Court Opinion

ID: 4123862
Source: CourtListenerOpinion
Date Created: 2017-02-07 17:03:02.457589+00
Date Added: 2024-06-11T07:46:23.869298
License: Public Domain

IN THE

    SUPREME COURT OF THE STATE OF ARIZONA
  EQUITY INCOME PARTNERS, LP, AN ARIZONA LIMITED PARTNERSHIP;
  GALILEO CAPITAL PARTNERS LIMITED, A CAYMAN ISLANDS EXEMPTED
                            COMPANY,
                       Plaintiffs/Appellants,

                                       v.

   CHICAGO TITLE INSURANCE COMPANY, A DELAWARE CORPORATION,
                        Defendant/Appellee.

                             No. CV-16-0162-CQ
                            Filed February 7, 2017

          United States District Court for the District of Arizona
                         No. 2:11-cv-01614-SMM

                       Certified Questions from the
           United States Court of Appeals for the Ninth Circuit
Equity Income Partners, LP v. Chi. Title Ins. Co., 828 F.3d 1040 (9th Cir. 2016)
                        QUESTIONS ANSWERED

COUNSEL:

Dennis I. Wilenchik (argued), Tyler Q. Swensen, Wilenchik & Bartness,
P.C., Phoenix, Attorneys for Equity Income Partners, LP and Galileo Capital
Partners Limited

Daniel E. Fredenberg (argued), Fredenberg Beams, Phoenix, and Patrick J.
Davis, Nathaniel B. Rose, Fidelity National Law Group, Phoenix, Attorneys
for Chicago Title Insurance Company

Ari Ramras, Ramras Legal, PLC, Phoenix, Attorneys for Amicus Curiae
Land Title Association of Arizona
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

JUDGE BARTON∗ authored the opinion of the Court, in which CHIEF
JUSTICE BALES, VICE CHIEF JUSTICE PELANDER, and JUSTICES
BRUTINEL and BOLICK joined.

JUDGE BARTON, opinion of the Court:

¶1             The United States Court of Appeals for the Ninth Circuit was
recently asked to decide what impact, if any, a lender’s full-credit bid made
at an Arizona trustee’s sale has on an insurer’s liability under standard form
title insurance policies. See Equity Income Partners, LP v. Chi. Title Ins. Co.,
828 F.3d 1040, 1040 (9th Cir. 2016) (mem.). The policy provisions at issue
are Sections 2, 7 and 9, which are quoted in full below. Briefly, Section 2
provides that coverage continues in force when an insured acquires the
property in a foreclosure sale, but the amount of coverage is reduced by all
payments made. Section 9 provides that payments of principal or the
voluntary satisfaction or release of the mortgage reduce available insurance
coverage, except as provided under Section 2(a). Section 7 explains how
the insurer’s liability is calculated and refers to both Sections 2 and 9.

¶2            Resolution of the issue presented to the Ninth Circuit is
governed by Arizona law and no Arizona appellate decision has addressed
it. Therefore, the Ninth Circuit certified the following questions to this
Court:

       1.     When a lender purchases property by full-credit bid at
              a trustee’s sale, does Section 9 apply, or does Section 2
              apply?

       2.     Is a full-credit bid at a trustee’s sale a “payment” or
              “payment[ ] made” under sections 2 or 9 of the
              Policies?

       3.     To what extent does a full-credit bid at a trustee’s sale
              either (a) terminate coverage under section 2(a)(i) of

∗Justice Ann A. Scott Timmer has recused herself from this case. Pursuant
to Article 6, Section 3 of the Arizona Constitution, the Honorable Janet
Barton, Presiding Judge of the Superior Court of Maricopa County, was
designated to sit in this matter.
                                       2
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

               the Policies, or (b) reduce coverage under Section 2 and
               any possible liability under section 7?

