Miller Designs v. US Bank

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

ANDRA R MILLER DESIGNS LLC, Plaintiff/Appellee,

v.

US BANK NA, et al., Defendants/Appellants.

No. 1 CA-CV 16-0723
FILED 2-13-2018

Appeal from the Superior Court in Maricopa County
No. CV2015-051479
The Honorable Aimee L. Anderson, Judge

REVERSED AND REMANDED

COUNSEL

Ramras Legal PLC, Phoenix
By Ari Ramras
Counsel for Plaintiff/Appellee

Quarles & Brady LLP, Phoenix
By Scott A. Klundt, Lauren E. Stine (argued), Amelia B. Valenzuela
Counsel for Defendant/Appellant
 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court

OPINION

Judge Paul J. McMurdie delivered the opinion of the Court, in which
Presiding Judge Lawrence F. Winthrop and Judge Jennifer B. Campbell
joined.

M c M U R D I E, Judge:
¶1 U.S. Bank NA (“Bank”) appeals the superior court’s grant of
summary judgment in favor of Andra R Miller Designs, LLC (“Miller”) and
the resulting final judgment. We reverse and remand to the superior court
for further proceedings consistent with this opinion and hold that: (1) a
purchaser of real property acquired at an execution sale under Arizona
Revised Statutes (“A.R.S.”) section 12-1622 has standing to assert a statute
of limitations defense under A.R.S. § 33-816 and no additional contractual
privity is necessary; (2) a creditor may unilaterally revoke its acceleration
of debt; (3) unilateral revocation of the debt’s acceleration requires an
affirmative act by the creditor, which must communicate to the debtor that
the debt’s acceleration has been cancelled; (4) a notice of cancellation of the
trustee’s sale may be an affirmative act by the creditor sufficient to
communicate to the debtor, and to any third party investigating title to the
property, that the creditor cancelled the debt’s acceleration if it contains a
statement revoking the acceleration; and (5) recording the notice of
cancellation of trustee’s sale with language revoking the acceleration
constitutes sufficient notice that the creditor has revoked the debt’s
acceleration.

FACTS AND PROCEDURAL BACKGROUND

¶2 The real property in question is a home located in Paradise
Valley (“Property”) in the Clearwater Hills Improvement Association
(“HOA”). In July 2006, Don Davis (“Borrower”) executed an Adjustable
Rate Note (“Note”) in favor of Washington Mutual Bank, FA (“WAMU”) in
the principal amount of $1,940,000. The Note was secured by a Deed of
Trust (“Deed”) encumbering the Property in the same amount. The Deed
and Note allowed the lender to accelerate the debt upon default as follows:
“If the default is not cured . . . Lender at its option may require immediate
payment in full of all sums secured by this Security Instrument without
further demand and may invoke the power of sale and any other remedies
permitted by Applicable Law.”

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
¶3 Borrower failed to make the monthly payment due on
September 1, 2008, and failed to cure his default after notice by WAMU. The
notice sent by WAMU also contained a reference to the acceleration clause.
In January 2009, the trustee recorded a Notice of Trustee’s Sale (“2009
Notice”), but no sale was held. On March 5, 2012, the trustee recorded a
“Cancellation of Notice of Sale, of Declaration of Default and Demand for
Sale, and of Notice of Breach and Election to Cause Sale” (“2012
Cancellation Notice”), which included the following clause (Acceleration
Revocation Clause):

NOW THEREFORE: Notice is hereby given that the
Beneficiary and/or the Trustee does hereby rescind, cancel
and withdraw said Declaration of Default and Demand for
Sale and said Notice of Breach and Election to Cause Sale; it
being understood, however, that this cancellation shall not in
any manner be construed as waiving or affecting any breach
or default past, present or future, under said Deed of Trust, or
as impairing any right or remedy thereunder, but is, and shall
be deemed to be, only an election, without prejudice, not to
cause a sale to be made pursuant to said Declaration and
Notice, and shall in no way jeopardize or impair any right,
remedy or privilege secured to the Beneficiary and/or the
Trustee, under said Deed of Trust, nor modify nor alter in any
respect any of the terms, covenants, conditions or obligations
thereof, and said Deed of Trust and all obligations secured
thereby are hereby reinstated and shall be said and remain in
force the same as if said Declaration and Notice had not been
made and given.

¶4 In February 2013, the HOA obtained a Judgment and Decree
of Foreclosure and Order of Sale for unpaid planned community
assessments, and other costs, in the amount of approximately $16,000. The
Property was to be sold at a sheriff’s sale, but the sale was not held at that
time.

