumbrance. See § 33-812(A)(5).
¶7 The superior court held a hearing, the transcript of which is not part of our record on appeal. After receiving testimony from one witness and hearing oral argument, the court granted both Foreclosure's motion to dismiss and its application for excess proceeds, and entered final judgment directing the Maricopa County Treasurer to release all proceeds to Foreclosure. This appeal followed. We have jurisdiction under A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).
Discussion
¶8 Level Up contends the superior court erred by dismissing its application for the excess proceeds. It argues that its purchase agreement gave it both sufficient interest in the property to apply for the proceeds and higher statutory priority than Foreclosure to receive them. We review a superior court's order granting a motion to dismiss for an abuse of discretion. Old Republic Nat'l Title Ins. Co. v. New Falls Corp., 224 Ariz. 526, ¶ 9 (App. 2010). We review legal questions and issues of statutory interpretation de novo. See Kaufman v. Halikowski, 255 Ariz. 534, ¶ 5 (App. 2023) (questions of law reviewed de novo); Tortosa Homeowners Ass'n v. Garcia, 254 Ariz. 501, ¶ 4 (App. 2022) (issues of statutory interpretation reviewed de novo).
¶9 When interpreting statutes, we "effectuate the text if it is clear and unambiguous." Windhurst v. Ariz. Dep't of Corr., 256 Ariz. 186, ¶ 13 (2023) (quoting BSI Holdings, LLC v. Ariz. Dep't of Transp., 244 Ariz. 17, ¶ 9 (2018)). We "interpret [the relevant] language in view of the entire text," considering the language's context and other provisions involving the same subject matter. Id. (quoting Molera v. Hobbs, 250 Ariz. 13, ¶ 34 (2020)). "[W]e give words 'their ordinary meaning unless it appears from the context or otherwise that a different meaning is intended.'" Fann v. State, 251 Ariz. 425, ¶ 25 (2021) (quoting State ex rel. Brnovich v. Maricopa Cnty. Cmty. Coll. Dist. Bd., 243 Ariz. 539, ¶ 7 (2018)).
I. Statutory Framework
¶10 Section 33-812 is part of Arizona's deed-of-trust scheme, which "is a creature of statutes." BT Cap., LLC v. TD Serv. Co. of Ariz., 229 Ariz. 299, ¶ 9 (2012) (quoting In re Vasquez, 228 Ariz. 357, ¶ 4 (2011)). As such, a party's "rights . . . are determined by the statutes governing deeds of trust, not the common law." Id. ¶ 18. "The deed of trust statutory scheme allows lenders to sell property without judicial action," and thus divests borrowers of the protection judicial foreclosure offers. Bridges v. Nationstar Mortg. L.L.C., 253 Ariz. 532, ¶ 11 (2022). Accordingly, "the statutes and Deeds of Trust must be strictly construed in favor of the borrower." In re Krohn, 203 Ariz. 205, ¶ 10 (2002) (quoting Patton v. First Fed. Sav. &Loan Ass'n of Phx., 118 Ariz. 473, 477 (1978)).
¶11 A deed of trust conveys real property to a trustee to hold in trust to secure a borrower's performance under a contract. A.R.S. §§ 33-801(8)-(11); 33-805. The trustee may sell the trust property if the borrower fails to perform his or her obligations under the contract the deed of trust secures. A.R.S. § 33-807(A); see Krohn, 203 Ariz. 205, ¶ 8 ("Unlike their judicial foreclosure cousins that involve the court, deed of trust sales are conducted on a contract theory under the power of sale authority of the trustee.").
¶12 "After a property is sold at a trustee's sale, A.R.S. § 33-812(A) 'governs the trustee's application of the sale proceeds and specifies the order of priority to be given.'" Bekelian v. JP Morgan Chase Bank NA, 246 Ariz. 352, ¶ 7 (App. 2019) (quoting PNC Bank v. Cabinetry By Karman, Inc., 230 Ariz. 363, ¶ 7 (App. 2012)). First in priority are the costs of the sale, followed by the amount due on the contract secured by the trust deed and other obligations provided therein, and then by any sums owed on a homeowners association's lien. § 33-812(A)(1)-(4). If proceeds remain after this distribution, the final priority category is:
[T]he junior lienholders or encumbrancers in order of their priority as they existed at the time of the sale. After payment in full of all sums due to all junior lienholders and encumbrancers as of the date of the sale and excluding any postsale attorney fees, payment shall be made to the trustor ....§ 33-812(A)(5).
