IN THE

ARIZONA COURT OF APPEALS

DIVISION ONE

BANK OF AMERICA, N.A., 

a national banking association, Plaintiff/Appellant, 

v.

FELCO BUSINESS SERVICES, INC. 401(K) PROFIT SHARING PLAN, 

Ira S. Feldman, Trustee; and FBS SEDONA, LLC, 

an Arizona limited liability company, Defendants/Appellees. 

No. 1 CA-CV 16-0099 

Appeal from the Superior Court in Yavapai County

No. V1300CV201180303 

The Honorable Jeffrey G. Paupore, Judge Pro Tempore

REVERSED AND REMANDED

COUNSEL

Renaud Cook Drury Mesaros, PA, Phoenix

By Denise J. Wachholz, Richard H. Goldberg 

Counsel for Plaintiff/Appellant

Favor & Wilhelmsen PLLC, Prescott

By David K. Wilhelmsen, Lance B. Payette

Counsel for Defendants/Appellees

FILED 8-29-2017
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

2 

OPINION

Presiding Judge Randall M. Howe delivered the opinion of the Court, in 

which Judge Lawrence F. Winthrop and Judge Jon W. Thompson joined.

H O W E, Judge:

¶1 This appeal is from a declaratory action by lienholder Bank of 

America, N.A. (“BofA”) against intervening lienholder Felco Business 

Services, Inc. 401(K) Profit Sharing Plan and FBS Sedona, LLC (collectively,

“Felco”). After Felco foreclosed on its deed of trust and sold the subject 

property at a trustee’s sale, BofA sued for a declaration that its deed, 

recorded after Felco’s, was equitably subrogated to a position superior to 

Felco’s. Felco moved for partial summary judgment, arguing that BofA 

waived its equitable subrogation claim by not raising it as an objection to 

the trustee’s sale pursuant to A.R.S. § 33–811(C). Without addressing 

whether equitable subrogation applied, the trial court agreed with Felco, 

holding that BofA’s equitable subrogation claim was a pre-trustee’s sale 

defense or objection that it waived by not asserting it before the sale. 

¶2 On review, we hold that an equitable subrogation claim is not 

a defense or objection to a trustee’s sale and is therefore not waivable under

A.R.S. § 33–811(C). Accordingly, we reverse the trial court’s granting of 

partial summary judgment in Felco’s favor and remand to the trial court to 

determine whether equitable subrogation is appropriate in this case. 

FACTS AND PROCEDURAL HISTORY

¶3 In 2007, two property owners borrowed $200,000 from 

Countrywide Home Loans, Inc. secured by a deed of trust (“DOT 1”) to 

property in Sedona. This deed was recorded in February 2007. A few 

months later, the borrowers borrowed $1.5 million from Felco to improve

their Sedona property. The borrowers secured $600,000 of this loan with a 

deed of trust (“DOT 2”) and assignment of rents to the Sedona property.

DOT 2 was recorded in June 2007. 

¶4 The following year, Countrywide Home Loans’ sister 

corporation, Countrywide Bank, offered to refinance the borrowers’ 

$200,000 loan at a lower interest rate. The borrowers accepted the offer and 

borrowed $204,000 from Countrywide Bank secured by a deed of trust 
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

3 

(“DOT 3”) to the same Sedona property, which was recorded in June 2008. 

Although the borrowers failed to tell Countrywide Bank about DOT 2 when 

they refinanced their loan, DOT 3 specifically stated that it must be in the 

first lien position, superior to any other loans. The borrowers used $200,000 

of the refinancing loan to pay off and release the original loan. The deed of 

release and conveyance for DOT 1 was recorded in July 2008. 

¶5 In the meantime, the borrowers defaulted on their payments 

on the Felco loan. In February 2009, Felco issued a statement of breach and 

notice of trustee’s sale pursuant to DOT 2 to occur in May. In connection 

with that notice, Felco obtained a trustee’s sale guarantee that revealed 

DOT 3, but showed that the deed was subordinate to DOT 2. Accordingly, 

Felco sent two notices of the trustee’s sale to Countrywide Bank, which 

failed to respond to the notice and did not seek to enjoin the sale.