¶5 In May 2013, the trustee recorded a new Notice of Trustee’s
Sale (“2013 Notice”). In January 2014, the loan servicer sent Borrower a
Notice of Default—Right to Cure (“Right to Cure Notice”), notifying
Borrower he had the right to cure his default by paying $1,033,052.10 by
February 22, 2014. The Right to Cure Notice stated that the lender could
accelerate the debt if the borrower failed to cure the default. In June 2014,
the trustee recorded a “Cancellation of Notice of Sale” (“2014 Cancellation
Notice”) to cancel the 2013 Notice. The 2014 Cancellation Notice contained
the same Acceleration Revocation Clause as the 2012 Cancellation Notice.
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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
¶6 In December 2014, the trustee recorded a new Notice of
Trustee’s Sale. In February 2015, Miller purchased the HOA Judgment. On
March 26, 2015, a sheriff’s sale was executed on the HOA Judgment, and
Miller purchased the Property for the sum of $41,000. On March 27, 2015,
Miller filed to enjoin Bank from foreclosing on its lien and conducting the
trustee’s sale of the Property. Both sides moved for summary judgment.
The court granted summary judgment in favor of Miller, finding Banks’s
claim was barred by the statute of limitations based on Bank’s acceleration
of the debt in the 2009 Notice. Bank filed for reconsideration.

¶7 In its Motion for Reconsideration, Bank claimed it had paid
$453,277 in property taxes and insurance on behalf of the Property, $62,596
of which was paid on or after April 1, 2015. Bank argued the later amount
entitled it to initiate a foreclosure action, even if suit on the original loan
amount was barred by the statute of limitations. See Deutsche Bank Tr. Co.
Americas v. Beauvais, 188 So. 3d 938, 941 (Fla. 3d DCA 2016) (en banc)
(holding that even though a lender’s right to foreclose a previously
accelerated loan balance was barred by the statute of limitations, the lender
was not barred from initiating foreclosure based on different acts if the new
foreclosure action was brought within the applicable statute of limitations);
Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007 (Fla. 2004) (lender
permitted to maintain a separate action for foreclosure for a default which
occurred after acceleration on an earlier default). The superior court denied
reconsideration, and entered a final judgment holding that Bank’s lien was
unenforceable. Bank timely appealed. We have jurisdiction pursuant to
A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).

DISCUSSION

¶8 Bank argues the superior court erred by granting summary
judgment because (1) Miller had no standing to raise the statute of
limitations defense against Bank’s enforcement of its lien; (2) if Miller does
have standing, Bank revoked the debt’s acceleration, which reset the statute
of limitations on its foreclosure action; (3) the loan documents authorized
Bank to pay for insurance and property taxes after the 2009 Notice, and the
superior court should have considered Bank’s argument even if it was first
raised in a motion for reconsideration; and (4) it was error to hold that the
lien was “unenforceable.”

¶9 In reviewing an order granting summary judgment, we view
the facts in the light most favorable to Bank, the party against which
summary judgment was granted, and determine “de novo whether there are
any genuine issues of material fact and whether the trial court erred in its
application of the law.” Galati v. Lake Havasu City, 186 Ariz. 131, 133 (App.

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
1996) (quoting Gonzalez v. Satrustegui, 178 Ariz. 92, 97 (App. 1993)); Ariz. R.
Civ. P. 56(a).

I. Miller Had Standing to Raise the Statute of Limitations Defense.

¶10 Bank argues the superior court erred by finding the applicable
statute of limitations expired on January 21, 2015, because Miller was not in
privity to the Note, the Deed, or the Borrower, and thus did not have
standing to raise a statute of limitations defense.1 Whether a party has
standing to assert a statute of limitations defense is a question of law we
review de novo. See Baier v. Mayer Unified Sch. Dist., 224 Ariz. 433, 438, ¶ 15
(App. 2010) (citing Robert Schalkenbach Found. v. Lincoln Found., Inc., 208
Ariz. 176, 180, ¶ 15 (App. 2004)).

A. The Applicable Statute of Limitations.

¶11 An action to collect a debt evidenced by a written contract
“shall be commenced and prosecuted within six years after the cause of
action accrues, and not afterward.” A.R.S. § 12-548(A)(1). “The defense of
the statute of limitations is a personal privilege that a debtor or one in
privity may elect to urge or waive.” Acad. Life Ins. Co. v. Odiorne, 165 Ariz.
188, 190 (App. 1990) (citing Trujillo v. Trujillo, 75 Ariz. 146, 148 (1953)). When
the statute of limitations expires, however, the debt is not extinguished;
rather, the remedy for an action on the debt is merely barred. Provident Mut.
Bldg.-Loan Ass’n v. Schwertner, 15 Ariz. 517, 518−19 (1914) (when a debt has
not been paid, the debt is not extinguished by the expiration of the
limitation period, “only the remedy has been lost,” preventing recovery
when “properly invoked by the debtor”); De Anza Land & Leisure Corp. v.
Raineri, 137 Ariz. 262, 266 (App. 1983).

