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Compass Bank v. Bennett

Court of Appeals of Arizona, First Division

May 31, 2016

COMPASS BANK, an Alabama corporation, Plaintiff/Appellee,
v.
ROBERT HAMILTON BENNETT, SR. and MARILYN JO BENNETT, husband and wife; ROBERT HAMILTON BENNETT AND MARILYN JO BENNETT FAMILY TRUST, Defendants/Appellants.

         Appeal from the Superior Court in Maricopa County No. CV2011-012854 The Honorable J. Richard Gama, Judge

          Berens, Kozub, Kloberdanz & Blonstein, PLC, Scottsdale By Daniel L. Kloberdanz, William A. Kozub Counsel for Defendants/Appellants

          Engelman Berger, P.C., Phoenix By Scott B. Cohen, Bradley D. Pack Counsel for Plaintiff/Appellee

          Judge Samuel A. Thumma delivered the opinion of the Court, in which Presiding Judge Kent E. Cattani and Judge Randall M. Howe joined.

          OPINION

          THUMMA, Judge

         ¶1 Robert Hamilton Bennett and Marilyn Jo Bennett, husband and wife, (the Bennetts) and the Robert Hamilton Bennett and Marilyn Jo Bennett Family Trust (the Bennett Trust) appeal from the grant of summary judgment in favor of plaintiff Compass Bank. The Bennetts and the Bennett Trust (collectively Defendants) claim Compass was precluded from suing to collect on a note without first taking action to waive its security interest against a house. Because Compass was not precluded from suing on its note, the judgment is affirmed.

         FACTS[1] AND PROCEDURAL HISTORY

         ¶2 In 2007, the Bennett Trust purchased a house in Paradise Valley for $3.15 million. The Bennett Trust made a down payment of $850, 000 and borrowed $1.9 million from Bank of America, while the sellers provided a $400, 000 carryback loan. The house was the Bennetts' primary residence.

         ¶3 In 2009, the Bennetts repaid the $400, 000 carryback loan. Later in 2009, the Defendants obtained a second-position $1 million home equity loan from Compass. The home equity loan transaction included a note, a security agreement and a second-position deed of trust against the house. No portion of the home equity loan was used to build any structure or improvement on the property or to repay the $400, 000 carryback loan.

         ¶4 Defendants subsequently defaulted on their loan repayment obligations. Compass then accelerated the amount due under the $1 million home equity loan, which remained unpaid.

         ¶5 At some point before Compass filed this lawsuit, Bank of America issued a notice for a trustee's sale on the first-position $1.9 million loan. In early June 2011, after receiving notice of that trustee's sale but before the sale occurred, Compass filed this lawsuit against Defendants, seeking to enforce the note for the second-position $1 million home equity loan. Compass did not expressly waive its rights under the second-position deed of trust that secured the $1 million home equity loan at any time before the trustee's sale on the first-position Bank of America loan.

         ¶6 At the trustee's sale on the first-position loan held in late June 2011, the house sold to Bank of America for its credit bid. The trustee's sale extinguished Compass' second-position deed of trust that secured the $1 million home equity loan. Several weeks later, Compass served Defendants in this lawsuit seeking to enforce the note for the second-position $1 million home equity loan.

         ¶7 Following discovery, Defendants moved for summary judgment, arguing Compass had an obligation to expressly waive its rights under the second-position deed of trust before suing and that the failure to do so barred this lawsuit. Arguing it was not required to make such a waiver, Compass cross-moved for summary judgment based on Defendants' admitted failure to repay the $1 million home equity loan.

         ¶8 After briefing and oral argument, the superior court denied Defendants' motion and granted Compass' cross-motion. Although noting "[a] lender must 'forego' enforcement of the rights it possesses to foreclose on its deed of trust" when it sues on a non-purchase-money note, the court concluded "[t]he predicate act [for such a waiver] is simply failing to exercise these rights." Because Compass had failed to exercise its rights under the second-position deed of trust, and because the trustee's sale on the first-position loan had extinguished those rights, the court entered judgment in favor of ...


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