Court Opinion

ID: 9928256
Source: CourtListenerOpinion
Date Created: 2024-01-31 15:02:06.534676+00
Date Added: 2024-06-11T09:52:08.456397
License: Public Domain

IN THE
              ARIZONA COURT OF APPEALS
                             DIVISION TWO

         JOSE R. AROCA AND KIRSTIN AROCA, HUSBAND AND WIFE,
                         Plaintiffs/Appellants,

                                   v.

TANG INVESTMENT COMPANY LLC, AN ARIZONA LIMITED LIABILITY COMPANY,
                       Defendant/Appellee.

                        No. 2 CA-CV 2023-0046
                        Filed January 31, 2024

            Appeal from the Superior Court in Pinal County
                       No. S1100CV202200940
             The Honorable Christopher J. O’Neil, Judge

                    REVERSED AND REMANDED

                              COUNSEL

Evans Dove Nelson Fish & Grier PLC, Mesa
By Trevor J. Fish, Douglas N. Nelson, and H. Lee Dove
Counsel for Plaintiffs/Appellants

Teresa H. Foster PLLC, Phoenix
By Teresa H. Foster
Counsel for Defendant/Appellee
                         AROCA v. TANG INV. CO.
                           Opinion of the Court

                                   OPINION

Judge Kelly authored the opinion of the Court, in which Presiding
Judge Brearcliffe and Judge Eckerstrom concurred.

K E L L Y, Judge:

¶1             In this action to clear the title of certain real property, Jose and
Kirstin Aroca appeal from the superior court’s dismissal of their claim
against Tang Investment Company LLC pursuant to Rule 12(b)(6), Ariz. R.
Civ. P., and its award of attorney fees to Tang. They contend the court erred
in determining that, because Tang’s remedy of foreclosure under a recorded
deed of trust remained available even after the statute of limitations on the
underlying debt had expired, the Arocas were not entitled to quiet title. For
the reasons that follow, we reverse the court’s judgment and remand for
further proceedings consistent with this opinion.

                     Factual and Procedural Background

¶2             On review of the dismissal of a complaint pursuant to Rule
12(b)(6), Ariz. R. Civ. P., we “assume the truth of all well-pleaded factual
allegations.” Coleman v. City of Mesa, 230 Ariz. 352, ¶¶ 7-9 (2012). The
parties here do not dispute any material facts. In 2007, the Arocas executed
a promissory note and deed of trust wherein they promised to pay Tang
$40,000 for value received, secured by real property in Pinal County owned
by the Arocas. The terms and conditions of the note required the Arocas to
make semi-annual, interest-only payments commencing in 2008, with the
entire unpaid balance due and payable on April 30, 2012. Tang recorded
the deed with the Pinal County Recorder’s Office. The Arocas made
interest-only payments on the note for one year, but then stopped making
payments and subsequently defaulted on the note in 2012. Tang failed to
initiate collection proceedings or bring any action on the underlying debt
for the next ten years.

¶3            Before filing their complaint in 2022, the Arocas had hired a
title company to search Pinal County property records to identify any
encumbrances on the property. The search revealed Tang’s recorded deed
of trust from 2007. The Arocas sent a letter to Tang, demanding an
“immediate release and cancelation” of that “Recorded Deed of Trust,”
asserting that Tang no longer held a security interest in the property and
was barred from enforcing its rights under the promissory note by the six-
year statute of limitations set forth in A.R.S. § 12-548.
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                        AROCA v. TANG INV. CO.
                          Opinion of the Court

¶4            Tang refused to comply with the Arocas’ demand. The
Arocas subsequently brought this action for quiet title, wrongful lien, and
declaratory relief. They sought to clear Tang’s “groundless and now
wrongfully recorded [deed] from the title . . . because the statute of
limitations on the underlying Note Secured by Deed of Trust . . . has run
and the recorded [deed] is invalid.”