¶12 “The deed of trust scheme is a creature of statutes.” Zubia v.
Shapiro, ___ Ariz. ___, ___, 2018 WL 387772, *4, ¶ 15 (Jan. 12, 2018) (quoting
BT Capital, LLC v. TD Serv. Co. of Ariz., 229 Ariz. 299, 300, ¶ 9 (2012));
Manicom v. CitiMortgage, Inc., 236 Ariz. 153, 156, ¶¶ 8−9 (App. 2014) (“[T]he
Arizona’s Deeds of Trust Act, A.R.S. §§ 33-801 through 33-821, . . . ‘is a
comprehensive set of statutes governing the execution and operation of
deeds of trust.’”) (citing In re Bisbee, 157 Ariz. 31, 33 (1988)). A six-year
limitation period applies here because Bank is attempting to collect on a
property interest secured by a Deed of Trust. Section 33-816 ties “the

1 The superior court found the 2009 Notice recorded on January 21,
2009, accelerated the debt and the trustee’s sale was not held within six
years, or by January 21, 2015.

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
limitation period for an action in rem to the same period applicable to an
action on the contract.” Stewart v. Underwood, 146 Ariz. 145, 150 (App. 1985).
Section 33-816 specifies:

The trustee’s sale of trust property under a trust deed shall be
made, or any action to foreclose a trust deed as provided by
law for the foreclosure of mortgages on real property shall be
commenced, within the period prescribed by law for the
commencement of an action on the contract secured by the
trust deed.

A.R.S. § 33-816; see Stewart, 146 Ariz. at 150 (“There is no indication that our
legislature intended to create some type of sliding scale in which
enforcement of the lien is precluded if some fortuitous circumstance
prevents an action on the contract.”); Manicom v. CitiMortgage, Inc., 236 Ariz.
at 158, ¶ 17 (any person interested in acquiring an interest in a real property
has a “duty to search grantor and grantee indices for potential liens, at least
for the relevant six-year limitation period provided for sales and
foreclosures under deeds of trust”) (citing cases).

B. Miller’s Interest in the Property Entitles It to Invoke a
Statute of Limitations Defense.

¶13 When real property is sold under execution at a public
auction to the highest bidder, see A.R.S. § 12-1622(A), “the purchaser is
substituted to and acquires all the right, title, interest and claim of the
judgment debtor thereto,” A.R.S. § 12-1626(A).

¶14 Miller foreclosed on its junior lien, the HOA Judgment, and
purchased the Property at a sheriff’s sale, see A.R.S. § 12-1626(A), subject to
Bank’s senior lien, see Mid–Kansas Fed. Sav. and Loan v. Dynamic Dev. Corp.,
167 Ariz. 122, 130 (1991) (“[T]he purchaser at a foreclosure sale of a junior
lien takes subject to all senior liens . . . . Although the purchaser does not
become personally liable on the senior debt . . . the purchaser must pay it to
avoid the risk of losing his newly acquired land to foreclosure by the senior
lienholder . . . [and] the land becomes the primary fund for the senior
debt.”) (citations omitted); see also Midyett v. Rennat Props., Inc., 171 Ariz.
492, 494 (App. 1992) (same). By purchasing the property at the sheriff’s sale,
Miller acquired the right to invoke the limitation period in an action in rem
pursuant to § 33-816; no additional contractual privity was necessary. The
court did not err by concluding Miller could raise the statute of limitations
defense.

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
C. The Statute of Limitations Had Not Expired Before the
Filing of this Case.

