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Equity Income Partners, LP v. Chicago Title Insurance Co.

Supreme Court of Arizona

February 7, 2017

Equity Income Partners, LP, an Arizona Limited Partnership; Galileo Capital Partners Limited, a Cayman Islands Exempted Company, Plaintiffs/Appellants,
v.
Chicago Title Insurance Company, a Delaware Corporation, Defendant/Appellee.

         United States District Court for the District of Arizona No. 2:11-cv-01614-SMM

         Certified Questions from the United States Court of Appeals for the Ninth Circuit Equity Income Partners, LP v. Chi. Title Ins. Co., 828 F.3d 1040 (9th Cir. 2016) QUESTIONS ANSWERED

          Dennis I. Wilenchik (argued), Tyler Q. Swensen, Wilenchik & Bartness, P.C., Phoenix, Attorneys for Equity Income Partners, LP and Galileo Capital Partners Limited

          Daniel E. Fredenberg (argued), Fredenberg Beams, Phoenix, and Patrick J. Davis, Nathaniel B. Rose, Fidelity National Law Group, Phoenix, Attorneys for Chicago Title Insurance Company

          Ari Ramras, Ramras Legal, PLC, Phoenix, Attorneys for Amicus Curiae Land Title Association of Arizona

          JUDGE BARTON [*] authored the opinion of the Court, in which CHIEF JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES BRUTINEL and BOLICK joined.

          OPINION

          BARTON JUDGE

         ¶1 The United States Court of Appeals for the Ninth Circuit was recently asked to decide what impact, if any, a lender's full-credit bid made at an Arizona trustee's sale has on an insurer's liability under standard form title insurance policies. See Equity Income Partners, LP v. Chi. Title Ins. Co., 828 F.3d 1040, 1040 (9th Cir. 2016) (mem.). The policy provisions at issue are Sections 2, 7 and 9, which are quoted in full below. Briefly, Section 2 provides that coverage continues in force when an insured acquires the property in a foreclosure sale, but the amount of coverage is reduced by all payments made. Section 9 provides that payments of principal or the voluntary satisfaction or release of the mortgage reduce available insurance coverage, except as provided under Section 2(a). Section 7 explains how the insurer's liability is calculated and refers to both Sections 2 and 9.

         ¶2 Resolution of the issue presented to the Ninth Circuit is governed by Arizona law and no Arizona appellate decision has addressed it. Therefore, the Ninth Circuit certified the following questions to this Court:

1. When a lender purchases property by full-credit bid at a trustee's sale, does Section 9 apply, or does Section 2 apply?
2. Is a full-credit bid at a trustee's sale a "payment" or "payment[ ] made" under sections 2 or 9 of the Policies?
3. To what extent does a full-credit bid at a trustee's sale either (a) terminate coverage under section 2(a)(i) of the Policies, or (b) reduce coverage under Section 2 and any possible liability under section 7?

         ¶3 By Order dated August 1, 2016, we accepted jurisdiction. See A.R.S. § 12-1861. For the reasons set forth below, we answer the Certified Questions as follows:

1. Section 2 applies when a lender purchases property by full-credit bid at a trustee's sale.
2. A full-credit bid at a trustee's sale is not a "payment" under Sections 2 or 9 of the policy.
3. The full-credit bid neither terminates nor reduces coverage under Section 2 or Section 7.[1]

         I. BACKGROUND

         ¶4 For purposes of answering the certified questions, the facts are undisputed. In May 2006, appellants (hereinafter referred to as "Equity") issued two loans, each in the amount of $1, 200, 000 and each secured by a deed of trust. The borrowers used the proceeds to purchase two adjacent lots (the "parcels"). In connection with that transaction, the predecessor in interest to appellee, Chicago Title Insurance Company ("CTIC"), issued to Equity two standard form title insurance policies (American Land Title Association Loan Policy (10-19-92) with ALTA Endorsement-Form 1 Coverage) (the "Policies"). These Policies, each in the amount of $1, 200, 000, insured Equity "against loss or damage, not exceeding the Amount of Insurance . . . sustained or incurred by [Equity] by reason of.. . [u]nmarketability of the title; [or] [l]ack of a right of access to and from the land . . . ." Equity's borrowers obtained title insurance from Transnation Title Insurance Company ("Transnation").

         ¶5 In September 2006, Equity's borrowers discovered they could not legally access the parcels and, as a result, stopped making payments on their loans. When Equity's borrowers informed Transnation of this defect, Transnation, in an attempt to cure the defect and obtain access to the parcels, sued Maricopa County, the owner of the land surrounding the parcels. Equity, in turn, noticed trustee's sales to foreclose on the parcels. When Transnation promised to make interest-only payments on behalf of the borrowers while its litigation against Maricopa County was pending, Equity agreed to halt the foreclosure process.

         ¶6 In March 2010, the court in Transnation's lawsuit ruled in favor of Maricopa County. Shortly thereafter, Transnation stopped making interest payments under the loans which, in turn, caused Equity to re-notice the trustee's sales. In January 2011, Equity acquired title to the ...


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