¶5              In response, Tang filed a motion to dismiss the complaint for
failure to state a claim. Tang argued that, even though the statute of
limitations on the underlying debt had expired, the recorded deed of trust
had not been satisfied or discharged, and Tang therefore still retained its
remedies to foreclose on or initiate a trustee’s sale of the property securing
it. Tang asserted that A.R.S. § 33-714, enacted in 2002, modified existing
law and extended the statute of limitations to enforce a deed of trust beyond
the six-year term under § 12-548. The superior court granted the motion and
dismissed the Arocas’ action to quiet title, concluding that § 33-714
superseded prior case law and extended the statute of limitations for Tang
to initiate a foreclosure action until 2057. Tang subsequently moved for an
award of attorney fees in the amount of $6,572, pursuant to the terms of the
deed and A.R.S. §§ 12-341.01 and 12-341. The court awarded Tang $4,929
in fees and $26.80 in costs. This timely appeal followed. We have
jurisdiction pursuant to A.R.S. § 120.21(A)(1).

                                 Discussion

¶6             The parties agree that the Arocas defaulted on the loan and
that Tang is time-barred under § 12-548 from bringing an action in contract
on the underlying debt. The issue on appeal is whether the superior court
correctly concluded that the Arocas are not entitled to quiet title because
§ 33-714 extends Tang’s timeframe to initiate foreclosure proceedings and
assert its remedies as to the deed of trust beyond § 12-548’s six-year statute
of limitations.

¶7              We review questions of statutory application de novo. See
BMO Harris Bank, N.A. v. Wildwood Creek Ranch, LLC, 236 Ariz. 363, ¶ 7
(2015); see also Manterola v. Farmers Ins. Exch., 200 Ariz. 572, ¶ 8 (App. 2001)
(“We review de novo ‘any questions of law relating to the statute of
limitations defense.’” (quoting Logerquist v. Danforth, 188 Ariz. 16, 18 (App.
1996))).

¶8            “An action for debt shall be commenced and prosecuted
within six years after the cause of action accrues, and not afterward, if the
indebtedness is evidenced by or founded on . . . [a] contract in writing that
is executed in this state.” § 12-548(A)(1). In De Anza Land & Leisure Corp. v.

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                         AROCA v. TANG INV. CO.
                           Opinion of the Court

Raineri, 137 Ariz. 262, 266 (App. 1983), this court held that “A.R.S. § 12-548
applies to foreclosure actions as well as to actions on the underlying debt.”
See also Luu v. Newrez, LLC, 253 Ariz. 159, ¶ 9 (App. 2022) (“The limitations
period to execute on a deed of trust is the same one that applies to the
underlying promissory note.”); cf. ZB, N.A. v. Holler, 242 Ariz. 315, ¶ 13
(App. 2017) (“Issues relating to the foreclosure . . . are determined by the
law governing the underlying debt.”). We explained that a “mortgage is
merely incidental to the debt” and, although distinguishable from the
circumstance in which a debt is extinguished, the remedy of foreclosure
likewise falls with the bar of the debt. De Anza, 137 Ariz. at 265; see also Atlee
Credit Corp. v. Quetulio, 22 Ariz. App. 116, 117 (App. 1974) (“The purpose of
a foreclosure suit is to have the mortgaged property applied to payment of
the debt secured by the mortgage.”); Foreclosure, Black’s Law Dictionary
(11th ed. 2019) (“[a] legal proceeding to terminate a mortgagor’s interest in
property, instituted by the lender (the mortgagee) either to gain title or to
force a sale in order to satisfy the unpaid debt secured by the property”
(emphasis added)).

¶9            Furthermore, our statutory scheme relating to deeds of trust
places a limitation on the commencement of actions against trust property:

                      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 (emphasis added).

