No. 1 CA-CV 12-0383.

WELLS FARGO BANK, N.A., Plaintiff/Appellee, v. CHARLES R. BREWER and DEBORAH M. BREWER, husband and wife, Defendants/Appellants.

Court of Appeals of Arizona, Division One, Department B.

Attorney(s) appearing for the Case

Ryan Rapp & Underwood, P.L.C., Phoenix, by Polly S. Rapp and Malcolm T. Sloan , Attorneys for Plaintiffs/Appellees.

Sanford J. Germaine, P.C., Phoenix, by Sanford J. Germaine , Attorneys for Defendants/Appellants.


(Not for Publication — Rule 28, Arizona Rules of Civil Appellate Procedure)


HOWE, Judge.

¶1 This appeal arises out of Wells Fargo's lawsuit for the balance due on a line of credit it extended to the Brewers secured by a deed of trust on the Brewers' former home. The Brewers argue that the anti-deficiency statutes prevent them from being sued directly on the debt. The trial court granted summary judgment in favor of Wells Fargo, finding the anti-deficiency statutes did not prevent the suit. For the following reasons, we affirm.


¶2 The undisputed facts are as follows: In July 2007, the Brewers obtained a $4,500,000 mortgage secured by a deed of trust. The same month, the Brewers applied for a $1,000,000 home equity line from a different lender, Wells Fargo. Wells Fargo had the home appraised twice in September 2007, and the home was appraised at $9,500,000 and $9,450,000. One appraisal noted that the home was an existing structure built in 2004 with thirteen rooms, six full bathrooms, three half bathrooms, frame/stucco exterior walls, a tile roof, a paved driveway, garage, and central heating and air conditioning. In response to a section that asked the appraiser to describe the condition of the property, including needed renovation, repairs or remodeling, the appraisal stated "the improvements are in good condition and have been well maintained. No repairs observed to be required."

¶3 Thereafter, on September 20, 2007, Wells Fargo approved the Brewers for the line of credit. The Brewers signed an EquityLine Account Agreement and Disclosure Statement ("agreement") relating to the Wells Fargo account. The agreement created a revolving account that allowed the Brewers to take funds as needed up to a limit of $1,000,000 over a ten-year period, and the agreement did not restrict the use of the funds to any particular purpose. Wells Fargo secured the agreement and account by a deed of trust.

¶4 The agreement stated that the Brewers promised to pay Wells Fargo "all Advances which [we] receive or which [we] authorize to be made from [our] Account. [We] promise to pay the total of any Finance Charge plus all amounts past due, over limit amounts, and any late charges, fees, other charges and other obligations charged to [our] Account under this Agreement or the Security Instrument." The agreement also stated that in the event of default, the bank may "exercise the Bank's rights under the Security Instrument, which may result in the loss of the Property." The agreement stated further that "[t]his agreement, the security instrument and the closing documents executed herewith constitute a written loan agreement which represents the final agreement of the parties. . . ."

¶5 The deed of trust provided that "Lender shall be entitled to all the remedies provided by law, the terms of the Secured Debt, this Security Instrument and any related documents, including without limitation, the power to sell the property." It also stated that "[a]ll remedies are distinct, cumulative and not exclusive, and the Lender is entitled to all remedies provided at law or equity, whether or not expressly set forth."

¶6 By July 2008, the home's market value had significantly declined to $4,525,000. In December 2009, Wells Fargo received notice of a trustee's sale in connection with the senior deed of trust. At that time, the home was appraised at $4,500,000. The Brewers stopped making the required payments to Wells Fargo in July 2010. The sum of $1,019,772.20 plus interest remained due on the account. In August 2010, the senior lender sold the home at a trustee's sale for $3,759,138.13.

¶7 The following month, Wells Fargo sued the Brewers, alleging breach of contract and unjust enrichment based on the Brewers' failure to make payments under the terms of the agreement. In August 2011, Wells Fargo moved for summary judgment, arguing that the Brewers failed to make monthly payments on the account and did not raise a meritorious defense. The Brewers responded and cross-moved for summary judgment, arguing that the anti-deficiency statutes prevented Wells Fargo from waiving its security interest and bringing suit on the note. Wells Fargo answered that it sued on the underlying obligation because the anti-deficiency statutes do not preclude such an action.

¶8 The Brewers argued that under Arizona Revised Statutes ("A.R.S.") § 33-814(G) (West 2013),1 a borrower is not obligated on any debt after a foreclosure. The Brewers also argued that the home was not sold at its fair market value at the trustee's sale because it sold at approximately $3,700,000, and its appraised value was $4,500,000. The Brewers argued that the property's fair market value was $4,500,000, and their debt to Wells Fargo should be reduced by the difference between that amount and the home's sale price. After considering the arguments, the court orally granted Wells Fargo's motion for summary judgment and denied the Brewers' cross-motion.