¶3            By Order dated August 1, 2016, we accepted jurisdiction. See
A.R.S. § 12-1861. For the reasons set forth below, we answer the Certified
Questions as follows:

       1.      Section 2 applies when a lender purchases property by
               full-credit bid at a trustee’s sale.

       2.      A full-credit bid at a trustee’s sale is not a “payment”
               under Sections 2 or 9 of the policy.

       3.      The full-credit bid neither terminates nor reduces
               coverage under Section 2 or Section 7.1

                              I. BACKGROUND

¶4            For purposes of answering the certified questions, the facts
are undisputed. In May 2006, appellants (hereinafter referred to as
“Equity”) issued two loans, each in the amount of $1,200,000 and each
secured by a deed of trust. The borrowers used the proceeds to purchase
two adjacent lots (the “parcels”). In connection with that transaction, the
predecessor in interest to appellee, Chicago Title Insurance Company
(“CTIC”), issued to Equity two standard form title insurance policies
(American Land Title Association Loan Policy (10-19-92) with ALTA
Endorsement-Form 1 Coverage) (the “Policies”). These Policies, each in the
amount of $1,200,000, insured Equity “against loss or damage, not
exceeding the Amount of Insurance . . . sustained or incurred by [Equity]
by reason of . . . [u]nmarketability of the title; [or] [l]ack of a right of access
to and from the land . . . .” Equity’s borrowers obtained title insurance
from Transnation Title Insurance Company (“Transnation”).

1 As explained below, the trustee sale may reduce or even eliminate a title
insurer’s ultimate liability under its policy. However this reduction or
elimination is not a function of the credit bid amount. Rather, the amount
of the reduction, if any, is the fair market value of the property the lender
receives as a result of its credit bid or, if the property is acquired by a third
party, the amount that party pays for the property.

                                        3
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

¶5            In September 2006, Equity’s borrowers discovered they could
not legally access the parcels and, as a result, stopped making payments on
their loans. When Equity’s borrowers informed Transnation of this defect,
Transnation, in an attempt to cure the defect and obtain access to the
parcels, sued Maricopa County, the owner of the land surrounding the
parcels. Equity, in turn, noticed trustee’s sales to foreclose on the parcels.
When Transnation promised to make interest-only payments on behalf of
the borrowers while its litigation against Maricopa County was pending,
Equity agreed to halt the foreclosure process.

¶6             In March 2010, the court in Transnation’s lawsuit ruled in
favor of Maricopa County. Shortly thereafter, Transnation stopped making
interest payments under the loans which, in turn, caused Equity to re-notice
the trustee’s sales. In January 2011, Equity acquired title to the parcels at
the trustee’s sales via full-credit bids totaling $2,620,725.18.

¶7            Equity subsequently submitted a claim to CTIC for the full
amount of the Policies ($2,400,000 total). When Equity and CTIC could not
resolve the claim, Equity filed suit in Maricopa County Superior Court.
CTIC removed the case to the United States District Court for the District of
Arizona.

¶8              The first issue presented to the district court was the
appropriate date for measuring an insured lender’s diminution-in-value
loss under the title insurance policies. In September 2012, the court ruled
that the loss should be calculated as of the date the title policy was issued,
rather than the date of foreclosure. See Equity Income Partners, LP v. Chi.
Title Ins. Co., No. CV-11-1614-PHX-GMS, 2012 WL 3871505, at *5 (D. Ariz.
Sept. 6, 2012); cf. First Am. Title Ins. Co. v. Johnson Bank, 239 Ariz. 348, 349
¶ 14, 372 P.3d 292, 293 (2016) (“[W]hen an undisclosed title defect prevents
the known, intended use of the property and causes the borrower to default
on the loan, the lender’s diminution-in-value loss should be calculated as
of the date the title policy was issued rather than as of the date of
foreclosure.”).

