Arizona Court of Appeals Division Two holds that the statute of limitations for enforcement of a contract debt applies to foreclosure actions to satisfy the debt.

Husband and wife property owners executed a promissory note secured by a deed of trust to borrow against their property from an investment company. The property owners defaulted, but the company did not take any action to collect on the debt over the proceeding ten years.

The property owners eventually filed a lawsuit against the investment company to clear the title of their property. They argued that the statute of limitations on the debt had expired, which invalidated the deed. The company successfully moved to dismiss the complaint, arguing a more recent statute extended the time to initiate foreclosure as a remedy for enforcement of the deed.

The court of appeals reversed the decision, finding that under Arizona law the statute of limitations for enforcement of a contract debt applies to foreclosure actions to satisfy the debt.

Actions to enforce a debt founded on a contract are subject to a six-year statute of limitations under Arizona law, A.R.S. § 12-548. This limitations period, the Court explained, extends to foreclosure actions on the underlying debt pursuant to Arizona case law and another statute relating to deeds of trust, A.R.S. § 33-816, which explicitly indicates that foreclosure actions on a deed of trust are bound by the limitations period for the underlying contract.

The Court further found that nothing in the plain language or legislative history of the subsequently enacted statute cited by the company, A.R.S. § 33-714, implicates the remedy of foreclosure or dictates when such proceedings may commence.

As a result, the investment company was time-barred from enforcing the promissory note and, therefore, the deed of trust. Because the deed was barred, the company’s lien on the property was discharged and the property owners were entitled to quiet title.  The appellate court reversed and remanded the case and granted attorney fees to the property owners as the successful party on appeal.

Judge Kelly authored the opinion of the Court, in which Judges Brearcliffe and Eckerstrom joined.

Posted by: Payslie M. Bowman