1. The Statute of Limitations Was Initially Triggered by
Bank’s Acceleration of the Debt.

¶15 When a creditor has the power to accelerate a debt, the
six-year statute of limitations begins to run on the date the creditor exercises
that power. See Navy Fed. Credit Union v. Jones, 187 Ariz. 493, 495 (App. 1996)
(“[I]f the acceleration clause in a debt payable in installments is optional, a
cause of action as to future nondelinquent installments does not accrue until
the creditor chooses to take advantage of the clause and accelerate the
balance. Unless the creditor exercises the option, the statute of limitations
applies to each installment separately, and does not begin to run on any
installment until it is due.”); Wheel Estate Corp. v. Webb, 139 Ariz. 506, 508
(App. 1983) (cause of action accrues when holder exercises option to
accelerate). To exercise its option to accelerate a debt, the creditor “must
undertake some affirmative act to make clear to the debtor it has accelerated
the obligation,” even if the parties contractually agree the option to
accelerate a debt need not require a notice to the debtor. Baseline Fin. Servs.
v. Madison, 229 Ariz. 543, 544, ¶ 8 (App. 2012) (emphasis added) (citing
cases). Demand of a full payment before all installments fall due constitutes
a sufficiently affirmative act of acceleration. See Jones, 187 Ariz. at 495. The
commencement of foreclosure likewise operates as an affirmative act of
acceleration. Prevo v. McGinnis, 142 Ariz. 298, 302 (App. 1984) (citing Barnett
v. Hitching Post Lodge, Inc., 101 Ariz. 488 (1966)).

¶16 The recordation of the 2009 Notice was an affirmative act of
the debt’s acceleration, see Prevo, 142 Ariz. at 302, which triggered the
statute of limitations on Bank’s right to foreclose its security interest, see
A.R.S. § 33-816; Jones, 187 Ariz. at 495; see also Webb, 139 Ariz. at 508 (absent
the debt’s acceleration, each failure to make an installment payment gives
rise to a separate cause of action); Deutsche Bank Nat. Tr. Co. Americas v.
Bernal, 59 N.Y.S.3d 267, 270 (N.Y. Sup. Ct. 2017) (separate cause of action
accrues for each mortgage payment that is not paid). Neither party argues
the 2009 Notice did not accelerate the debt; the parties disagree regarding
the effect of Bank’s subsequent actions on the statute of limitations. Miller
argues Bank failed to revoke the debt’s acceleration and, because no
trustee’s sale was held within six years pursuant to A.R.S. § 33-816, the
statute of limitations expired on January 21, 2015. Bank counters that its
publicly noticed cancellations of trustee’s sale with the Acceleration
Revocation Clause, restarted the statute of limitations regarding future
obligations in 2012 and in 2014.

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
2. Bank Revoked its Acceleration of the Debt.

¶17 Bank argues the superior court erred by ruling Bank did not
revoke the acceleration of the debt. Bank contends that each notice of
cancellation canceled both the trustee’s sale and the underlying acceleration
of the debt; and that the Right to Cure Notice, which demanded payment
of the delinquency and not all unpaid amounts under the note, also
indicated the debt’s acceleration had been cancelled.

¶18 Pursuant to Arizona’s statutory scheme, a trustee’s sale is
cancelled, if it is not held or properly postponed, by “[a]n acknowledged
recorded cancellation of a recorded notice of sale under a trust deed[,
which] shall be sufficient if it is in substantially the following form: [legal
description of the trust property, detailed information about the trust
deed].” A.R.S. § 33-813(F), (G). Because both the 2012 and 2014 Notices of
Cancellation were recorded and contained the required information, the
relevant trustee’s sales were properly cancelled.

¶19 Bank argues the language of the Cancellation Notices, in
addition to the fact they were recorded, “reinstated the obligations secured
by the Deed of Trust as though the Notices of Trustee’s Sale had never been
recorded,” effectively restarting the limitations on the default and placing
Bank in the position to exercise its power to accelerate the debt at its
discretion.2 We agree.

¶20 As noted above, to exercise its power to accelerate the debt,
the creditor “must undertake some affirmative act to make clear to the
debtor it has accelerated the obligation.” Madison, 229 Ariz. at 544, ¶ 8. The
parties acknowledge that acceleration of the debt can be revoked

2 The revocation of an acceleration would not reset the statute of
limitations for payments already in default. Webb, 139 Ariz. at 508 (absent
the debt’s acceleration, each failure to make an installment payment gives
rise to a separate cause of action); Bernal, 59 N.Y.S.3d at 270 (separate cause
of action accrues for each mortgage payment that is not paid). In this appeal,
we are not asked to apply the statute of limitations under A.R.S.
§ 12-548(A)(1) to defaulted payments and leave such application, if any, to
the parties and court on remand. See City of Phoenix v. Yarnell, 184 Ariz. 310,
319 (1995) (court of appeals is to address only issues developed on the
record, including issues of law presented on facts “put in issue by a
properly focused motion”).

