The recent Arizona Supreme Court case, Zubia v. Shapiro, 243 Ariz. 412 (2018), reminds homeowners to obtain early legal counsel when facing foreclosure, while bolstering lenders’ affirmative waiver defenses. Particularly, the Supreme Court ruled that borrowers waive claims to damages concerning the validity of a trustee’s sale when they first fail to obtain injunctive relief to prevent the trustee’s sale.
Briefly, the facts were this: Zubia and her husband, Pena, acquired a single-family residence as joint tenants in 1995. After they separated in 2006, Pena borrowed $150,000 from a lender named Shapiro and granted him a deed of trust on the property. Zubia contended that her signatures on the promissory note and deed of trust were forged. Later, when the loan defaulted, Pena conveyed his interest in the property to Zubia. The trustee subsequently conducted a non-judicial trustee’s sale, and Shapiro purchased the property — now wholly owned by Zubia — with a credit bid.
Zubia sued Pena, Shapiro, and others, reasserting her forgery allegations — but did not bring the action until after the trustee’s sale was complete. She sought damages under a variety of theories, including slander of title under A.R.S. § 33-420(A) and common law “wrongful foreclosure,” along with quiet title and declaratory judgment claims.
The Superior Court dismissed Zubia’s case, and the Court of Appeals and Arizona Supreme Court affirmed that result because Zubio did not file a lawsuit for injunctive relief prior to the completion of the trustee’s sale.
Why was injunctive relief prior to the trustee’s sale so important?
The Supreme Court explained that because the “deed of trust scheme is a creature of statutes,” governed by § 33-811(C), “a person who has defenses or objections to a properly noticed trustee’s sale has one avenue for challenging the sale: filing for injunctive relief.” The statute’s express language requires enjoining the sale as a prerequisite to any claim arising out of the sale. The Court extrapolated from that reasoning and concluded that § 33-811(C) prohibits not only actions to void the sale, as with Zubia’s quiet title and declaratory judgment claims, but also those “dependent upon the sale,” such as the slander of title and wrongful foreclosure claims.
To support this conclusion, the Court parsed the technical language, stating that the statutory phrase “all . . . objections to the sale,” does not “cabin the statute’s operation to a particular claim or type of relief sought and therefore does not apply only to those claims directly seeking to void a sale.” This language in § 33-811(C) “thus encompasses claims for damages which are based on a defective sale.”
Nonetheless, the Court stated that this rule has limits: a trustor who fails to enjoin a sale does not waive “claims that are independent of the sale.”
For example, claims like conversion, fraud/deceit, and trespass based upon an allegation that the property was wrongly sold are claims that depend on the sale — and would be waived upon the completion of the trustee’s sale. On the other hand, a trustor does not waive defenses to a post-sale deficiency claim by the lender. And some claims, such as a claim under A.R.S. § 33-420 for filing of false documents, may or may not be waived, depending on whether the alleged misstatements and other defects in the recorded documents existed irrespective of the trustee’s sale.
In the Zubia case, the plaintiff asserted two interrelated claims, which both hinged on the alleged signature forgeries. Her claims were objections to the sale, because they could not succeed unless the sale was defective. Since her claim that the trustee’s deed was falsely recorded necessarily required a determination that the sale was invalid, the Court found that the claim therefore was waived by operation of § 33-811(C) once the trustee’s sale was complete.
As an aside, the Court also briefly discussed whether it should recognize a new tort for “wrongful foreclosure,” something our Arizona courts have not yet done. In the end, the Court said that “[a]lthough we do not preclude the possibility that Arizona may recognize a cause of action for wrongful foreclosure in the future, we do not do so here.”
In conclusion, the Zubia case broadened the waiver defenses of deed of trust lienholders to claims brought against them after completion of trustee’s sales. At the same time, it teaches and reminds homeowners to quickly pursue an injunction while those sales are pending, to preserve their legal rights.