¶9             The second issue presented to the district court was whether
Equity’s full-credit bids constituted actual payments of the principal of the
underlying indebtedness, thereby extinguishing CTIC’s liability under the
Policies. On this issue, the court ruled in CTIC’s favor, finding that under
Policy Section 9(b), Equity’s full-credit bids constituted payments on the

                                       4
           EQUITY INCOME PARTNERS V. CHICAGO TITLE
                      Opinion of the Court

principal of the indebtedness and, as such, reduced CTIC’s liability pro
tanto. See Equity Income Partners, LP v. Chi. Title Ins. Co., No. CV-11-1614-
PHX-SMM, 2013 WL 6498144, at *8–9 (D. Ariz. Dec. 11, 2013). Equity timely
appealed the ruling on this issue to the Ninth Circuit which, in turn,
certified the above-referenced questions to this Court.

                        II. POLICY PROVISIONS

¶10             Relevant here are Sections 2, 7, 9 and 10 of the Policies.
Section 2, titled “Continuation of Insurance,” provides:

      (a)     After Acquisition of Title. The coverage of this policy
      shall continue in force as of Date of Policy in favor of (i) an
      insured who acquires all or any part of the estate or interest
      in the land by foreclosure, trustee’s sale, conveyance in lieu of
      foreclosure, or other legal manner which discharges the lien
      of the insured mortgage . . . .
      ...
      (c)     Amount of Insurance. The amount of insurance after
      the acquisition or after the conveyance shall in neither event
      exceed the least of:
              (i) the Amount of Insurance stated in Schedule A; [or]
              (ii) the amount of the principal of the indebtedness
      secured by the insured mortgage as of Date of Policy, interest
      thereon, expenses of foreclosure, amounts advanced
      pursuant to the insured mortgage to assure compliance with
      laws or to protect the lien of the insured mortgage prior to the
      time of acquisition of the estate or interest in the land and
      secured thereby and reasonable amounts expended to
      prevent deterioration of improvements but reduced by the
      amount of all payments made. . . .

Section 7, titled “Determination and Extent of Liability” provides:

      This policy is a contract of indemnity against actual monetary
      loss or damage sustained or incurred by the insured claimant
      who has suffered loss or damage by reason of matters insured
      against by this policy and only to the extent herein described.
      (a)     The liability of [CTIC] under this policy shall not
      exceed the least of:

                                     5
           EQUITY INCOME PARTNERS V. CHICAGO TITLE
                      Opinion of the Court

              (i) the Amount of Insurance stated in Schedule A, or, if
      applicable, the amount of insurance as defined in Section 2(c)
      of these Conditions and Stipulations;
              (ii) the amount of the unpaid principal indebtedness
      secured by the insured mortgage as limited or provided
      under Section 8 of these Conditions and Stipulations or as
      reduced under Section 9 of these Conditions and Stipulations,
      at the time the loss or damage insured against by this policy
      occurs, together with interest thereon; or
              (iii) the difference between the value of the insured
      estate or interest as insured and the value of the insured estate
      or interest subject to the defect, lien or encumbrance insured
      against by this policy.
      (b)     In the event the Insured has acquired the estate or
      interest in the manner described in Section 2(a) of these
      Conditions and Stipulations or has conveyed the title, then
      the liability of [CTIC] shall continue as set forth in Section 7(a)
      of these Conditions and Stipulations.

Section 9, titled “Reduction of Insurance; Reduction or Termination
of Liability” provides:

      (a)    All payments under this policy, except payments made
      for costs, attorneys’ fees and expenses, shall reduce the
      amount of the insurance pro tanto. However, any payments
      made prior to the acquisition of title to the estate or interest as
      provided in Section 2(a) of these Conditions and Stipulations
      shall not reduce pro tanto the amount of the insurance
      afforded under this policy except to the extent that the
      payments reduce the amount of the indebtedness secured by
      the insured mortgage.
      (b)    Payment in part by any person of the principal of the
      indebtedness, or any other obligation secured by the insured
      mortgage, or any voluntary partial satisfaction or release of
      the insured mortgage, to the extent of the payment,
      satisfaction or release, shall reduce the amount of insurance
      pro tanto. The amount of insurance may thereafter be
      increased by accruing interest and advances made to protect
      the lien of the insured mortgage and secured thereby, with
      interest thereon, provided in no event shall the amount of

