Objections to a Non-Judicial Trustee’s Sale Are Waived if Not Timely Preserved by Injunctive Relief

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[authors: Rick Herold and Dan Huitink]

Bankers should take note that last month the Arizona Supreme Court issued an opinion in BT Capital, L.L.C. v. TD Service Co. of Arizona, 633 Ariz. Adv. Rep. 38 (May 4, 2012), holding that A.R.S. Section 33-811(C) must be strictly enforced. Section 811(C) dictates that all objections to a trustee’s sale are waived if they are not timely preserved by obtaining injunctive relief by 5:00 p.m. on the last business day before the trustee’s sale.

The Court of Appeals then fortified the holding in BT Capital with Madison v. Groseth, CV11-0222 (June 5, 2012), holding that claims for damages, which are premised upon such waived objections under Section 33-811(C), are not cognizable as a matter of law and are therefore subject to dismissal.

I. A.R.S. § 33-811(C)

An important provision of the Arizona deed of trust regime is A.R.S. § 33-811(C). This statute provides:

The trustor, its successors or assigns, and all persons to whom the trustee mails a notice of sale under a trust deed pursuant to section 33-809 shall waive all defenses and objections to the sale not raised in an action that results in the issuance of a court order granting relief pursuant to rule 65, Arizona rules of civil procedure, entered before 5:00 p.m. mountain standard time on the last business day before the scheduled date of the sale . . . .

II. The BT Capital Case

A. Underlying Factual and Procedural History

BT Capital arose from very unique factual circumstances concerning which of two successful bidders, bidding during three trustee's sales held between June 2009 and July 2010, became the rightful owner of property auctioned by a trustee in Maricopa County.

B. The Supreme Court's Opinion

Since BT had not obtained a pre-sale injunction to prohibit that sale, applying Section 33-811(C), the Supreme Court held that BT's claim on the property had therefore become moot because BT did not pursue “its one avenue for challenging the sale: filing for injunctive relief.” Looking to Section 33-811(C)’s plain meaning, the Court held that “where . . . a trustee’s sale is completed, a person subject to § 33-811(C) cannot later challenge the sale based on pre-sale defenses or objections,” which is precisely what BT’s claims seeking both title and damages was doing.

Thus, the Court applied Section 33-811(C) literally and held that all pre-sale challenges not timely raised in an action that results in an injunction prior to 5:00 p.m. on the last business day before the trustee's sale are waived.

III. The Court of Appeals’ Ruling in Madison

Weeks later, in Madison, the Arizona Court of Appeals addressed the applicability of Section 33-811(C) in a case where the trustor asserted that the trustee failed to provide proper notice of the sale. Pursuant to Section 33-811(C), the Court, per BT Capital, ruled that Madison “waived all defenses and objections to the trustee’s sale of her property” by not seeking injunctive relief before the trustee’s sale.

Madison also sought damages, asserting tort claims for conversion and fraud against the Groseths, alleging General Motors Acceptance Corporation (GMAC), Mortgage Electronic Registration Systems (MERS) and the trustee wrongfully sold the property, and alleging trespass by the Groseths for their entry onto the property after receipt of the trustee’s deed, all premised on alleged defects in the trustee’s sale. Applying Section 33-811(C), the Court held: “Because the validity of that sale underlies the tort claims she asserts against the successful bidders at the sale, the superior court correctly dismissed Madison’s complaint for failing to state a cognizable claim pursuant to Arizona Rules of Civil Procedure 12(b)(6).” Emphasizing its view with further clarity, the Court concluded its analysis: “In sum, because Madison’s tort claims depend on her objections to the validity of the trustee’s sale, and she has waived those objections, her tort claims cannot survive as a matter of law. The trial court therefore properly dismissed Madison’s complaint pursuant to Rule 12(b)(6).”

IV. The Implications of the BT Capital and Madison Holdings

The Arizona Supreme Court’s decision in BT Capital provides clear guidance that Section 33-811(C) must be literally and strictly applied, precluding all post-sale challenges that could have been raised by seeking and obtaining injunctive relief by 5:00 p.m. on the business day prior to the trustee’s sale.

The Court of Appeals’ decision in Madison then goes one step further, precluding not just title claims which were not timely raised under Section 33-811(C), but also barring claims for damages premised on objections that were not timely raised and preserved by injunctive relief. Although Madison resulted in the preclusion of only tort claims that were dependent upon objections that had been waived, the holding and its logic arguably apply with equal force to contract claims for damages.

 

Published In: Civil Procedure Updates, Civil Remedies Updates, General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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