¶10            Tang maintains on appeal as it did below, that § 33-714,
enacted after De Anza was decided, now governs the limitations period to
initiate foreclosure actions. Tang argues that by enacting § 33-714, the
legislature intended to supersede De Anza and codify the “two-remedy”
rule, which allows an owner to foreclose on its security even when the
statute of limitations bars action on the debt. De Anza, 137 Ariz. at 265.
Tang argues that, in the event § 33-714 conflicts with § 33-816, the former
controls because it is the more recent and specific statute. Section 33-
714(A)(2), provides in relevant part:

                     A. The lien of any mortgage or deed of
              trust on any real property that is not otherwise

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                         AROCA v. TANG INV. CO.
                           Opinion of the Court

              satisfied or discharged expires at the later of the
              following times:

                      ....

                     2. If the final maturity date or the last
              date fixed for payment of the debt or
              performance of the obligation is not
              ascertainable from the county recorder’s
              records or if there is no final maturity date or
              last date fixed for payment of the debt or
              performance of the obligation, fifty years after
              the date the mortgage or deed of trust was
              recorded.

¶11           In dismissing the Arocas’ claim to quiet title, the superior
court did not address § 33-816, and concluded that § 33-714 “effectively
modified prior case law concerning the validity of the Deed of Trust and
the availability of foreclosure as a remedy for its enforcement.” This
allowed Tang to foreclose on the property at any time before its lien
purportedly expired on October 5, 2057.1 See § 33-714(A)(2).

¶12            We interpret statutes according to their plain meaning. State
ex rel. Ariz. Dep’t of Revenue v. Tunkey, 254 Ariz. 432, ¶ 24 (2023) (Bolick, J.,
concurring). However, when ambiguity exists, we apply additional
principles of statutory construction, examining “the history, context, spirit
and purpose of the law,” to determine the legislative intent. State ex rel.
Ariz. Reg. of Contractors v. Johnston, 222 Ariz. 353, ¶ 5 (App. 2009).

¶13           Here, the plain language of § 33-714 sets forth an outer limit
for the expiration of mortgage liens, but contrary to Tang’s position, it does
not implicate the remedy of foreclosure or the timeframe in which a
foreclosure proceeding must be initiated. Conversely, the plain language
of § 33-816 expressly dictates that a trustee’s sale or foreclosure on a deed
of trust must be commenced within the same limitation period that would
apply to an action on the contract securing it. An action for debt formed by
a contract must be brought within six years. § 12-548(A)(1). Therefore, by
the plain language of § 33-816, a foreclosure action must also be commenced
within six years from the time the cause of action accrues on the underlying

       1Based on the parties’ stipulation that the note had not been recorded

with the deed, the superior court derived the maturity date through
application of § 33-714(A)(2).

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                         AROCA v. TANG INV. CO.
                           Opinion of the Court

contract. See Baxter Dunaway, Law of Distressed Real Estate, § 63:61 n.5 (2023
update) (citing § 33-816 for rule that “[t]he six year statute of limitations
applies to foreclosure actions as well as to actions on the underlying debt”).

¶14            Even if the language of § 33-714 were ambiguous and could
be read to possibly extend the statute of limitations for a foreclosure
proceeding, its legislative history reveals that the legislature did not intend
such a result. See Hayes v. Continental Ins. Co., 178 Ariz. 264, 269 (1994)
(“[W]e . . . review the statute’s legislative history to find, if possible, any
shared legislative understanding of the relevant language.”). A fact sheet
noted that H.B. 2071, later § 33-714, was intended to address the problem
where a mortgage has been satisfied but a “notice of satisfaction has not
been recorded, a mortgage or lien will remain on record without a release
even when the maturity of the lien has expired.” S. Fact Sheet for H.B. 2071,
45th Leg., 2d Reg. Sess. (Ariz. Apr. 9, 2002) (emphasis added); see also H.
Summary of H.B. 2071, 45th Leg., 2d Reg. Sess. (Ariz. Apr. 4, 2002) (final bill
summary for H.B. 2071 expressing same purpose). Additionally, § 33-714
states that it does not apply to a lien that is “otherwise satisfied or
discharged,” indicating that the legislature intended to maintain its existing
statutory scheme in regard to deeds of trust, which, as this court has
previously explained, “ties ‘the limitation period for an action in rem to the
same period applicable to an action on the contract.’” Andra R Miller
Designs LLC v. US Bank NA, 244 Ariz. 265, ¶ 12 (App. 2018) (quoting Stewart
v. Underwood, 146 Ariz. 145, 150 (App. 1985)); see also Diaz v. BBVA USA, 252
Ariz. 436, ¶ 14 (App. 2022) (“[D]ischarge of an underlying debt extinguishes
any lien or other right or interest in the property securing the debt.”).
Accordingly, nothing in § 33-714’s history suggests the legislature intended
it to supersede § 33-816, to change the applicable statute of limitations for
initiating foreclosure proceedings, or to overrule De Anza by adopting the
“two-remedy rule,” as Tang contends.

