Opinion ID: 1129544
Heading Depth: 2
Heading Rank: 5

Heading: Authority Interpreting Anti-Deficiency Statutes

Text: We turn now to cases from the states that have interpreted statutes similar to our anti-deficiency statutes. Acknowledging that California does not permit a creditor to waive the security and bring an action on the note, the majority of our court of appeals here and in Southwest Savings found California cases inapposite because California has a single-action statute (Cal. Code Civ.Proc. § 726) that requires a creditor first to exhaust the security before bringing an action on the debt, while A.R.S. § 33-722 permits an election. See Baker, memo. decision at 3; Southwest Savings, 155 Ariz. at 445 n. 2, 747 P.2d at 606 n. 2; see also Dudley v. Peterson, 42 Ariz. 282, 287, 25 P.2d 276, 277 (1933). We believe the California cases cannot be so distinguished. Long before California passed its anti-deficiency statute, California courts had held that its single-action statute did not apply when the security was destroyed. The doctrine apparently arose in Hibernia Savings & Loan Society v. Thornton, 109 Cal. 427, 42 P. 447, 448 (1895), where the California Supreme Court stated that if the security had become extinguished by foreclosure of a prior lien or had been destroyed or [had] ceased to exist, then it may be that the lienholder need not go through the idle form of bringing an action for foreclosure before he can have a judgment on the note. Quoted in Dudley, 42 Ariz. at 287, 25 P.2d at 277; cf. Barbieri, 84 Cal. at ___, 23 P. at 1087 (earlier case holding single-action statute applied even though market conditions and prior liens rendered mortgage valueless). What may be became law when the California Supreme Court held that the single-action rule of section 726 does not apply to a sold-out junior lienor.... Roseleaf Corp. v. Chierighino, 59 Cal.2d 35, 39, 378 P.2d 97, 99, 27 Cal. Rptr. 873, 875 (1963), relying on Brown v. Jensen, 41 Cal.2d 193, 259 P.2d 425 (1953), cert. denied, 347 U.S. 905, 74 S.Ct. 430, 98 L.Ed. 1064 (1954). Thus, unless prevented by the anti-deficiency statute, such a lienholder could bring an action on the note. Roseleaf Corp., 59 Cal.2d at 39, 378 P.2d at 99, 27 Cal. Rptr. at 875. Notwithstanding the inapplicability of the single-action statute, California held that the later-enacted anti-deficiency statute prohibits waiving the security and suing on the note. See, e.g., Spangler, 7 Cal.3d at 610, 498 P.2d at 1059, 102 Cal. Rptr. at 811; Bargioni v. Hill, 59 Cal.2d 121, 122, 378 P.2d 593, 594, 28 Cal. Rptr. 321, 322 (1963); Brown, 41 Cal.2d at 195, 259 P.2d at 426. Like the case before us today, each of these cases involved sold-out junior lienholders who, despite the single-action statute, attempted to bring an action on the debt. Spangler is illustrative. The California Supreme Court held that even though Cal. Code Civ.Proc. § 726 did not prohibit it, a sold-out junior lienholder could not maintain an action on the note. In reaching this conclusion, the court indicated that the purpose of the anti-deficiency statute was to discourage land sales that are unsound because the land is over-valued and, in the event of a depression in land values, to prevent the aggravation of the downturn that would result if defaulting purchasers lost the land and were [also] burdened with personal liability. 7 Cal.3d at 612, 498 P.2d at 1060, 102 Cal. Rptr. at 812. The statute prevents such evils by placing the risk of inadequate security on the ... mortgagee. Id. We read our statute as having a similar purpose and endeavor to effect that purpose here. Again we note the result the North Carolina Supreme Court reached in Ross Realty v. First Citizens Bank & Trust, 296 N.C. at 370, 250 S.E.2d at 273. Without prior foreclosure or sale, the creditor in Ross attempted to waive the security and sue on the note. The court noted the inherent ambiguity in a statute that explicitly prohibited only deficiency judgments without any prohibition against election. Nevertheless the court concluded that the statute prohibited an election to waive the security. The court stated that due to the purpose for which [the statute] was adopted, the perceived problem which the statute seeks to remedy, and the effect which a literal construction of the statute produces, we are compelled to construe the statute more broadly and to conclude that the Legislature intended to take away from creditors the option of suing upon the note in [the specified type of] transaction. This construction of the statute not only prevents its evasion, but also gives effect to the Legislature's intent. Id. at 373, 250 S.E.2d at 275. [7] The Bakers have not cited to one state with an antideficiency statute that allows a noteholder to waive his security and bring an action for the unpaid debt. We have found only one such state. In Page v. Ford, 65 Or. 450, 131 P. 1013 (1913), the Oregon Supreme Court held that the creditor can maintain an action on the note notwithstanding the statute abolishing deficiency judgments. Id. at 451, 131 P. at 1013. Without analysis, except by noting the title of the statute, the Oregon court concluded that this was settled beyond the pale of discussion. Id. We do not agree with this conclusion, finding it unsupported by either analysis, authority, or logic. Indeed, North Carolina rejected Page, describing it as having mechanically construed the statute while ignoring legislative intent. Ross, 296 N.C. at 372, 250 S.E.2d at 275. The Oregon decision is particularly inapposite here, considering the California cases and Catchpole, which, after detailed analysis, had reached a different conclusion before our legislature passed the anti-deficiency statutes.