                                      6
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

       insurance be greater than the Amount of Insurance stated in
       Schedule A.
       (c)     Payment in full by any person or the voluntary
       satisfaction or release of the insured mortgage shall terminate
       all liability of [CTIC] except as provided in Section 2(a) of
       these Conditions and Stipulations.

Section 10, entitled “Liability Noncumulative” provides:

       If the insured acquires title to the estate or interest in
       satisfaction of the indebtedness secured by the insured
       mortgage, or any part thereof, it is expressly understood that
       the amount of insurance under this policy shall be reduced by
       any amount [CTIC] may pay under any policy insuring a
       mortgage to which exception is taken in Schedule B [listing
       2006 tax liens, water rights, items on a boundary survey, etc.]
       or to which the Insured has agreed, assumed or taken subject,
       or which is hereafter executed by an insured and which is a
       charge or lien on the estate or interest described or referred to
       in Schedule A [listing borrowers’ mortgages], and the amount
       so paid shall be deemed a payment under this policy.

                             III. DISCUSSION

              A. Question 1

¶11            We first consider whether, under Arizona law, Section 9 or
Section 2 of the Policies applies when a lender acquires property by full-
credit bid at a trustee’s sale. In answering this question we construe the
Policies as a whole and read each section of the Policies in light of the others
so as to give effect to all of the Policies’ provisions. See Goodman v. Newzona
Inv. Co., 101 Ariz. 470, 473, 421 P.2d 318, 321 (1966).

¶12            Section 2 directly addresses the consequences of such an
acquisition, including its effect on both the existence and the amount of
coverage under the Policies. Indeed, Section 9 expressly defers to Section 2
when the property is acquired by the lender at a trustee’s sale. See Section
9(c). In addition, as explained below, concluding that Section 9 applies in
such circumstances would impermissibly render Section 2 meaningless.
Sparks v. Republic Nat’l Life Ins. Co., 132 Ariz. 529, 536, 647 P.2d 1127, 1134

                                       7
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

(1982) (an insurance policy “must be read as a whole in order to give a
reasonable and harmonious meaning and effect to all its provisions”)
(quoting Fed. Ins. Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 139, 547 P.2d 1050,
1053 (1976), overruled in part on other grounds by State Farm Mut. Auto. Ins.
Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727 (1989)). Thus, we hold that Section
2 of the Policies applies when a lender acquires property at a trustee sale by
either a full- or partial-credit bid.

              B. Question 2

¶13            The second certified question is whether a full-credit bid at a
trustee’s sale constitutes a “payment” or “payment[ ] made” under either
Section 2 or 9 of the Policies. The terms “payment” and “payment made”
are not defined in the policy.2 Absent a specific definition, terms in an
insurance policy are construed “according to their plain and ordinary
meaning,” and the policy’s “language should be examined from the
viewpoint of one not trained in the law or in the insurance business.”
Sparks, 132 Ariz. at 534, 647 P.2d at 1132. If a term remains ambiguous after
considering any underlying legislative policy, social goals, and the
transaction as a whole, a court must construe it in favor of coverage, that is,
against the insurer, given that the insurer is in the best position to prevent
ambiguity in a standard form contract. See First Am. Title Ins. Co. v. Action
Acquisitions, LLC, 218 Ariz. 394, 397 ¶ 8, 187 P.3d 1107, 1110 (2008).

