IN THE 

ARIZONA COURT OF APPEALS

DIVISION ONE

DEENISE LUU, et al., Plaintiffs/Appellants,

v.

NEW REZ, LLC, et al., Defendants/Appellees.

No. 1 CA-CV 21-0007 

Appeal from the Superior Court in Maricopa County

No. CV 2020-054642

The Honorable Sara J. Agne, Judge

AFFIRMED

COUNSEL

Parker Schwartz PLLC, Phoenix

By Lawrence D. Hirsch

Counsel for Plaintiffs/Appellants

Akerman LLP, Los Angeles CA

By Brenda Radmacher 

Counsel for Defendants/Appellees

FILED 04-12-2022
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

2

OPINION

Judge Michael J. Brown delivered the opinion of the Court, in which 

Presiding Judge Randall M. Howe and Judge Brian Y. Furuya joined.

B R O W N, Judge:

¶1 In this opinion we address the interplay between a 

bankruptcy discharge of a debt and a lender’s ability to foreclose on a deed 

of trust securing the debt. We hold that a bankruptcy discharge does not 

commence the limitations period on the lender’s ability to foreclose, nor 

does a bankruptcy discharge trigger an optional acceleration clause, which 

is exercisable only at the lender’s discretion. We also conclude that the 

nature and extent of a security interest is a matter of state law, and thus 

Arizona law controls the resolution of this issue. 

BACKGROUND

¶2 In December 2005, Keith Nguyen signed a promissory note 

for $62,300, secured by a second position deed of trust on improved real 

property (“Property”), which Deenise Luu co-owned. The note was 

payable in monthly installments with the balance due January 1, 2031. 

NewRez, LLC dba Shellpoint Mortgage Servicing (“NewRez”) is the 

servicer of the deed of trust and Mortgage Electronic Registration Systems, 

Inc. (“MERS”) is the beneficiary. 

¶3 Sometime in 2011, Nguyen stopped making payments on the 

note. The deed of trust stated that the lender could accelerate the note

“upon the occurrence of a default or anytime thereafter,” with “notice if 

required by law.” Neither NewRez, nor its predecessors-in-interest, nor 

any other authorized party took any affirmative action to accelerate the 

note, despite Nguyen’s default. 

¶4 In August 2011, Nguyen and Luu (collectively, “Owners”)

filed a Chapter 7 bankruptcy and received a discharge three months later 

from the U.S. Bankruptcy Court of the District of Arizona. The bankruptcy 

proceeding closed in January 2013. In 2020, Owners sent demands to 

NewRez and MERS (collectively, “Lender”) requesting release of the lien 

on the Property. When Lender declined, Owners filed a complaint in the 

superior court, alleging that Lender was attempting to retain a lien interest 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

3

after the statute of limitations had run. Owners sought an order quieting 

title and confirming the invalidity of Lender’s lien. 

¶5 Lender moved to dismiss, arguing that a bankruptcy 

discharge does not trigger the statute of limitations because a discharge 

does not automatically accelerate a debt. In response, Owners primarily 

relied on purportedly favorable decisions arising under Washington state 

law and asked the superior court to adopt Washington’s “rule” that a 

bankruptcy discharge commences the limitations period for in rem

remedies. Owners also urged the court to follow two unpublished 

decisions from the Ninth Circuit Court of Appeals holding that the statute 

of limitations begins on the date of the last installment due before the

bankruptcy discharge. 

¶6 The superior court concluded that a bankruptcy discharge 

does not start the running of the statute of limitations because it does not 

operate as a maturation of the note. The court therefore dismissed the 

complaint because, as a matter of law, Owners did not establish that Lender 

failed to act within the limitations period such that Lender no longer held a 

valid lien. Owners appealed, and we have jurisdiction under A.R.S. § 12-

120.21(A)(1). 

DISCUSSION

¶7 Owners argue the superior court erred in dismissing their 

complaint based on their position that, under Washington state law and 

Ninth Circuit unpublished decisions, a bankruptcy discharge operates as a 

maturation of the note and thus Lender can no longer foreclose on the 

Property. Lender counters that because a bankruptcy discharge does not 

change the note’s date of maturity under Arizona law, the discharge cannot 

affect the statute of limitations. 

