Tirello v. Maricopa Cnty. Treasurer

1

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.

No. 2 CA-CV 2023-0031

Court of Appeals of Arizona, Second Division

April 5, 2024

Not for Publication - Rule 111(c), Rules of the Arizona Supreme Court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.^[1] The trustee served the complaint on the trustor and Level Up, in compliance with A.R.S. §§ 33-809 and 33-812(D).

¶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.^[2] 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.

¶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...