¶15              Having determined that Tang’s remedies for enforcement of
the deed of trust are barred by limitation, we turn to the issue of Tang’s
recorded lien. Tang argues that because a quiet title action is an action in
equity, under equitable principles, the Arocas are not entitled to that relief
until and unless they pay off their debt, even though it is barred by the
statute of limitations. See Provident Mut. Bldg.-Loan Ass’n v. Schwertner, 15
Ariz. 517, 518-19 (1914). However, in 1941 the legislature enacted A.R.S.
§ 12-1104, which provides that in a quiet title action: “If it is proved that the
interest or lien or the remedy for enforcement thereof is barred by limitation
. . . plaintiff shall be entitled to judgment barring and forever estopping
assertion of the interest or lien in or to or upon the real property adverse to
plaintiff.” § 12-1104(B).

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                         AROCA v. TANG INV. CO.
                           Opinion of the Court

¶16            The Arocas defaulted on the note in 2012, and Tang did not
bring suit to collect payment or initiate foreclosure proceedings on the
property pursuant to the deed of trust within six years. Because § 33-816
required Tang to commence foreclosure proceedings within the six-year
statutory period under § 12-548, Tang has been barred from foreclosing on
the deed of trust or initiating a trustee’s sale of the property since 2018. And
because Tang’s recorded deed of trust is barred by limitation, the lien has
been discharged and the Arocas are entitled to judgment under § 12-1104
in their action to quiet title. See Sult v. O’Brien, 15 Ariz. App. 384, 388 (1971)
(when “rights of the parties are clearly defined and established by statutory
provisions,” equity follows the law). Accordingly, we reverse the superior
court’s dismissal under Rule 12(b)(6).

                                 Attorney Fees

¶17             The Arocas argue the superior court abused its discretion in
awarding Tang $4,929 in attorney fees and $26.80 in taxable costs. We will
uphold the court’s determination as to which party is the prevailing party,
and thus entitled to attorney fees, absent an abuse of discretion. Am. Power
Prods., Inc. v. CSK Auto, Inc., 242 Ariz. 364, ¶ 12 (2017). However, the court
abuses its discretion if it commits an error of law in reaching a discretionary
decision. Id. Here, because the court erred in dismissing the Arocas’ claim
pursuant to Rule 12(b)(6), Tang did not prevail. We therefore vacate the
award of attorney fees in favor of Tang and remand for further proceedings
consistent with this decision. See Am. Power Prods., Inc., 242 Ariz. 364, ¶ 12.

¶18            On appeal, both parties request an award of attorney fees.
Because we have reversed the superior court’s judgment dismissing the
Arocas’ claim, they are the successful party on appeal. See §§ 12-341.01, 12-
341; see also Wagenseller v. Scottsdale Mem’l Hosp., 147 Ariz. 370, 393-94 (1985)
(successful party on appeal includes party who achieves reversal of
unfavorable interim order when order is central to case and issue of law
decided on appeal is “sufficiently significant that the appeal may be
considered as a separate unit”). Accordingly, we grant the Arocas’ request
for their reasonable attorney fees and costs on appeal pursuant to §§ 12-
341.01(A) and 12-341 upon their compliance with Rule 21, Ariz. R. Civ. App.
P.

                                  Disposition

¶19          We reverse the superior court’s order dismissing the Arocas’
claim and remand for further proceedings consistent with this opinion.

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