¶13 Rather than distribute the excess proceeds, a trustee may elect to deposit them with the county treasurer and file a complaint in superior court. See § 33-812(C), (D). If the trustee chooses this procedure, "[a]ny person with a recorded or other legal interest in the property at the time of the sale" may file an application to obtain the proceeds, and must serve that application on every other interested party identified in the complaint. § 33-812(G). "Any person who receives the application or who claims a right to the proceeds" may thereafter respond to the application. § 33-812(I). The court must hold a hearing to resolve any competing claims. See § 33-812(J). The court then "must issue an order releasing the excess proceeds 'to the party entitled to receive them' based on the priorities delineated by A.R.S. § 33-812(A)." Bekelian, 246 Ariz. 352, ¶ 9 (quoting § 33-812(J)).
II. Dismissal of Application for Distribution
¶14 Level Up argues that 1) it held an equitable lien amounting to an encumbrance, which gave it higher priority in the distribution order than the trustor, see § 33-812(A)(5); 2) its undisputed equitable interest in the property was sufficient to allow its application to proceed; and 3) at the time of the trustee's sale, it still had the ability to seek specific performance of the contract, which constituted a "legal interest in the property" under § 33-812(G). Foreclosure responds that Level Up has taken no legal action against the trustor; that, as a result, no court has created or recognized an equitable lien; and that there has never been "an equitable debt or claim" from which such a lien could arise. It argues that Level Up possessed only an equitable interest in the property, which is insufficient to sustain its application under § 33-812(G). Although Level Up uses the terms "equitable lien" and "equitable interest" interchangeably in its briefing, we address each distinct concept separately below.
A. Omitted transcript
¶15 As a preliminary matter, the superior court explained the basis for its ruling on the record but did not include that explanation in its minute entry or its signed final judgment. Level Up bore the burden of ordering all transcripts necessary to this matter's resolution, and we presume that any omitted material supports the ruling below. See Ariz. R. Civ. App. P. 11(c); J.F. v. Como, 253 Ariz. 400, ¶ 31 (App. 2022). Although Level Up reports the transcript is unavailable, it did not seek to provide a narrative statement in the transcript's place. See Ariz. R. Civ. App. P. 11(d) ("If no transcript of oral proceedings is available, the appellant may prepare and file a narrative statement of the evidence or proceedings from the best available source, including the appellant's recollection."); see also Ward v. Mount Calvary Lutheran Church, 178 Ariz. 350, 358 (App. 1994) ("[W]ith no transcript of the oral argument before us, and with no . . . narrative statement of the proceedings, we must presume that the events at the oral argument on the motion supported the trial court's ruling."). As a result, the record is silent as to the evidence presented at the hearing and the superior court's reasoning in dismissing Level Up's application.
¶16 We proceed without the transcript in resolving the legal questions presented. See Brousseau v. Fitzgerald, 138 Ariz. 453, 457 (1984) ("While it is true that the court may not consider questions pertaining to evidence or findings of fact, in the absence of a transcript the court must consider questions of law which are raised by the record transmitted to the court." (quoting Hall v. Bowman, 88 Ariz. 409, 412 (1960))). But to the extent any factual matters are relevant, we presume the evidence at the hearing supported the superior court's ruling. See J.F., 253 Ariz. 400, ¶ 31; Ward, 178 Ariz. at 358.
In light of our disposition, the parties' factual disputes concerning whether the purchase contract expired before the trustee's sale and whether Level Up assigned its interest in the property to another entity are not material, and we do not address them.
B. Level Up's claimed equitable lien
¶17 As Level Up correctly observes, we have described an equitable lien as a type of encumbrance. See Wolfswinkel v. Superior Court, 145 Ariz. 154, 156 (App. 1984) ("An equitable lien is a right over property constituting an encumbrance, so that the property itself may be proceeded against in an equitable action and either sold or sequestered upon proof of a contract out of which the lien could grow ...."); see generally A.R.S. § 47-9102(32) (defining an encumbrance as "a right, other than an ownership interest, in real property," including "mortgages and other liens on real property"); Baumgartner v. Timmins, 245 Ariz. 334, ¶ 9 (App. 2018) (applying § 47-9102(32) to provision of Title 33 and concluding that an instrument encumbers property if it "purports to create or claim a right or liability of some kind attached to the property"). We assume without deciding that, as Level Up urges, an encumbrancer under § 33-812(A)(5) would necessarily have a "legal interest in the property" under § 33-812(G).
Foreclosure's argument that the statute creates separate distribution schemes depending on whether the trustee or the superior court distributes the excess proceeds is inconsistent with § 33-812(J), which directs the court to apply § 33-812(A)'s priorities when releasing the proceeds.
