Southwest Savings & Loan Ass'n v. Mason

OPINION LACAGNINA, Chief Judge. Southwest Savings and Loan Association moved for summary judgment on count two of its complaint seeking recovery on a promissory note secured by the realty mortgage on a family dwelling. Count one of the complaint sought foreclosure of the mortgage. The trial court denied Southwest’s motion for summary judgment but granted summary judgment on the borrowers’ motion, ruling that Southwest could not maintain a separate claim on the note without foreclosure because of the provisions of A.R.S. § 33-729 prohibiting deficiency judgments upon foreclosure of mortgaged single family dwellings of two and one-half acres or less. We reverse and remand for entry of judgment in favor of Southwest for the amounts due on the unpaid note because A.R.S. § 33-729 only governs judgment liens arising after foreclosure of a mortgage and is inapplicable to suits brought to collect upon a promissory note. The following material facts are undisputed. The original borrowers executed a promissory note secured by a realty mortgage on a single family residence situated on less than two and one-half acres of land. The subsequent purchasers of the property agreed to be liable on the promissory note and mortgage. The note provides for acceleration of the entire principal balance plus interest upon default on any installment at the option of the holder. When payments on the note and mortgage ceased, Southwest filed an action for foreclosure, and before responsive pleadings were filed, amended the complaint adding a count for enforcement of the promissory note. The language of A.R.S. § 33-729(A)1 does not prohibit a mortgagee from electing to proceed at law to collect its debt. What it clearly prohibits is an action to recover any deficiency remaining after a mortgage foreclosure action. When a mortgagee elects to proceed by foreclosure of a purchase money mortgage, he may satisfy the debt only from the proceeds of the sale of the mortgaged property and cannot execute upon any other property of [445] the debtor for any deficiency (except pursuant to § 33-729(B) where the mortgagor has committed waste). However, the provisions of § 33-729(A) do not abolish the mortgagee’s right to elect to enforce the note without foreclosure. Darnell v. Denton, 137 Ariz. 204, 669 P.2d 981 (App.1983). The mortgagee’s separate right to bring an action on the debt rather than foreclosure is established by A.R.S. § 33-722, which provides that “[i]f separate actions are brought on the debt and to foreclose the mortgage given to secure it, the plaintiff shall elect which to prosecute and the other shall be dismissed.” The two provisions of the statute must be read together, however, in order to give meaning to each. Section 33-722 permits an election of remedies. Section 33-729 evinces a legislative policy that if a home is used to pay a debt, no other assets may be the subject of execution. Both sections can be given meaning by allowing an election but also by holding that once the mortgagee elects to bring an action on the note, he cannot thereafter attempt to attach the property in order to satisfy that judgment on the note. The supreme court’s decision in Southwest Savings and Loan Ass’n v. Ludi, 122 Ariz. 226, 594 P.2d 92 (1979), supports our opinion that § 33-729(A) is only applicable to deficiencies remaining after the foreclosure of a mortgage. It is significant to note that appellate courts in Arizona, when given an opportunity to discuss § 33-729(A), have never held that this section prescribed the exclusive remedy available to mortgagees. See, e.g., Southwest Savings and Loan Ass’n v. Ludi, supra; Northern Arizona Properties v. Pinetop Properties Group, 151 Ariz. 9, 725 P.2d 501 (App.1986); Darnell v. Denton, supra. In addition, we find nothing in the terms of the master mortgage in this case which prevents Southwest from electing its remedy as provided by A.R.S. § 33-722.2 Because we reverse the trial court and remand for entry of judgment in favor of Southwest on count two of its complaint, the underlying facts of which were not in dispute, we need not discuss the issues of fact raised by borrowers regarding alleged equitable defenses preventing summary judgment except to note that those defenses are applicable in equity to prevent foreclosure or forfeiture, a remedy not sought by Southwest. Reversed and remanded for entry of judgment in favor of Southwest. LIVERMORE, J., concurs. Footnotes [1] § 33-729. Purchase money mortgage; limitation on liability A. Except as provided in subsection B, if a mortgage is given to secure the payment of the balance of the purchase price, or to secure a loan to pay all or part of the purchase price, of a parcel of real property of two and one-half acres or less which is limited to and utilized for either a single one-family or single two-family dwelling, the lien of judgment in an action to foreclose such mortgage shall not extend to any other property of the judgment debtor, nor may general execution be issued against the judgment debtor to enforce such judgment, and if the proceeds of the mortgaged real property sold under special execution are insufficient to satisfy the judgment, the judgment may not otherwise be satisfied out of other property of the judgment debtor, notwithstanding any agreement to the contrary. [2] The states of California, Montana and Utah have enacted statutes providing foreclosure as the exclusive remedy on purchase money obligations secured by property meeting statutory requirements. See, e.g., Calif.Civ.Proc.Code § 726; Montana § 71-1-222; Utah Judicial Code 78-37-1. In fact, foreclosure in California is the exclusive remedy for all debts secured by mortgage on real property. Calif.Civ.Proc.Code § 580b. These statutes are clearly opposite to the Arizona foreclosure statutes.