¶14           “Payment” is ordinarily understood to mean “the act of
paying or giving compensation” or “something given to discharge a debt
or obligation to fulfill a promise.” Webster’s Third New Int’l Dictionary
1659 (2002). Pursuant to Arizona’s statutory foreclosure scheme, a full-
credit bid is deemed by operation of law to fully satisfy the borrower’s
outstanding obligation even though the lender makes and receives no
monetary payment as a result of the transaction, other than paying the costs
and expenses of the sale. See A.R.S. § 33-801(5); Markham Contracting Co. v.
Fed. Deposit Ins. Co., 240 Ariz. 360, 366 ¶ 26, 379 P.3d 257, 262 (App. 2016)
(noting that lender, by making a full-credit bid, acquires the property

2 Although “payment” is defined in Section 10 of the Policies, that definition
is inapplicable here as it deals with amounts paid by CTIC. See Section 10
(certain amounts CTIC “may pay under the policy . . . shall be deemed a
payment under this policy”).

                                       8
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

without having to actually pay for anything other than the costs and
expenses of the sale). In reality, when a lender acquires property at a
trustee’s sale, the property is all the lender receives. Consequently, the
lender is only made whole if the fair market value of the property acquired
equals the amount still owed under the loan and the costs incurred by the
lender in enforcing its deed of trust.

¶15           Under Arizona’s statutory scheme for nonjudicial
foreclosures, the satisfaction of the borrower’s loan obligations by a credit
bid may have the same effect as a “payment” from the borrower’s
perspective. That does not mean, however, that a credit bid has the same
effect from the lender’s perspective (that a lender is necessarily made whole
by virtue of acquiring the property in foreclosure with a full-credit bid).
Nor does the impact of a credit bid on the borrower under Arizona’s
foreclosure laws mean that a layperson would understand a credit bid to
constitute a “payment” or “payment made” as those terms are used in title
insurance policies. See Bank of Idaho v. First Am. Title Ins. Co., 329 P.3d 1066,
1069 (Idaho 2014) (noting that, “the words ‘payments made’ [as used in
section 9 of the standard form policy] would normally be construed by
laymen to mean payments made by the obligor on the principal
indebtedness secured by the deed of trust, not a credit bid made by a lender
at a trustee’s sale”). Thus, we conclude that the terms “payment” and
“payment made” as used in the Policies do not include either a full- or
partial-credit bid made by a lender pursuant to Arizona’s statutory
foreclosure scheme.

¶16            Our conclusion is also supported by our state’s public policy.
As between a borrower and a lender, Arizona requires a lender to assume
the risk that the borrower will repay the loan and, if the borrower fails to
do so, that the value of the security will be sufficient to cover any
outstanding balance. If the value of the collateral is insufficient to cover the
loan’s outstanding balance, Arizona’s foreclosure scheme protects the
borrower and any other person directly, indirectly, or contingently liable
under the loan, such as partners and guarantors, from deficiency
judgments. See, e.g., A.R.S. § 33-814 (barring deficiency judgments
altogether for most residential properties and limiting the time frame for
seeking such judgments for other properties as well as the amount that can
be obtained); see also M & I Bank, FSB v. Coughlin, 805 F. Supp. 2d 858, 861
(D. Ariz. 2011). This protection is afforded not because the full-credit bid
constitutes an actual “payment” and does, indeed, fully repay the lender

                                       9
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

under the loan, but rather because Arizona’s deed of trust framework
embodies this state’s long-recognized public policy of protecting debtors.
See CSA 13-101 Loop, LLC v. Loop 101, LLC, 236 Ariz. 410, 412 ¶ 12, 341 P.3d
452, 454 (2014) (“The fair market value provision, as well as the deed of trust
framework generally, accords with Arizona’s long-recognized public
policy of protecting debtors.”).

¶17            In the insurer/insured context, however, Arizona’s public
policy protects insureds. Hence Arizona law requires that undefined terms
be given the meaning used by laypeople in everyday usage and that terms
and provisions that remain ambiguous after all relevant considerations be
interpreted in favor of coverage and against the insurer. See Action
Acquisitions, LLC, 218 Ariz. at 397 ¶ 8, 187 P.3d at 1110; Sparks, 132 Ariz. at
534, 647 P.2d at 1132.

