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
Engelman Berger, P.C., Phoenix By Scott B. Cohen, Bradley D.
Pack Counsel for Plaintiff/Appellee
Samuel A. Thumma delivered the opinion of the Court, in which
Presiding Judge Kent E. Cattani and Judge Randall M. Howe
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
FACTS AND PROCEDURAL
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.
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
Defendants subsequently defaulted on their loan repayment
obligations. Compass then accelerated the amount due under
the $1 million home equity loan, which remained unpaid.
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
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.
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.
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 ...