Morgan AZ Financial, LLC v Gotses – 5/13/2014

May 19, 2014

Arizona Court of Appeals Division One Holds That A.R.S. § 33-811(C) Does Not Effect a Waiver of Defenses In Deficiency Action Brought After Trustee’s Sale.

This case concerns a deficiency action brought after a trustee’s sale of parcels of property in a Flagstaff subdivision.  Defendant William Gotses (“Gotses”) defaulted on promissory notes secured by deeds of trust.  Plaintiff Morgan AZ Financial, L.L.C. (“Morgan”), the lender’s successor-in-interest, initiated trustee’s sales and obtained title to Gotses’ lots.  Morgan subsequently commenced an action against Gotses seeking a deficiency judgment under A.R.S. § 33-814(A)

The superior court granted Morgan’s motion for summary judgment, finding that A.R.S. § 33-811(C) effected a waiver of all common law defenses asserted by Gotses as to his liability under the promissory notes.  Gotses filed a motion under Rule 60(a) and (c)(6) asking that the judgment be amended to reserve ruling on attorney’s fees.  The court granted the motion.  Gotses also filed a motion to stay enforcement under Rule 62(i), after which the court extended the time to file a notice of appeal and set an evidentiary hearing on the motion.  After the Rule 62(i) proceeding, the superior court filed an amended judgment.  Gotses filed a notice of appeal after both judgments. 

First addressing its jurisdiction, the Court of Appeals noted that the original judgment was final and appealable and that Gotses’ motion to amend under Rule 60 did not extend the time for appeal.  The Court further noted that the superior court had no authority on this record “to extend the time for appeal” but the Court of Appeals viewed the superior court’s extension as “an order withdrawing the judgment pending a ruling on the Rule 62(i) motion.”  And because the appeal was timely noticed from the amended judgment, the Court of Appeals found it had jurisdiction.

The Court of Appeals reversed and remanded, finding that A.R.S. § 33-811(C) does not provide that a borrower who fails to enjoin a trustee’s sale loses his right to litigate defenses to a post-sale deficiency action.  The statute provides only that defenses and objections to the sale are waived if not raised in an action to enjoin the sale of the property.  The Court, therefore, held that Gotses defenses under the note had not been waived, and therefore reversed the entry of summary judgment for Morgan. 

Judge Swann authored the opinion, in which Judges Thompson and Johnsen joined.