Skousen v. L.J. Development Co.

655 P.2d 1341, 134 Ariz. 289, 1982 Ariz. App. LEXIS 579
CourtCourt of Appeals of Arizona
DecidedOctober 28, 1982
DocketNo. 1 CA-CIV 5521
StatusPublished
Cited by5 cases

This text of 655 P.2d 1341 (Skousen v. L.J. Development Co.) is published on Counsel Stack Legal Research, covering Court of Appeals of Arizona primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Skousen v. L.J. Development Co., 655 P.2d 1341, 134 Ariz. 289, 1982 Ariz. App. LEXIS 579 (Ark. Ct. App. 1982).

Opinion

OPINION

OGG, Presiding Judge.

This is an appeal by plaintiffs/appellants Owen D. Skousen and Nancy C. Skousen, husband and wife, from an order of the trial court granting the defendants/appellees’ motion for summary judgment.

The issue presented in this appeal is whether judgment liens which attach to real property after the filing of a foreclosure action, remain in effect against the property upon redemption from foreclosure sale by the judgment debtors’ grantees.

The facts pertinent to this appeal are as follows. The appellants owned real property in Mesa, Arizona. Southwest Savings and Loan Association (Southwest Savings) held a deed of trust on the property. A second deed of trust was held by Tom Stapley and Associates (Stapley) and Reichard Realty, Inc. to secure payment of a real estate broker’s fee. .

Southwest Savings filed suit to judicially foreclose its deed of trust. Prior to Southwest Savings’ filing of an amended lis pen-dens in the action, two United States federal tax liens attached to the property. After filing of the lis pendens notice, but prior to foreclosure sale, two more judgment liens were recorded by Carpet Mart, Inc. and Melba Smith.

The Skousens, Stapley and Reichard Realty were made parties to the foreclosure suit. The judgment in the suit declared the interests of the three defendants in the property to be limited to the right to redeem. Southwest Savings bid in the property for the amount of its judgment at the sheriff’s sale on execution held on February 1, 1979.

Subsequent to the sale and prior to the expiration of the period of redemption, six additional liens attached to the property.1 The appellants’ attorney also placed a voluntary retainer agreement and lien on the property during that period. Additionally, during that time period, Stapley and Reichard Realty quitclaimed their interest in the property to the Skousens.

On the last day for redemption,2 August 1. 1979, the Skousens transferred their interest in the property to S. Ted Sorenson and Carol Sorenson, husband and wife, by quitclaim deed. The Skousens also delivered the quitclaim deeds from Stapley and Reichard Realty to the Sorensons. The Sorensons redeemed the property the same day.

Upon redemption, the Sorensons received a redemption deed from the sheriff.3 Thereafter, the Sorensons deeded the prop[291]*291erty to L.J. Development Co., Inc. L.J. Development deeded the property back to the Sorensons, who then placed a deed of trust on the property in favor of First Fidelity Mortgage Company. Subsequently, Sorenson traded the property in question to John Chalk for another residential property.

Appellants commenced this suit on January 31, 1980 for a judgment declaring that the liens attaching to the property subsequent to the foreclosure action and prior to the conveyance to the Sorensons were not extinguished when the Sorensons redeemed. Appellants named the lienholders as involuntary plaintiffs, although none of the lien-holders were served with process, and none, with the exception of appellants’ attorney, participated in the case.

As noted above, the trial court granted appellees’ motion for summary judgment and declared Chalk the owner of the property free of all liens asserted by appellants on behalf of the involuntary plaintiffs. Upon review, we reverse.

This is a case of first impression in Arizona. There appears to be a conflict in the cases as to whether liens attaching to the judgment debtor’s property remain in effect after the judgment debtor’s grantee redeems the property from foreclosure sale. G. Osborne, Mortgages, § 309 at 642 (2d ed. 1970); Annot., 5 A.L.R. 145 (1920).

Appellants, nevertheless, argue that most case law supports their position that liens are not extinguished when the judgment debtor’s grantee redeems. The appellees contend that we should adopt the rule of lien extinguishment as most consonant with the underlying purpose of the redemption statutes. That purpose, according to the appellees, is to force the foreclosing mortgagee and junior lienors to bid on the property at a price approximating its fair value and thereby prevent high deficiency judgments against the mortgagor. Under the facts presented to us, we agree with the rule articulated by appellants.

While we do not dispute the general validity of appellees’ policy argument, the rule which the appellees endorse would be inappropriate under our facts.4 None of the lienholders in this case were made parties to the original foreclosure action, and the majority of the lienholders obtained their liens against the judgment debtors after the foreclosure sale had taken place. As a result, the lienholders had little or no opportunity to bid at the foreclosure sale.

A review of the cases cited by the parties indicates that the better reasoned cases hold that only parties to the original foreclosure decree are bound by that decree. See Zellerbach Paper Co. v. Valley National Bank of Arizona, 18 Ariz.App. 301, 501 P.2d 570 (1972); Hack v. Snow, 338 Ill. 28, 169 N.E. 819 (1930); Cadd v. Snell, 219 Iowa 728, 259 N.W. 590 (1935); Stiles v. Bailey, 205 Iowa 1385, 219 N.W. 537 (1928); Call v. Jeremiah, 246 Or. 568, 425 P.2d 502 (1967); Kaston v. Storey, 47 Or. 150, 80 P. 217 (1905).

In Kaston v. Storey, supra, two judgment creditors obtained a personal judgment against the mortgagor Lundin after foreclosure and judicial sale under the mortgage. The mortgagor’s grantee then redeemed the property. The court held that because the two creditors were not made parties to the foreclosure suit, their judgment liens survived the foreclosure decree.

Another more recent Oregon case, Call v. Jeremiah, supra, deals with a different situ[292]*292ation. In Call v. Jeremiah, the court held that a second mortgagee who was made a party to an action to foreclose a first mortgage could not maintain a subsequent action to foreclose the second mortgage. The court noted that:

The crux of the distinction between Kaston and the present case, however, is that in the former case the judgment creditor was not joined as a party defendant in the proceeding to foreclose the prior lien. Here the junior encumbrancer was joined in the suit to foreclose the first mortgage, and having failed to appear, stands in a different position from one who was never given notice and, consequently, never given an opportunity to appear. (Emphasis supplied).

246 Or. at 584, 425 P.2d at 509.

The court in Hack v. Snow, supra, followed the more extreme position that even if judgment creditors are made parties to the foreclosure proceedings, their liens are not eliminated unless the foreclosure decree specifically provides for payment of junior liens. In Hack, a mortgagor’s grantee took the property subject to junior liens because the court in the earlier foreclosure decree failed to order payment of the liens inferior to the foreclosed mortgage.

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Bluebook (online)
655 P.2d 1341, 134 Ariz. 289, 1982 Ariz. App. LEXIS 579, Counsel Stack Legal Research, https://law.counselstack.com/opinion/skousen-v-lj-development-co-arizctapp-1982.