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Parkway Bank & Trust Co. v. Zivkovic

Court of Appeals of Arizona, First Division, Department A

June 13, 2013

PARKWAY BANK AND TRUST COMPANY an Illinois banking association, Plaintiff/Appellee,
JOSEPH ZIVKOVIC and DEANNA ZIVKOVIC, husband and wife; EQUINOX DEVELOPMENT CORPORATION, an Illinois corporation, Defendants/Appellants.

Appeal from the Superior Court in Maricopa County Cause No. CV 2011-004866 The Honorable George H. Foster, Jr., Judge

Charles L. Firestein, P.C., Charles L. Firestein and Leighton & Abdo, PLLC Scottsdale By Nicholas C. Abdo Jason D. Leighton Joshua W. Leighton Attorneys for Appellant

Tiffany & Bosco, P.A., Michael A. Bosco, Jr. Kevin P. Nelson Paul D. Cardon Attorneys for Appellee


PHILIP HALL, Judge [*]

¶1 This appeal presents the issue whether the anti-deficiency protections afforded by Arizona Revised Statutes (A.R.S.) section 33-814(G) (Supp. 2012) may be prospectively waived by the trustor. Because we conclude that such protections serve an important public purpose and may not be waived, we vacate the partial summary judgment for Parkway Bank and Trust Company (Parkway) and remand for proceedings consistent with this Opinion.


¶2 The following facts are not disputed. On November 21, 2006, Parkway provided an $894, 703.85 loan to Equinox Development Corporation (Equinox), an Illinois corporation of which Joseph Zivkovic acts as President. As consideration for the loan, Equinox executed a promissory note in favor of Parkway. On the same date, Zivkovic and his wife executed a Deed of Trust and Assignment of Rents to a property in Mesa, Arizona (the property) in favor of Parkway. The Deed of Trust contained a provision that expressly waived "all rights or defenses arising" from "anti-deficiency law."

¶3 In May 2009, Parkway and Joseph Zivkovic renegotiated the terms of the loan to Equinox. On May 21, 2009, Joseph Zivkovic executed a promissory note in favor of Parkway, becoming the named borrower for the $894, 703.85 loan originally extended to Equinox. The promissory note provided that Joseph Zivkovic would make "interest only" payments each month and the principal and any accrued and unpaid interest would be paid in full upon maturity, on May 21, 2010. The promissory note also incorporated by reference the 2006 Deed of Trust and Assignment of Rents and contained a provision choosing the law of Illinois as the governing law. As additional security, Equinox executed a commercial guaranty in favor of Parkway, guaranteeing full performance of Joseph Zivkovic's obligations under the promissory note. On the same date, Deanna Zivkovic executed a modification of Deed of Trust removing her name from the 2006 document.

¶4 Joseph Zivkovic failed to pay the amount due on May 21, 2010. On July 22, 2010, Parkway declared Joseph Zivkovic in default on the loan. On December 9, 2010, the property was sold through a trustee's sale. Parkway was the successful bidding party with a bid of $675, 000.

¶5 On March 8, 2011, Parkway filed a complaint against the Zivkovics and Equinox seeking (1) a deficiency judgment for the "remaining balance due, including principal, interest, late charges [in the amount of] $277, 966.06, " and (2) damages for waste relating to damage to the property allegedly caused by the Zivkovics before they vacated the property. Soon thereafter, the parties each filed a motion for partial summary judgment on the deficiency judgment claim. Parkway argued that, applying Illinois law, as expressly chosen by the parties in the 2009 promissory note, the deficiency (the difference between the amount realized at the trustee's sale and the amount owed on the loan) was recoverable. See 735 Ill. Comp. Stat. 5/15-1511 (1987) ("[F]oreclosure of a mortgage does not affect a mortgagee's rights, if any, to obtain a personal judgment against any person for a deficiency."). The Zivkovics, on the other hand, argued Arizona law applies to the action and the deficiency is not recoverable pursuant to A.R.S. § 33-814(G) (barring an action "to recover any difference between the amount obtained by [trustee's] sale and the amount of the indebtedness" for qualifying properties).

¶6 The superior court granted Parkway's motion and denied the Zivkovics' motion. Finding that the parties did not dispute any material facts, namely that the deed of trust was foreclosed by a non-judicial sale and the successful bid reflected the fair market value of the property, the court held, in relevant part:

Illinois law applies to this case because the parties voluntarily chose it. All of the factors under the law, including the Restatement, have been satisfied to establish [t]he parties agreed that Illinois law would govern the substantive matters attendant to the right to a deficiency.

¶7 Thereafter, the superior court reduced its minute entry ruling to a signed Rule 54(b) judgment awarding Parkway $283, 360.33 plus interest, attorneys' fees and costs. The Zivkovics timely appealed. We have jurisdiction ...

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