¶8 We review the dismissal of a complaint under Arizona Rule 

of Civil Procedure 12(b)(6) de novo. Coleman v. City of Mesa, 230 Ariz. 352, 

355, ¶ 7 (2012). Generally, we consider only the complaint and its well-pled 

factual allegations and assume the truth of those allegations. Cullen v. AutoOwners Ins. Co., 218 Ariz. 417, 419, ¶ 7 (2008). In this case, we also consider 

the deed of trust, attached to the complaint, because such an exhibit is not 

outside the pleading. Coleman, 230 Ariz. at 356, ¶ 9. When a cause of action 

accrues is a legal question, which we also review de novo. Mertola, LLC v. 

Santos, 244 Ariz. 488, 490, ¶ 8 (2018).
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

4

A. Statute of Limitations

¶9 Arizona has a six-year statute of limitation for a debt action 

based on a written contract. A.R.S. § 12-548(A)(1). The limitations period 

to execute on a deed of trust is the same one that applies to the underlying 

promissory note. A.R.S. § 33-816 (“[A] trustee’s sale of trust property under 

a trust deed shall be made, or any action to foreclose a trust deed . . . shall 

be commenced, within the period prescribed by law for the commencement 

of an action on the contract secured by the trust deed.”); see also De Anza 

Land & Leisure Corp. v. Raineri, 137 Ariz. 262, 266 (App. 1983). 

¶10 A bankruptcy discharge extinguishes the debtor’s personal 

liability, thereby barring a lender from an action in personam against the 

debtor. See Diaz v. BBVA USA, 61 Ariz. Cases Digest 10, ¶ 15 (App. Jan. 7, 

2022); see also Shaffer v. Heitner, 433 U.S. 186, 199 (1977) (noting that an action 

in personam “impose[s] a personal obligation on the defendant in favor of 

the plaintiff”). “But a bankruptcy discharge does not extinguish a lien or 

other security agreement associated with the underlying obligation or bar 

an in rem suit to enforce it.” Diaz, 61 Ariz. Cases Digest at ¶ 15; see also 

Shaffer, 433 U.S. at 199 (explaining that an action in rem “is limited to the 

property that supports jurisdiction and does not impose a personal liability 

on the property owner”). Thus, a bankruptcy discharge does not preclude 

an action to foreclose on a deed of trust. Stewart v. Underwood, 146 Ariz. 145, 

146, 148 (App. 1985); see also In re Garske, 287 B.R. 537, 542 (B.A.P. 9th Cir. 

2002) (holding that when a lender has a secured interest in property, the 

lender’s in rem remedies survive a bankruptcy discharge, even though the 

debtor’s personal liability is extinguished). 

¶11 “[T]he statute of limitations on a home equity line of credit 

with a defined maturity date ‘commences on the due date of each matured 

but unpaid installment . . . .’” Webster Bank NA v. Mutka, 250 Ariz. 498, 499, 

¶ 1 (App. 2021) (citation omitted). In contrast, when an installment contract

(like the one here) contains an optional acceleration clause, the limitations 

period for unmatured future installments “commences on the date the 

creditor exercises the optional acceleration clause.” Navy Fed. Credit Union 

v. Jones, 187 Ariz. 493, 494 (App. 1996); Webster Bank NA, 250 Ariz. at 500, 

¶ 9; see also Diaz, 61 Ariz. Cases Digest at ¶¶ 11–12 (explaining that Navy 

Federal Credit Union and Webster Bank apply to secured installment debts 

“and that the statute of limitations to enforce the debt does not begin to run 

on future, unmatured installments due until the lender accelerates the 

debt”). Accordingly, absent acceleration, “a secured lender has until the 

maturity of the note or deed of trust to exercise his remedies in enforcing 

his secured interest.” Diaz, 61 Ariz. Cases Digest at ¶ 20. 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

5

¶12 Owners argue that a bankruptcy discharge acts as a 

maturation of the note and thus triggers the statute of limitations. As this 

court previously concluded, however, “a valid pre-bankruptcy lien that is 

not avoided during the bankruptcy proceedings survives those 

proceedings unaffected.” Stewart, 146 Ariz. at 146 (emphasis added); see also 

Diaz, 61 Ariz. Cases Digest at ¶ 19. Owners’ bankruptcy discharge did not 

alter the terms of the promissory note or deed of trust, and Lender 

maintains its right to enforce its security interest. See Diaz, 61 Ariz. Cases 

Digest at ¶ 16 (holding that while a borrower’s personal obligation is 

discharged in bankruptcy, “the deed of trust [the borrower] executed to 

secure that personal obligation [is] not extinguished” and the lender 

“retains whatever rights arise under the deed of trust in rem[,] . . . including 

foreclosure”). 