¶6 At the May 2009 sale, FBS Sedona successfully entered a credit 

bid of $974,657.07—the exact amount it calculated was owed to it under the 

promissory note and DOT 2. FBS Sedona promptly recorded the resulting 

deed later in May 2009. Thereafter, FBS Sedona leased out the property, but 

paid all applicable property taxes, maintenance expenses, and insurance. 

¶7 At some point after the trustee’s sale, BofA acquired all 

Countrywide entities, including Countrywide Home Loans and 

Countrywide Bank. In August 2009, DOT 3 was assigned to BofA as the 

successor in interest to Countrywide. Four months later, FBS Sedona 

received a letter sent on BofA’s behalf inquiring about the status of its 

“junior Deed of Trust” after the foreclosure sale and notifying FBS Sedona 

that BofA was investigating the notice of foreclosure sale. After completing 

that investigation, BofA informed Felco that DOT 3 had seniority over DOT 

2 before the trustee’s sale and that the sale consequently did not extinguish 

the senior lien. 

¶8 In May 2011, BofA sued the borrowers and Felco, seeking a 

declaratory judgment that DOT 3 was the senior lien and a valid and 

enforceable encumbrance on the Sedona property through either the 

doctrine of equitable subrogation or replacement mortgage. BofA also sued 

for any excess proceeds from the trustee’s sale and asked that the trial court 

determine the amount of those proceeds and order that Felco distribute 

them to BofA. 

¶9 Felco moved for partial summary judgment, arguing that the 

doctrine of equitable subrogation should not be applied, and therefore 

DOT 3, as a matter of law, was not an encumbrance on the Sedona property. 
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

4 

Specifically, Felco argued that the court should not apply equitable 

subrogation because that would prejudice it as the intervening lienholder. 

Felco further alleged that applying the doctrine would be inequitable 

because BofA failed to review the chain of title and therefore did not 

expressly assert that it intended DOT 3 to be subrogated to DOT 1. Finally, 

Felco alleged that BofA failed to notify Felco of its reliance on equitable 

subrogation when it recorded DOT 3 or upon receiving notice of the 

trustee’s sale pursuant to A.R.S. § 33–811(C). According to Felco, this failure 

showed that BofA had never intended DOT 3 to substitute DOT 1, and that 

instead, BofA’s reliance on the doctrine was a post-sale attempt to remedy 

its own negligent inaction before the trustee’s sale.

¶10 The trial court granted Felco’s motion for partial summary 

judgment. In so ordering, the trial court held that it did not need to reach 

whether the doctrine of equitable subrogation applied because BofA 

waived its right to assert it. Specifically, the trial court held that A.R.S. 

§ 33–811(C) required BofA to assert its lien priority as a “defense or 

objection to the [trustee’s] sale,” and that its failure to enjoin the sale and 

assert its priority constituted waiver. Thus, the court concluded that “Felco 

and BofA’s rights in the collateral were determined at the trustee’s sale” 

and Felco was entitled to summary judgment as a matter of law. BofA 

timely appealed. 

DISCUSSION

1. Equitable Subrogation Is Not Waived Under A.R.S. 

§ 33–811(C) 

¶11 BofA argues that the trial court erred by granting Felco partial 

summary judgment because the doctrine of equitable subrogation1 is not a 

 

1 The parties focused generally on the doctrine of equitable 

subrogation below. On appeal, Felco questions whether Countrywide 

Home Loans and Countrywide Bank should be considered the same entity, 

therefore requiring analysis under the doctrine of replacement mortgage 

instead of equitable subrogation. See Restatement (Third) of Property: 

Mortgages § 7.6 cmt. e (stating that because a lender cannot be subrogated 

to its own previous deed of trust, an original lender’s refinancing loan is 

treated as a “replacement loan” instead of a subrogated one). On appeal, 

BofA treats the doctrines almost interchangeably and urges reversal on 

“replacement mortgage and/or equitable subrogation.” Because the two 

doctrines have identical rationales and analyses, using one rubric over the 
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

5 

waivable defense under A.R.S. § 33–811(C). We review the trial court’s 

ruling on a motion for summary judgment de novo. MidFirst Bank v. Chase, 

230 Ariz. 366, 368 ¶ 6, 284 P.3d 877, 879 (App. 2012). Summary judgment 

should be granted only if no genuine issue as to any material fact exists and 

the moving party is entitled to summary judgment as a matter of law. Ariz. 

