In CSA 13-101 Loop, LLC v. Loop l01, LLC, et al., Loop 101 borrowed $15.6 million from MidFirst (which later assigned its rights under the loan to CSA as an intercompany transfer) to build a commercial office building. The loan was personally guaranteed by the Antons and Swankys. After Loop 101 defaulted, the property was sold at a non-judicial trustee's sale for $6.15 million, and CSA asserted a deficiency claim of $11.2 million.
The promissory note and guaranty included a provision that expressly waived the benefits of any statutory provision that limited the right of the lender to recover a deficiency judgment after trustee's sale, including the benefits of A.R.S. § 33-814(A). The borrower and guarantors denied that a deficiency existed and asserted the "fair market value" defense under A.R.S. § 33-814(A). Section 33-814(A) provides the right of a borrower to request a hearing on the fair market value of the property at the date of the trustee's sale, and to have that fair market value deducted from the amount owed to determine the amount of the deficiency. The deed of trust was even more specific, and had a provision stating that the sales price at the trustee's sale was deemed to be the fair market value of the property, and that Loop 101 waived its right to a fair market value hearing.
CSA argued that the borrower and guarantors had contractually waived their rights to a fair market value hearing under § 33-814(A). The trial court held that the statutory right of a fair market value hearing cannot be waived. The trial court held a fair market value trial and determined that the fair market value of the property was $12.5 million, which exceeded the indebtedness due to CSA and thus CSA had no deficiency claim. CSA appealed both the trial court ruling on the waiver and the results of the trial.
The Court of Appeals agreed with the trial court. A statutory right cannot be waived when waiver is expressly or impliedly prohibited by the plain language of a statute. The Court found that although the plain language of § 33-814 does not expressly prohibit waiver of the right to request a hearing on fair market value, the prohibition is implied. After a review of the legislative history of § 33-814 and other related statutes, the Court of Appeals determined that the fair market value protections were extended to commercial developers (not just residential homeowners) and guarantors as well as borrowers.
The Court of Appeals also upheld the trial court's findings of fair market value. CSA argued that the trial court made several evidentiary errors when determining the fair market value. But, the Court of Appeals found no such errors and upheld the ruling, giving great deference to the trial court's findings.
As a result of the Loop 101 opinion, Arizona trial courts will have to hold fair market value hearings in deficiency actions even if the borrowers or guarantors waived their rights in the loan documents. Furthermore, it appears that challenging the trial court's determination of fair market value will be difficult due to the deference afforded by the Court of Appeals.