¶13 Nyguen’s promissory note matures on January 1, 2031. The 

2011 bankruptcy discharge did not extinguish the debt; it simply barred 

Lender from recovering against Nyguen personally. The debt remains, and 

so does Lender’s security interest in the Property. And because the 

bankruptcy discharge did not affect Lender’s ability to foreclose, it did not 

change the note’s maturation date. 

B. Acceleration Clause

¶14 Owners argue that because the bankruptcy discharge relieved 

them of all future payments on the note after the discharge, the Lender’s 

power to accelerate the debt became irrelevant because no future payment 

obligations existed to accelerate. And at oral argument before this court,

Owners’ counsel stressed that a debt is not due unless it is personally 

enforceable against the debtor. But this position conflates the existence of a 

debt with its enforceability. As noted, a debtor’s bankruptcy discharge does 

not eliminate the debtor’s debts. See Stewart, 146 Ariz. at 148; Diaz, 61 Ariz. 

Cases Digest at ¶¶ 15–16. Instead, a bankruptcy discharge “operates as an 

injunction” preventing lenders from taking any action “to collect . . . any 

such debt as a personal liability of the debtor.” 11 U.S.C. § 524(a)(2). 

Because a bankruptcy discharge does not eliminate the debt under an 

installment contract, each installment continues to become due under the 

original contract. Though the discharge injunction bars the lender under 

that contract from collecting on those installments against the debtor 

personally, the installments remain operative to inform the parties’ rights 

regarding the use of in rem remedies against the security. As such, a 

lender’s acceleration powers are preserved even after a bankruptcy 

discharge. 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

6

¶15 Further, Owners’ argument mistakenly assumes that a 

discharge can effectively cause an acceleration without any action or notice 

to either party thereof. An acceleration clause, however, is only 

“exercisable at the lender’s option.” Browne v. Nowlin, 117 Ariz. 73, 75 

(1977). To invoke an acceleration clause, the lender “must undertake some 

affirmative act to make clear to the debtor it has accelerated the obligation.” 

Baseline Fin. Servs. v. Madison, 229 Ariz. 543, 544, ¶ 8 (App. 2012). Such an 

act may include demanding full payment before the maturity date or 

foreclosing on the property. Andra R. Miller Designs LLC v. US Bank NA, 244 

Ariz. 265, 270, ¶ 15 (App. 2018). Nothing under Arizona law indicates that 

a bankruptcy discharge is an affirmative act on behalf of the lender that 

accelerates the debt or otherwise triggers the statute of limitation. See Diaz, 

61 Ariz. Cases Digest at ¶ 20 (“Arizona requires that the lender take 

affirmative steps to accelerate the debt to trigger the statute of limitations.”).

¶16 As long as the lender may exercise the acceleration clause, the 

statute of limitations does not begin to run until the lender does so. See 

Andra R. Miller, 244 Ariz. at 270, ¶ 15; see also Diaz, 61 Ariz. Cases Digest at 

¶ 20 (holding that if a lender does not invoke an acceleration clause, “a 

secured lender has until the maturity of the note or deed of trust to exercise 

his remedies in enforcing his secured interest”). Here, although Owners’

bankruptcy discharge prohibits Lender from accelerating the debt by 

demanding full payment from Nguyen personally, the discharge did not 

nullify the acceleration clause entirely. Lender retains the right to accelerate 

the debt by initiating foreclosure proceedings.

C. Question of State Law

¶17 Owners argue we should follow Washington state law and 

two unpublished Ninth Circuit district court decisions to lead us to 

conclude that a bankruptcy discharge acts as a maturation of a debt. 

Owners also contend that the effect of bankruptcy discharge on a state’s 

limitations period is a matter of federal law, and under the supremacy 

clause, the superior court was required to follow the two Ninth Circuit 

decisions. 

¶18 Where a matter concerns the nature and extent of a security 

interest—like the applicability of a statute of limitations to a deed of trust—

such issues are determined by state law, not federal bankruptcy law. See In 

re Bering Trader, Inc., 944 F.2d 500, 502 (9th Cir. 1991). Nothing indicates

“that Congress intended the bankruptcy discharge to interfere with state 

statutes of limitation.” Stewart, 146 Ariz. at 150. And in reviewing matters 

of state law, state courts are “not bound by decisions of federal circuit 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

7

courts.” Weatherford ex rel. Michael L. v. State, 206 Ariz. 529, 533, ¶ 9 (2003); 

see also In re Bartoni-Corsi Produce, Inc., 130 F.3d 857, 861 (9th Cir. 1997)

(explaining that federal courts interpreting state law issues are “bound by 

decisions of the state’s highest court,” and “[i]n the absence of such a 

decision, a federal court must predict how the highest state court would 

decide the issue using intermediate appellate court decisions, decisions 

from other jurisdictions, statutes, treatises, and restatements as guidance”

(citation omitted)). Because the issue at hand concerns both the nature and 

extent of an Arizona security interest and the application of Arizona’s 

statute of limitations, Arizona state law alone is controlling.