R. Civ. P. 56(a). We also review issues of statutory interpretation de novo. 

Maycock v. Asilomar Dev., Inc., 207 Ariz. 495, 500 ¶ 24, 88 P.3d 565, 570 (App. 

2004). The primary goal in interpreting a statute is to find and give effect to 

the legislative intent. Id. In doing so, we look to the statute’s plain language 

as the best indicator of that intent. Azore, LLC v. Bassett, 236 Ariz. 424, 427 

¶ 9, 341 P.3d 466, 469 (App. 2014). If the language is subject to only one 

reasonable interpretation, we apply that interpretation. J.D. v. Hegyi, 236 

Ariz. 39, 40–41 ¶ 6, 335 P.3d 1118, 1119–20 (2014). Because the doctrine of 

equitable subrogation is not a defense or objection to a trustee’s sale that is 

waivable under A.R.S. § 33–811(C), the trial court erred by granting partial 

summary judgment in Felco’s favor.

¶12 Equitable subrogation is “the substitution of another person 

in the place of a creditor, so that the person in whose favor it is exercised 

succeeds to the rights of the creditor in relation to the debt.” Sourcecorp, Inc. 

v. Norcutt, 229 Ariz. 270, 272 ¶ 5, 274 P.3d 1204, 1206 (2012) (adopting the 

approach of Restatement (Third) of Property: Mortgages § 7.6(a)). Thus, 

applying this doctrine allows a deed of trust to assume the same priority 

position of an earlier deed of trust despite intervening liens that otherwise 

would be senior to the later deed. Markham, 240 Ariz. at 364 ¶ 19, 379 P.3d 

at 261. As its name suggests, this is an equitable remedy and is designed to 

avoid the injustice of a person’s receiving an unearned windfall at another’s 

expense. Id. Generally, the person with an interest in property who pays off 

an encumbrance to protect a property interest is subrogated to the rights 

and limitations of the person paid. Id.; see also Restatement § 7.6 cmt. a; Weitz 

Co. L.L.C. v. Heth, 235 Ariz. 405, 410 ¶ 15, 333 P.3d 23, 28 (2014) (“When

equitable subrogation occurs, the superior lien and attendant obligation are 

not discharged but are instead assigned by operation of law to the one who 

paid the obligation.”). 

¶13 Equitable subrogation and disputes of lien priority do not fall 

within A.R.S. § 33–811(C)’s ambit. See Morgan AZ Fin., L.L.C. v. Gotses, 235 

Ariz. 21, 24 ¶ 8, 326 P.3d 288, 291 (App. 2014) (stating that A.R.S. 

§ 33–811(C)’s language “to the sale” must be strictly construed). As relevant 

 

other does not matter; for convenience, we refer to equitable subrogation. 

See Markham Contracting Co., Inc. v. Fed. Deposit Ins. Co., 240 Ariz. 360, 364 

¶ 18, 379 P.3d 257, 261 (App. 2016). 
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

6 

here, A.R.S. § 33–811(C) states that all trustors or other persons to whom a 

trustee mails a notice of trustee’s sale “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” entered before close of business on the day

before the scheduled sale date. The statute’s plain language prescribes 

waiver only of defenses and objections to the sale itself, so a trustor who 

fails to enjoin a trustee’s sale does not waive claims that are independent of 

the sale. See id. at ¶¶ 8–10. In other words, “a completed trustee’s sale does 

not operate to deprive the trustor of the ability to pursue claims or defenses 

that are independent of the sale.” Id. at ¶ 8. 