¶18 Although Level Up describes its interest in the property as an equitable lien, it directs us to no evidence in the record that a court has ever recognized any such lien or determined its amount-in fact, the record contains no evidence that Level Up has taken any legal action against the trustor. See Wolfswinkel, 145 Ariz. at 156 (equitable lien "is merely floating equity" until it is recognized by a court and reduced to a judgment "actually subjecting the property to the payment of the debt or claim"); Pioneer Plumbing Supply Co. v. Sw. Sav. &Loan Ass'n, 102 Ariz. 258, 265 (1967) ("An equitable lien must be based on established equitable principles; in all cases the person seeking to establish the lien must show that in equity, in good conscience, he is entitled to the lien claimed ...." (quoting 53 C.J.S. Liens § 4)); Hanrahan v. Sims, 20 Ariz.App. 313, 318 (1973) ("The remedy of the possessor of an equitable lien is to come into a court of equity and have his lien recognized, declared, and if necessary, enforced."); cf. Hirsch v. Ariz. Corp. Comm'n, 237 Ariz. 456, ¶ 31 (App. 2015) (reiterating that equitable lien is floating equity until reduced to judgment and distinguishing between one who "might have been able to pursue [another's] assets at some point in the future" from one who holds a secured interest in real estate). Because no court has determined whether it holds an equitable lien and, if so, in what amount, Level Up did not qualify as an "encumbrancer" and could not claim entitlement to any "sum[] due" on its unrecognized lien. See § 33-812(A)(5).
Assuming § 33-812 would permit a superior court to recognize an equitable lien in the first instance in an excess-proceeds proceeding, the available record contains no such recognition. And we presume the evidence and argument presented at the hearing supports the court's ruling. See J.F., 253 Ariz. 400, ¶ 31; Ward, 178 Ariz. at 358.
¶19 To the extent Level Up maintains its claimed lien arose automatically and encumbered the property on the purchase agreement's execution, without judicial action, it cites no authority for that principle. Level Up does cite Rigoli v. 44 Monroe Marketing, LLC, in which we held that a real-estate purchaser who enters into a binding contract and makes a down payment acquires an implied vendee's lien for "advances made on the purchase price, if through the fault of the vendor the sale is not finally consummated." 236 Ariz. 112, ¶ 17 (App. 2014) (quoting Pima Farms Co. v. Elliott, 32 Ariz. 342, 343 (1927)). But a vendee's lien is a type of equitable lien, and must therefore be recognized and reduced to judgment before a claimed lienholder may collect on it. See Rigoli, 236 Ariz. 112, ¶ 12 ("[V]endees' liens arise in equity ...."); Tucson Fed. Sav. &Loan Ass'n v. Sundell, 106 Ariz. 137, 141 (1970) (equating vendee's lien to equitable lien); see generally Wolfswinkel, 145 Ariz. at 156. In fact, Rigoli itself involved an action undertaken to recognize, determine the validity and priority of, and enforce the vendees' claimed liens. 236 Ariz. 112, ¶¶ 2-6.
¶20 Moreover, as noted above, an implied vendee's lien secures the purchaser's advance payments on the purchase price should the seller breach the parties' contract. See id. ¶ 17. Accordingly, absent a threshold determination that the seller is the breaching party, a purchaser may not enforce a vendee's lien. See id. Although Level Up faults the trustor for the parties' failure to close escrow, the record contains no such finding by the superior court. And we presume that the evidence presented below supported the court's decision to dismiss Level Up's application. See J.F., 253 Ariz. 400, ¶ 31; Ward, 178 Ariz. at 358. Accordingly, even if Level Up is correct that an equitable lien would satisfy both §§ 33-812(A)(5) and (G), allowing such a lienholder to apply for excess proceeds and occupy priority over the trustor, it has not established that it held any such lien here.
And even then, the lien safeguards only the advances the purchaser paid on the purchase price, not all conceivable damages from a seller's breach, as Level Up sought to recover here. See Rigoli, 236 Ariz. 112, ¶ 17.
C. Level Up's equitable interest
¶21 The parties do not appear to dispute that Level Up's purchase contract gave it an equitable interest in the property. See Mining Inv. Grp., LLC v. Roberts, 217 Ariz. 635, ¶ 13 (App. 2008) ("[A]n executory contract . . . operates to pass to the buyer an equitable interest in the land and to the seller an equitable interest in the purchase proceeds."); Wayt v. Wayt, 123 Ariz. 444, 446 (1979) ("A contract for the sale of realty does not effect a transfer of legal title. The vendor remains the owner of the legal estate, while the vendee holds an equitable interest in the property."). Level Up, however, contends that its equitable interest was in fact a "legal interest" within § 33-812(G)'s meaning.
