BANK OF AMERICA, N.A., a national banking association, Plaintiff/Appellant,
FELCO BUSINESS SERVICES, INC. 401(K) PROFIT SHARING PLAN, Ira S. Feldman, Trustee; and FBS SEDONA, LLC, an Arizona limited liability company, Defendants/Appellees.
from the Superior Court in Yavapai County No.
V1300CV201180303 The Honorable Jeffrey G. Paupore, Judge Pro
Cook Drury Mesaros, PA, Phoenix By Denise J. Wachholz,
Richard H. Goldberg Counsel for Plaintiff/Appellant.
& Wilhelmsen PLLC, Prescott By David K. Wilhelmsen, Lance
B. Payette Counsel for Defendants/Appellees.
Presiding Judge Randall M. Howe delivered the opinion of the
Court, in which Judge Lawrence F. Winthrop and Judge Jon W.
This appeal is from a declaratory action by lienholder Bank
of America, N.A. ("Bof A") against intervening
lienholder Felco Business Services, Inc. 401 (K) Profit
Sharing Plan and FBS Sedona, LLC (collectively,
"Felco"). After Felco foreclosed on its deed of
trust and sold the subject property at a trustee's sale,
Bof A sued for a declaration that its deed, recorded after
Felco's, was equitably subrogated to a position superior
to Felco's. Felco moved for partial summary judgment,
arguing that Bof A waived its equitable subrogation claim by
not raising it as an objection to the trustee's sale
pursuant to A.R.S. § 33-811(C). Without addressing
whether equitable subrogation applied, the trial court agreed
with Felco, holding that Bof A's equitable subrogation
claim was a pre-trustee's sale defense or objection that
it waived by not asserting it before the sale.
On review, we hold that an equitable subrogation claim is not
a defense or objection to a trustee's sale and is
therefore not waivable under A.R.S. § 33-811(C).
Accordingly, we reverse the trial court's granting of
partial summary judgment in Felco's favor and remand to
the trial court to determine whether equitable subrogation is
appropriate in this case.
AND PROCEDURAL HISTORY
In 2007, two property owners borrowed $200, 000 from
Countrywide Home Loans, Inc. secured by a deed of trust
("DOT 1") to property in Sedona. This deed was
recorded in February 2007. A few months later, the borrowers
borrowed $1.5 million from Felco to improve their Sedona
property. The borrowers secured $600, 000 of this loan with a
deed of trust ("DOT 2") and assignment of rents to
the Sedona property. DOT 2 was recorded in June 2007.
The following year, Countrywide Home Loans' sister
corporation, Countrywide Bank, offered to refinance the
borrowers' $200, 000 loan at a lower interest rate. The
borrowers accepted the offer and borrowed $204, 000 from
Countrywide Bank secured by a deed of trust ("DOT
3") to the same Sedona property, which was recorded in
June 2008. Although the borrowers failed to tell Countrywide
Bank about DOT 2 when they refinanced their loan, DOT 3
specifically stated that it must be in the first lien
position, superior to any other loans. The borrowers used
$200, 000 of the refinancing loan to pay off and release the
original loan. The deed of release and conveyance for DOT 1
was recorded in July 2008.
In the meantime, the borrowers defaulted on their payments on
the Felco loan. In February 2009, Felco issued a statement of
breach and notice of trustee's sale pursuant to DOT 2 to
occur in May. In connection with that notice, Felco obtained
a trustee's sale guarantee that revealed DOT 3, but
showed that the deed was subordinate to DOT 2. Accordingly,
Felco sent two notices of the trustee's sale to
Countrywide Bank, which failed to respond to the notice and
did not seek to enjoin the sale.
At the May 2009 sale, FBS Sedona successfully entered a
credit bid of $974, 657.07-the exact amount it calculated was
owed to it under the promissory note and DOT 2. FBS Sedona
promptly recorded the resulting deed later in May 2009.
Thereafter, FBS Sedona leased out the property, but paid all
applicable property taxes, maintenance expenses, and
At some point after the trustee's sale, Bof A acquired
all Countrywide entities, including Countrywide Home Loans
and Countrywide Bank. In August 2009, DOT 3 was assigned to
Bof A as the successor in interest to Countrywide. Four
months later, FBS Sedona received a letter sent on Bof
A's behalf inquiring about the status of its "junior
Deed of Trust" after the foreclosure sale and notifying
FBS Sedona that Bof A was investigating the notice of
foreclosure sale. After completing that investigation, Bof A
informed Felco that DOT 3 had seniority over DOT 2 before the
trustee's sale and that the sale consequently did not
extinguish the senior lien.
In May 2011, Bof A sued the borrowers and Felco, seeking a
declaratory judgment that DOT 3 was the senior lien and a
valid and enforceable encumbrance on the Sedona property
through either the doctrine of equitable subrogation or
replacement mortgage. Bof A also sued for any excess proceeds
from the trustee's sale and asked that the ...