¶19 Moreover, even if federal law were applicable in this case, the 

unpublished Ninth Circuit decisions Owners rely on interpreted

Washington state law, not federal law. See In re Hernandez, 820 F. App’x 

593, 594 (9th Cir. 2020) (mem. decision) (holding that Washington law 

controls the statute of limitations following a bankruptcy discharge and the 

bankruptcy court “was not free to ignore” that law); Jarvis v. Fed. Nat’l 

Mortg. Ass’n., 726 F. App’x 666, 667 (9th Cir. 2018) (mem. decision) (finding 

no reason to “disregard Washington courts’ interpretation of the state 

statute of limitations”). And more importantly, a recent Washington Court 

of Appeals opinion held that these federal cases misinterpreted Washington 

law. See Copper Creek (Marysville) Homeowners Assoc. v. Kurtz, 502 P.3d 865, 

873, 875–77, ¶¶ 26, 34–41 (Wash. App. 2022) (holding that both Hernandez 

and Jarvis erroneously interpreted Washington law on when the statute of 

limitations begins to run on a deed of trust after a bankruptcy discharge). 

¶20 Owners argue that because Washington and Arizona have 

similar statutory and common law rules related to promissory notes and 

deeds of trust, we should adopt Washington’s rule that a bankruptcy 

discharge operates as a maturation of the debt. See Edmundson v. Bank of 

Am., 378 P.3d 272, 277–78, ¶¶ 39–40 (Wash. App. 2016) (implicitly holding 

that a bankruptcy discharge triggers the statute of limitations because 

debtors no longer have personal liability under the note). As noted, to the 

extent it may have been the rule previously, that no longer appears to be 

the case in Washington. Copper Creek, 502 P.3d at 877, ¶ 41 (“Edmundson 

does not stand for the proposition that bankruptcy discharge of personal 

liability of the debtor accelerates the obligation on an installment note or 

commences the statute of limitations on both the outstanding balance of the 

note and on enforcement of the [deed of trust].”). 

¶21 Indeed, Washington law now seems to track Arizona law: 

“the statute of limitations runs on each installment of a promissory note 

from the date it is due.” Id. at ¶ 39. Regardless, Arizona law controls 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

8

resolution of the issues presented in this appeal. And in Arizona, a 

bankruptcy discharge does not constitute an acceleration of the promissory 

note or otherwise commence the six-year statute of limitations. 

D. Reaffirmation and Acknowledgment 

¶22 Owners argue that Lender should have sought a reaffirmation 

or acknowledgment because doing so would place both parties in the same 

position as if the bankruptcy discharge had not occurred, and the failure to 

do so “has consequences.” A reaffirmation is an agreement by the debtor 

to be bound by the terms of a pre-bankruptcy petition contract (debt). In re 

Mandrell, 50 B.R. 593, 595 (Bankr. M.D. Tenn. 1985). A signed

acknowledgment of a debt and willingness to pay it removes the applicable 

statute of limitations. De Anza Land & Leisure Corp., 137 Ariz. at 266–67.

¶23 Owners, however, have not indicated they would have been

agreeable to either remedy or that they proposed such arrangements to 

Lender. Reaffirmation and acknowledgement are devices solely within the

debtor’s purview; they cannot abrogate acceleration and foreclosure, which 

are solely within the lender’s discretion. Browne, 117 Ariz. at 75. As such, 

that a lender might have considered negotiating other remedies with a 

debtor does not eliminate its own ability to exercise the acceleration clause 

within the statutory period. Owners have cited no authority, and we can 

find none, suggesting that failure to seek a reaffirmation or 

acknowledgment may impair a lender’s ability to exercise an optional 

acceleration clause before maturation of the promissory note. 

E. Attorneys’ Fees

¶24 Both parties request attorneys’ fees incurred on appeal under 

A.R.S. § 12-341.01(A). We deny Owners’ request because they have not 

prevailed on appeal. In our discretion, we award Lender reasonable fees, 

together with taxable costs, subject to compliance with ARCAP 21. 
LUU, et al. v. NEW REZ, et al.

Opinion of the Court

9

CONCLUSION

¶25 We affirm the superior court’s order dismissing the 

complaint.