¶18            Accepting CTIC’s interpretation of “payment” and “payment
made” as including a credit bid would contravene this public policy. If
CTIC had wanted to limit its liability under the Policies by expanding the
ordinary meaning of the terms “payment” and “payment made” to include
full-credit bids, it should have written the Policies to so provide. Roberts v.
State Farm Fire & Cas. Co., 146 Ariz. 284, 286, 705 P.2d 1335, 1337 (1985) (“[I]f
an insurer wishes to limit its liability, it must employ language in the policy
which clearly and distinctly communicates to the insured the nature of the
limitation.”).

¶19             Adopting CTIC’s interpretation of the terms “payment” and
“payment made” as including full- or partial-credit bids would also render
Section 2 of the Policies meaningless, an outcome to be avoided under the
basic rules of contract interpretation. See Goodman, 101 Ariz. at 473, 421 P.2d
at 321. As noted above, Section 9(b) provides that partial payment of the
principal indebtedness reduces CTIC’s liability pro tanto. Section 9(c)
provides that payment in full of the underlying indebtedness terminates
CTIC’s liability. Section 2(c) provides that if the property is acquired by the
insured in a trustee’s sale, CTIC’s liability is reduced by the amount of all
payments made. If, as CTIC contends, a full- or partial-credit bid
constitutes a “payment” or “payment made” as those terms are used in
Sections 2 and 9 of the Policies, then Section 2 serves no purpose. The result
that Section 2 dictates under CTIC’s interpretation of the Policies (a pro
tanto reduction of coverage for partial-credit bids and a termination of
liability for full-credit bids) is also required by Section 9(b) and (c). In other

                                       10
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

words, there would be no need for a separate provision discussing the
effects on coverage of acquiring the property by trustee sale if, under
Section 9, the term “payment” and “payment made” included credit bids.
The only way to give effect to all of the Policies’ provisions is to interpret
the terms “payment” and “payment made” as used in Sections 2 and 9 as
not including credit bids.

¶20           CTIC argues that the definition of full-credit bid found in
A.R.S. § 33-801(5) is incorporated in the Policies because a valid statute is
automatically part of any contract affected by it, even if the statute is not
specifically mentioned in the contract. Although we agree that contracts
are subject to applicable statutes, that principle does not advance CTIC’s
position here.

¶21         Section 33-801(5) does not state that a credit bid constitutes a
“payment” or “payment made.” Indeed, neither the term “payment” nor
“payment made” is used in the statute. Rather “credit bid” is defined as:

       [A] bid made by the beneficiary in full or partial satisfaction
       of the contract or contracts which are secured by the trust
       deed. Such credit bid may only include an amount up to the
       full amount of the contract or contracts secured by the trust
       deed, less any amount owing on liens or encumbrances with
       interest which are superior in priority to the trust deed and
       which the beneficiary is obligated to pay under the contract
       or contracts or under the trust deed, together with the amount
       of other obligations provided in or secured by the trust deed
       and the costs and expenses of exercising the power of sale and
       the sale, including the trustee’s fees and reasonable attorney
       fees actually incurred.

¶22             Arizona’s statutory foreclosure scheme addresses the effects
of foreclosure on the relationship between lenders and persons directly,
indirectly, or contingently liable for the debt. See A.R.S. §§ 33-801 et seq.
Title insurers, however, are not directly, indirectly, or contingently liable
for the underlying indebtedness. Rather, as noted by CTIC itself in a letter
it sent to Equity, title insurers “indemnif[y] against actual loss compensable
under the terms of the title insurance policy arising from a matter for which
coverage is afforded.”