¶22 Level Up's argument appears predicated on a threshold determination that the purchase agreement encumbered the property, an argument we rejected above. Regardless, the plain and unambiguous statutory language defeats Level Up's position. See Windhurst, 256 Ariz. 186, ¶ 13; Fann, 251 Ariz. 425, ¶ 25. Section 33-812(G) specifically permits a person with a "legal interest in the property" at the time of the trustee's sale to apply to receive excess proceeds. (Emphasis added.) A "legal interest" is commonly understood as distinct from an "equitable interest." See Legal, The American Heritage Dictionary (5th ed. 2019) ("[o]f, relating to, or concerned with law," or "[r]ecognized or enforced by law rather than by equity"); Legal, Black's Law Dictionary (11th ed. 2019) ("Of, relating to, or involving law as opposed to equity.").
¶23 Section 33-812(G) contains no reference to equitable interests, and we will not read any such reference into the statute. See Mussi v. Hobbs, 255 Ariz. 395, ¶ 34 (2023) ("It is a basic principle that courts will not read into a statute something which is not within the manifest intention of the legislature as indicated by the statute itself." (quoting Town of Scottsdale v. State ex rel. Pickrell, 98 Ariz. 382, 386 (1965))). This is especially true because, elsewhere in Title 33, the legislature has expressly mentioned equitable interests when a statute includes them. See, e.g., A.R.S. §§ 33-261, 33-411.01, 33-801(9), 33-1076(A); see generally Gutierrez v. Fox, 242 Ariz. 259, ¶ 33 (App. 2017) (recognizing that "[w]hen the legislature has specifically included a term in some places within a statute and excluded it in other places, courts will not read that term into the sections from which it was excluded" (alteration in Gonzales) (quoting State v. Gonzales, 206 Ariz. 469, ¶ 11 (App. 2003))). The statute thus excludes equitable-interest holders from those who may apply to receive excess proceeds under § 33-812(G).
D. Availability of specific performance
¶24 Finally, Level Up argues that it possessed a "legal interest" in the property under § 33-812(G) because, at the time of the trustee's sale, it could have sought specific performance of the purchase contract. It bases its argument on a "Failure of Performance" clause in the parties' contract, which permitted it, in the event of the trustor's default, to either seek specific performance or request that its deposit be returned, without waiving an action for additional damages. Level Up, however, did not make this specific argument below, instead asserting the contract had not terminated because specific performance remained available, and that this potential remedy created an equitable interest entitling it to the excess proceeds. Because Level Up did not allow the superior court to rule on the specific argument it now makes on appeal, we deem the argument waived. See Roebuck v. Mayo Clinic, 256 Ariz. 161, ¶ 16 (App. 2023); Rigoli, 236 Ariz. 112, ¶ 28.
¶25 Waiver notwithstanding, Level Up's ability to seek specific performance was an available means to ensure the trustor's compliance with the purchase agreement. See In re Naarden Tr., 195 Ariz. 526, ¶ 11 (App. 1999) (recognizing that "the beneficiary of a contract gains a personal claim against the promissor"); Woliansky v. Miller, 135 Ariz. 444, 446 (App. 1983) ("Specific performance is ordinarily available to enforce contracts for the sale of real property because land is viewed as unique and an award of damages is usually considered an inadequate remedy."). Although this remedy would have implicated the property, it would have been against the trustor, not against the property itself. Naarden Tr., 195 Ariz. 526, ¶ 11; Woliansky, 135 Ariz. at 446. Moreover, specific performance would not have been guaranteed to Level Up, but instead would have been a discretionary option available to the court hearing Level Up's legal challenge. See Woliansky, 135 Ariz. at 446 (specific performance is at the discretion of the court and is "never a matter of absolute right"). For these reasons, the theoretical availability of specific performance is not a "legal interest" in the property within § 33-812(G)'s meaning.
In light of our resolution of the issues, we need not address Foreclosure's public-policy argument. And because Foreclosure does not discuss or rely on A.R.S. § 33-741, we need not resolve Level Up's anticipatory argument that that provision is irrelevant to the present matter.
Attorney Fees
¶26 Both parties have requested their attorney fees on appeal, citing A.R.S. § 12-341.01(A) but giving no specific reasons for their requests. Although Foreclosure has prevailed, we exercise our discretion to deny its requested award in light of its failure to explain why an award is appropriate. However, as the successful party, Foreclosure is entitled to its costs on appeal upon compliance with Rule 21(b), Ariz. R. Civ. App. P. See A.R.S. § 12-342(A); Doherty v. Leon, 249 Ariz. 515, ¶ 24 (App. 2020).
Disposition
¶27 For the reasons set forth above, the superior court did not err by dismissing Level Up's application for excess proceeds. And because there were no remaining applications, Foreclosure was entitled to receive the proceeds and the court did not err by so awarding them. See § 33-812(J). We therefore affirm the court's decision dismissing Level Up's application and awarding the excess proceeds to Foreclosure.