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
unilaterally by the creditor.3 See Fed. Nat. Mortg. Ass’n v. Mebane, 618
N.Y.S.2d 88, 89 (N.Y. App. Div. 1994) (“[A] lender may revoke its election
to accelerate all sums due under an optional acceleration clause in a
mortgage provided that there is no change in the borrower’s position in
reliance thereon.”). Both the acceleration of a debt and the acceleration’s
revocation have equally important effects on a debtor’s financial
decision-making based on knowledge of the actual amount due. We thus
hold that a unilateral revocation of the debt’s acceleration requires an
affirmative act by the creditor that communicates to the debtor that the
creditor has revoked the debt’s acceleration. See Mebane, 618 N.Y.S.2d at 89.

¶21 The mere recordation of a cancellation notice is not, by itself,
an affirmative act sufficient to revoke the acceleration of the debt, although
it cancels the trustee’s sale. See Madison, 229 Ariz. at 544, ¶ 8; Mebane, 618
N.Y.S.2d at 89 (court’s dismissal of action to collect on accelerated
obligation not “an affirmative act by the lender to revoke its election to
accelerate” and does not affect running of limitations period). A
cancellation notice filed under § 33-813, by itself, does not communicate an
intent to revoke acceleration. For the cancellation of the trustee’s sale to
become an affirmative act by the creditor sufficient to revoke the debt’s
acceleration, the notice of cancellation must also contain a statement that
the acceleration of the debt has been withdrawn. Because recording the
notice of cancellation of trustee’s sale is a public notice available to any
party, we hold that, if the cancellation notice contains a statement revoking
the acceleration, it provides sufficient notice “to the debtor,” and to any
third party investigating title, that the acceleration has been cancelled. See
Madison, 229 Ariz. at 544, ¶ 8; see also A.R.S. § 33-813(F), (G).

¶22 Because Bank inserted the Acceleration Revocation Clause
into the 2012 and 2014 Notices of Cancellation, it sufficiently communicated
to the Borrower, and to any third party investigating title to the property,
that Bank was also revoking the debt’s acceleration. The Acceleration
Revocation Clause informed the Borrower that the “Beneficiary and/or the
Trustee does hereby rescind, cancel and withdraw said Declaration of
Default and Demand for Sale and said Notice of Breach and Election to
Cause Sale [“Declaration and Notice”]; . . . and said Deed of Trust and all
obligations secured thereby are hereby reinstated and shall be said and
remain in force the same as if said Declaration and Notice had not been

3 Parties may also negotiate a modification or a forbearance agreement
or the debtor may reinstate the loan by curing defaults pursuant to
§ 33-813(A) and (B).

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
made and given.” Because the Declaration and Notice caused the
acceleration, its withdrawal (“as if [it] had not been made”) constituted the
affirmative act and revoked the debt’s acceleration. See Madison, 229 Ariz.
at 544, ¶ 8. The additional language, although not a model of clarity, merely
informed the Borrower of its continuing default on the loan and Bank’s
rights secured by the Deed.

¶23 Therefore, no genuine dispute can be maintained about the
effect of the 2012 and 2014 Cancellation Notices. See Ariz. R. Civ. P. 56(a).
We reverse the grant of summary judgment in favor of Miller and vacate
the corresponding judgment, including the award of attorney’s fees
associated with that judgment. Because the acceleration’s revocation reset
the statute of limitations in 2012, as well as in 2014, we find the statute of
limitations regarding future obligations has not run, and remand the case
for further proceedings consistent with this opinion. See supra note 2.
Because it is not necessary to our holding, we decline to reach Bank’s
arguments relating to its payments for property insurance and taxes and
the scope of relief granted to Miller. See State v. Hardwick, 183 Ariz. 649, 657
(App. 1995) (the court need not review other arguments if one argument is
dispositive).

II. Attorney’s Fees on Appeal.

¶24 Both parties request we award their attorney’s fees incurred
on appeal pursuant to A.R.S. § 12-341.01 and Arizona Rule of Civil
Appellate Procedure 21. Section 12-341.01(A) provides a court with
discretion to award reasonable attorney’s fees to a successful party “[i]n any
contested action arising out of a contract.” See also Bennett v. Baxter Grp.,
Inc., 223 Ariz. 414, 423–24, ¶ 40 (App. 2010). In our discretion, we decline to
award either party its attorney’s fees incurred on appeal. We award Bank
its taxable costs upon compliance with Arizona Rule of Civil Appellate
Procedure 21.

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 MILLER DESIGNS v. US BANK, et al.
Opinion of the Court
CONCLUSION

¶25 For the reasons stated above, we reverse the judgment and
remand for further proceedings consistent with this opinion. We award
Bank its taxable costs incurred on appeal upon compliance with Arizona
Rules of Civil Appellate Procedure 21.

AMY M. WOOD • Clerk of the Court
FILED: AA

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