                                     11
            EQUITY INCOME PARTNERS V. CHICAGO TITLE
                       Opinion of the Court

¶23           Policy provisions limiting the insurer’s liability must be
communicated clearly and distinctly -- not through the implied
incorporation of a statute that does not define a credit bid as a “payment”
or “payment made,” does not pertain to title insurance policies, and
governs relationships wholly separate and distinct from that of an insurer
and insured. See Roberts, 146 Ariz. at 285–86, 705 P.2d at 1336–37.
Therefore, we decline to construe § 33-801(5) as impliedly limiting a title
insurer’s liability more than is expressly provided by the policy terms
themselves.

¶24            CTIC also cites various Arizona cases in support of its
position that Equity’s full-credit bid extinguished CTIC’s liability under the
Policies. These cases, however, all deal with claims against persons who
were either indirectly or contingently liable under the loan or whose actions
directly contributed to the lender’s loss. See, e.g., Coughlin, 805 F. Supp. 2d
at 867 (“The bank’s full credit bid extinguished the borrower’s debt and left
the plaintiff with no loss to recover from any third-party wrongdoer.”)
(emphasis added); 333 W. Thomas Med. Bldg. Enters. v. Soetantyo, 976 F.
Supp. 1298, 1302–03 (D. Ariz 1995) (ruling that beneficiary could not
maintain waste claim against defendants and had no damages by virtue of
beneficiary’s full-credit bid); Nussbaumer v. Superior Court, 107 Ariz. 504,
505–06, 489 P.2d 843, 844–45 (1971) (ruling that lender that acquired
property via a full-credit bid could not subsequently collect from persons
who, before foreclosure, had acquired part of lender’s security under the
loan agreement). Here, however, CTIC was not indirectly or contingently
liable under the loan; nor were its actions in any way responsible for the
defect in title that reduced the parcels’ value and ultimately caused the
borrowers to default.

              C. Question 3

¶25          The third question is to what extent a full-credit bid either (a)
terminates coverage under Section 2(a)(i) of the Policies, or (b) reduces
coverage under Section 2 and any possible liability under Section 7.
Because the terms “payment” or “payment made” as used in the Policies
do not include the amount of either a full- or partial-credit bid, we hold that
such a bid does not terminate coverage under Section 2(a)(i) of the Policies
or reduce coverage under Section 2 or any possible liability under Section
7.

                                      12
           EQUITY INCOME PARTNERS V. CHICAGO TITLE
                      Opinion of the Court

¶26           We recognize that the foreclosure process can terminate or
reduce a title insurer’s coverage or liability under its policy. Whether it
does, however, is not a function of the credit bid. The “payment” the
Lender receives on the indebtedness is the fair market value of the property
it acquires as a result of the foreclosure. Although that amount in some
cases may be the same as the credit bid, under Arizona law the latter does
not establish fair market value. MidFirst Bank v. Chase, 230 Ariz. 366, 368
¶ 7, 284 P.3d 877, 879 (App. 2012) (noting that a full- or partial-credit bid
does not necessarily reflect the fair market value of the property and cannot
be used as evidence of the property’s fair market value as of the date of
foreclosure). Although the parties here disagree as to the parcels’ fair
market value, treating that amount, whatever it may be, as a “payment” or
“payment made” under the Policies assures that CTIC’s liability is properly
calculated and gives effect to all of the Policies’ provisions.3

                           IV. CONCLUSION

¶27            For the foregoing reasons, we conclude that Section 2 applies
when a lender acquires property via a full-credit bid at a trustee’s sale. We
further hold that the full-credit bid does not constitute “payment” or
“payment made” under either Sections 2 or 9 of the Policies and,
accordingly, the amount of the full-credit bid does not terminate coverage
under Section 2(a)(i), reduce coverage under Section 2, or terminate or
reduce liability under Section 7.

3 When a credit bid is made, using the property’s fair market value will
actually benefit the insurer when that value exceeds the amount of the
credit bid.
                                     13