Equity Income Partners, LP, an Arizona Limited Partnership; Galileo Capital Partners Limited, a Cayman Islands Exempted Company, Plaintiffs/Appellants,
Chicago Title Insurance Company, a Delaware Corporation, Defendant/Appellee.
States District Court for the District of Arizona No.
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
I. Wilenchik (argued), Tyler Q. Swensen, Wilenchik &
Bartness, P.C., Phoenix, Attorneys for Equity Income
Partners, LP and Galileo Capital Partners Limited
E. Fredenberg (argued), Fredenberg Beams, Phoenix, and
Patrick J. Davis, Nathaniel B. Rose, Fidelity National Law
Group, Phoenix, Attorneys for Chicago Title Insurance Company
Ramras, Ramras Legal, PLC, Phoenix, Attorneys for Amicus
Curiae Land Title Association of Arizona
authored the opinion of the Court, in which CHIEF JUSTICE
BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES BRUTINEL and
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.
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
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?
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.
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
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.
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 ...