¶9 The Brewers nevertheless requested a fair market value hearing to determine the value of their residence on the date of the trustee's sale. Wells Fargo objected to the Brewers' motion, arguing that the statute that allows a fair market value hearing was inapplicable.

¶10 The Brewers moved for reconsideration of the court's grant of summary judgment, reiterating their request for a fair market value hearing and arguing that our decision in Helvetica Servicing, Inc. v. Pasquan, 229 Ariz. 493, 277 P.3d 198 (App. 2012), filed eight days before the hearing, was relevant because the loan money did "go into the house" and therefore should have been considered purchase money. The court denied the Brewers' motion for reconsideration and entered judgment granting Wells Fargo's motion for summary judgment, denying the Brewers' cross-motion and granting Wells Fargo's attorneys' fees and costs. The Brewers timely appealed the judgment.


¶11 The Brewers argue that summary judgment was improper because the anti-deficiency statutes precluded this action and that they are entitled to a credit on their debt to Wells Fargo for the difference between their home's sale price at the trustee's sale and its fair market value on the date of the trustee's sale.2 Summary judgment may be granted when no genuine issue exists regarding any material fact and the moving party is entitled to judgment as a matter of law. Johnson v. Earnhardt's Gilbert Dodge, Inc., 212 Ariz. 381, 385, ¶ 15, 132 P.3d 825, 829 (2006). We determine de novo whether any issues of material fact exist and whether the trial court properly applied the law. Eller Media Co. v. City of Tucson, 198 Ariz. 127, 130, ¶ 4, 7 P.3d 136, 139 (App. 2000). We view the evidence in the light most favorable to the nonmoving party. Tilley v. Delci, 220 Ariz. 233, 236, ¶ 7, 204 P.3d 1082, 1085 (App. 2009).

¶12 The Brewers argue that summary judgment was inappropriate and that they are not liable for the amount owed under the agreement because their loan was subject to A.R.S. § 33-814(G), which provides that

[i]f trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling is sold pursuant to the trustee's power of sale, no action may be maintained to recover any difference between the amount obtained by sale and the amount of the indebtedness and any interest, costs and expenses.

The Brewers argue that the statute makes no distinction between purchase money and non-purchase money loans, and therefore, a non-purchase money lender who has a security interest in the property, such as Wells Fargo, has no recourse to collect debt if a different lender sells the property at a trustee's sale.

¶13 We disagree. Section 33-814(G) and the statutes governing non-judicial foreclosure of deeds of trust are not the only applicable statutes. Lenders who hold deeds of trust may treat them as mortgages subject to a different series of statutes. Section 33-807(A) states that "[a]t the option of the beneficiary, a trust deed may be foreclosed in the manner provided by law for the foreclosure of mortgages on real property in which event [A.R.S. §§ 33-701 to 750] governs the proceedings." See also A.R.S. § 33-814(E) (unless prohibited by express language in the deed of trust, a beneficiary may choose to foreclose a deed of trust in the same manner as a real property mortgage, in which event the provisions of A.R.S. §§ 33-721 et seq. are applicable.)

¶14 The mortgage foreclosure statutes allow a creditor the option of foregoing foreclosure and bringing suit on the note in all cases except those to which the anti-deficiency statutes apply. Baker v. Gardner, 160 Ariz. 98, 106, 770 P.2d 766, 774 (1998). The Baker court explained that

[t]he mortgage anti-deficiency statute, A.R.S. § 33-729(A), only applies to purchase money mortgages, but the deed of trust anti-deficiency statute is not limited to purchase money collateral. The conflict, however, is more apparent than real because a deed of trust beneficiary may choose to foreclose the deed of trust "in the manner provided by law for the foreclosure of mortgages on real property."

Id. (internal citations omitted).

¶15 Therefore, a lender who holds a deed of trust as security for a loan may sue on the note as long as the proceeds of the loan were not used as purchase money. Id.; see also Resolution Trust Corp. v. Segel, 173 Ariz. 42, 43-45, 839 P.2d 462, 463-65 (App. 1992) (non-purchase money junior lender who made loans secured by deeds of trust on residential property was entitled to waive its security and sue directly on the notes when lender did not initiate trustee's sale and mortgage anti-deficiency statute would not have prevented lender from obtaining deficiency judgment against debtor.)

¶16 The Brewers next argue that the Wells Fargo credit line was used as purchase money. They argue that Helvetica Servicing, Inc. v. Pasquan and Bank One, Arizona v. Beauvais show that the anti-deficiency statute applies to their loan because the loan was either a refinancing of the original purchase money loan or a construction loan. In Beauvais, we held that the extension, renewal, or refinancing of a purchase money loan retained the original loan's character as a purchase money note. 188 Ariz. 245, 250, 934 P.2d 809, 814 (App. 1997). In Helvetica, we held that a loan refinancing the original loan that the mortgagor used to acquire the property does not destroy the purchase money status of the original loan. 229 Ariz. at 498-99, ¶¶ 17-23, 277 P.3d at 203-04. We also held that a construction loan used to build a new residence is a purchase money loan entitled to anti-deficiency protection under certain conditions. Id. at 501, ¶ 32, 277 P.3d at 206.