¶14 As an equitable remedy independent of a trustee’s sale, 

equitable subrogation is neither a defense nor objection to the sale. Whether

equitable subrogation applies is independent of the trustee’s sale because 

whether BofA holds a senior or junior lien is not determined by or 

contingent upon the occurrence of a trustee’s sale. Although lien priority 

claims relate to the underlying security property sold, asserting equitable 

subrogation does not challenge any claims for title to the property nor the 

validity of the trustee’s sale. Felco had the ability to proceed with the sale 

and ultimately conduct it even if BofA had asserted the doctrine before the 

trustee’s sale. This is true regardless whether BofA’s lien was senior or 

junior to Felco’s. Because A.R.S. § 33–811(C)’s express language does not 

preclude assertions of equitable subrogation, the doctrine remained 

available to BofA even after the trustee’s sale on Felco’s DOT 2. 

¶15 Felco counters that an equitable subrogation claim is 

dependent on a trustee’s sale because “if the entitlement of [DOT 3] to the 

priority of [DOT 1] were not asserted before the foreclosure of [DOT 2],” 

the trustee’s sale would extinguish DOT 3. But this misconstrues the 

purpose of a trustee’s sale. A trustee’s sale merely sells the property to 

satisfy a lien; it does not itself determine whether a lien is in a junior or 

senior position. A lien’s priority is determined by factors independent of 

the sale, including the order in which the deeds were recorded or the 

application of legal doctrines such as equitable subrogation or mortgage 

replacement. A lienholder can foreclose on the security property and 

conduct a trustee’s sale pursuant to the deed of trust regardless whether the 

lien is in a junior or senior position. A lien’s priority dictates whether the 

lien is extinguished or remains an encumbrance on the property after the 

sale occurs. See A.R.S. § 33–811(E) (providing that any property conveyed 

pursuant to a trustee’s sale “shall be . . . clear of all liens, claims or interests 

that have a priority subordinate to the deed of trust and shall be subject to 

all liens, claims or interests that have a priority senior to the deed of trust”).

Thus, the trial court erred by concluding that BofA waived its ability to 
BANK OF AMERICA v. FELCO et al.

Opinion of the Court

7 

claim its lien priority by not enjoining the trustee’s sale under A.R.S. 

§ 33–811(C). 

¶16 Because subrogation is an equitable remedy, its application 

“depends upon the particular facts and circumstances of each case as it 

arises.” Markham, 240 Ariz. at 364 ¶ 20, 379 P.3d at 261. Therefore, we 

remand to the trial court to determine whether equitable subrogation is 

appropriate in this case.2 See Weitz, 235 Ariz. at 412 ¶ 27, 333 P.3d at 30.

Among the factors that the trial court must consider are whether the loan 

secured by DOT 3 fully performed the obligation related to DOT 1 and 

whether equitable subrogation is needed to prevent Felco from becoming 

unjustly enriched by a promotion in lien priority. See Restatement § 7.6(a); 

see also US Bank, N.A. v. JPMorgan Chase Bank, N.A., 242 Ariz. 502, 507 ¶ 16, 

398 P.3d 118, 123 (App. 2017) (“Arizona has adopted the definition of 

subrogation set forth in Restatement § 7.6.”). 

2. Attorneys’ Fees 

¶17 BofA and Felco each request their reasonable attorneys’ fees 

on appeal pursuant to A.R.S. § 12–341.01. We deny the requests because 

neither party is successful yet. 

CONCLUSION

¶18 For the foregoing reasons, we reverse the trial court’s 

awarding partial summary judgment in Felco’s favor and remand for the 

trial court to decide whether equitable subrogation is appropriate in this 

case. 

 

2 We note that if the trial court determines equitable subrogation is 

appropriate, any amount of DOT 3 in excess of DOT 1 would not be 

equitably subrogated. See Restatement § 7.6 cmt. e (“The payor is 

subrogated only to the extent that the funds disbursed are actually applied 

toward payment of the prior lien. There is no right of subrogation with 

respect to any excess funds.”).