Arizona Supreme Court holds that recording a notice of trustee’s sale does not constitute notice of debt acceleration.

A borrower obtained a loan secured by a deed of trust against his residential property.  Both the note and the deed contained optional acceleration clauses, meaning if the borrower defaulted on the loan the lender must provide the borrower notice of acceleration before accelerating the balance due.

When the borrower defaulted, the lender sent a notice of default and eventually recorded two notices of trustee’s sale.  Neither notice mentioned acceleration.  The property did not sell and later the borrower sought declaratory relief.  He argued the notice of trustee’s sale triggered the acceleration clause, which in turn triggered the statute of limitations, which now barred foreclosure of his property.

The trial court granted summary judgment in the borrower’s favor.  The court of appeals reversed, finding debt acceleration required notice or some other evidence of acceleration.

The Supreme Court affirmed, finding that recording a notice of trustee’s sale does not, by itself, accelerate a debt.  First, the Court explained that because the promissory note was a contract, its provisions—including that acceleration was discretionary not automatic—bound the parties and must be enforced.

Second, the Court examined the deed of trust, which is a “creature of statute” that must be interpreted by its plain language in favor of protecting borrowers.  Here, the deed of trust, like the note, obligated the lender to provide the borrower notice of acceleration.

The Court also noted that in some cases, an “affirmative act” indicating the lender’s intent to accelerate, such as repossession, constitutes effective notice of debt acceleration.  The mere recording of the trustee’s sale here, however, does not constitute such an affirmative act.  Under Arizona, a debtor can reinstate after default by paying, as late as the day before the trustee’s sale, the amount then due, rather than the entire balance.  Thus, because the debtor can still cure by paying what is due at the time, a notice of a trustee’s sale does not by itself cause maturity of the entire debt nor evince the lender’s affirmative act towards acceleration.

Justice Beene authored the unanimous opinion of the Court.

Posted by: Payslie M. Bowman