¶17 But neither case is relevant here. Nothing in the record shows that the loan refinanced a previous purchase money loan. Nor does the record show that the loan was used to construct the Brewers' home. Although Brewer stated in an affidavit that the Wells Fargo loan was used to complete construction and landscaping on the home, the record shows that the home was already constructed at the time of the Wells Fargo loan. The home had been built in 2004, and consisted of thirteen rooms, six full bathrooms, three half bathrooms, frame/stucco exterior walls, a tile roof, a paved driveway, garage, and central heating and air conditioning. The appraiser reported that "the improvements are in good condition and have been well maintained. No repairs observed to be required." Moreover, the loan agreement did not specify that the loan proceeds were to be used for construction of the home, and the Brewers could draw funds on the loan account for any reason. The Brewers cannot show that the loan was used for construction of their home.3 Thus, Helvetica and Beauvais do not help the Brewers' argument.

¶18 The trial court properly determined that the anti-deficiency statute did not bar Wells Fargo's action and that summary judgment was appropriate. Because the line of credit was not used as purchase money, the anti-deficiency statutes do not apply. Baker, 160 Ariz. at 106, 770 P.2d at 774. Accordingly, Wells Fargo properly sued the Brewers directly for breach of the terms of the agreement and were not precluded from doing so.

¶19 The Brewers next argue that they were entitled to a fair market value hearing for the trial court to determine the home's fair market value at the time of sale and to credit the amount due on the judgment with the difference between the sales price and the fair market value of the property, citing A.R.S. § 33-814(A). The statute provides that within ninety days after a trustee's sale, an action may be maintained for deficiency judgment. The debtor may apply to the court for a determination of the fair market value, and the deficiency judgment shall be equal to the total amount owed to the beneficiary less the fair market value of the residence on the day of the sale. A.R.S. § 33-814(A).

¶20 This statute is not applicable to this case. Section 33-814(A) applies to recover deficiency judgments sought by the lienholder that forecloses on the property. A.R.S. § 33-814(A). Here, Wells Fargo did not foreclose on the home and is not seeking a deficiency judgment. See Wells Fargo Credit Corp. v. Tolliver, 183 Ariz. 343, 348-49, 903 P.2d 1101, 1106-07 (App. 1995) (where junior lender did not commence trustees sale and anti-deficiency statutes did not apply, A.R.S. § 33-814(A) was not applicable because action was not one for deficiency). We therefore find the statute inapplicable and find that the Brewers are not entitled to a fair market value hearing.

Attorneys' Fees

¶21 Wells Fargo requests attorneys' fees under the parties' agreement and A.R.S. § 12-341.01(A). The agreement provides that in the event of default, the Brewers agree to pay for Wells Fargo's collection costs, attorneys' fees and other expenses of enforcing Wells Fargo's rights under the agreement and the security instrument, unless prohibited by law. Because Wells Fargo is the successful party on appeal and its claims arose from the Brewers' breach of contract, Wells Fargo is entitled to their reasonable attorneys' fees upon compliance with Arizona Rule of Civil Appellate Procedure 21.


¶22 For the aforementioned reasons, the judgment of the trial court is affirmed.

PATRICIA K. NORRIS, Presiding Judge, ANDREW W. GOULD, Judge, concurring.


1. We cite the current version of the applicable statutes because no revisions material to this decision have since occurred.
2. The Brewers also argue that the terms of their agreement stated that Wells Fargo's only remedy in the event of default was to foreclose on the home. While the agreement stated that Wells Fargo may foreclose on the home in the event of default, nothing in the agreement limited Wells Fargo's remedies and this language alone does not bar other possible remedies. See Zancanaro v. Cross, 85 Ariz. 394, 399-400, 339 P.2d 746, 750 (1959). Further, the agreement was incorporated with the deed of trust, which provides that Wells Fargo was entitled to all remedies provided by law.
3. Although the Brewers maintain that the loan proceeds would also be used for landscaping, the loan agreement did not specify this as a purpose for the loan. Moreover, our supreme court held in Sw. Sav. and Loan Ass'n v. Ludi that a "property improvement loan" was not a purchase money loan. 122 Ariz. 226, 228, 594 P.2d 92, 94 (1979); see also Helvetica, 229 Ariz. at 204, ¶ 25 n.6, 277 P.3d at 499 ("Considering the policies behind Arizona's anti-deficiency legislation, we perceive significant differences between construction loans used to build residences and loans obtained to improve existing homes.") (citing to California authority holding that construction loans for improvements or repairs fall outside California's anti-deficiency statute, which is analogous to Arizona's statute).


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