Greater Arizona Savings & Loan Ass'n v. Gleeson , 5 Ariz. App. 577 ( 1967 )

Melvyn T. SHELLEY’ Judge of the Superior Court.

Appellant filed against appellees and Ukrainian Village, a corporation, to foreclose a mortgage on property which, prior to the foreclosure, the appellees had transferred to Ukrainian Village. The Ukrainian Village is not a party to this appeal. In the complaint plaintiff prayed, among other things, as follows in Paragraph 4 of the prayer:

“That the proceeds of said sale be applied first to the costs and expenses of said sale and then to the amounts found due to plaintiff, and that plaintiff have judgment against the defendants L. D. A. Gleeson and Tresa Gleeson, his wife, for any deficiency which may remain after applying the proceeds of the sale properly applicable thereto to the payment and satisfaction of said judgment.”

After appellees filed an answer wherein, among other things, they claimed that appellants were not entitled to a deficiency judgment because of an alleged allowance by appellant to the defendant Ukrainian Village to retain possession of the property for ten months without receiving payment on the note and mortgage from said corporation, and, without notification to appellees, allowing the property to depreciate in value without giving the answering defendants an opportunity to protect the security of the note sued on, plaintiff moved for summary judgment. The order granting the motion for summary judgment is not in the record. However, the written judgment recites that an order was made directing a summary judgment against appellees for the amounts prayed for in the complaint, and that the court found that all the material allegations of plaintiff’s complaint were true.

The written form of judgment did not carry out the request as stated in Paragraph 4 of the prayer. It failed to provide for any deficiency and for its collection.

A.R.S. Section 33-725, subsecs. A and B reads as follows:

“A. When a mortgage or deed of trust is foreclosed, the court shall give judgment for the entire amount determined due, and shall direct the mortgaged property, or as much thereof as is necessary to satisfy the judgment, to be sold.

“B. Judgments for the foreclosure of mortgages and other liens shall provide that the plaintiff recover his debt, damages and costs, with a foreclosure of the plaintiff’s lien on the property subject to the lien, and, except in judgments against executors, administrators and guardians, that a special execution issue to the sheriff or any constable of the county where the property is located, directing him to seize and sell the property as under execution, in satisfaction of the judgment. If the property cannot be found, or if the proceeds of the sale are insufficient to satisfy the judgment, then to make the money or any balance thereof remaining unpaid, out of any other property of the defendant.” (Underscoring ours)

A.R.S. Section 33-727, subsec. A reads as follows:

“A. If the mortgaged property does not sell for an amount sufficient to satisfy the judgment, an execution may be issued for the balance against the mortgagor where there has been personal service, or the defendant has appeared in the action.”

The decree of foreclosure was entered and a special execution issued. At the Sheriff’s Sale the amount bid was less than the full amount of the judgment and a deficiency judgment was entered. The deficiency judgment was the basis of the issuance of the general execution which the appellees moved to quash. It is the granting of this motion which is the basis of the appeal. Therefore the questions to be here resolved are:

1. If a judgment of foreclosure is silent with respect to deficiency, is the deficiency provision of Section 33-725, subsec. B read, nevertheless, into the judgment as a matter of law?

2. Does Section 33-725, subsec. B require that a decree of foreclosure contain specific provisions for deficiency in order for a deficiency to be obtained in the event the proceeds from a foreclosure sale does not satisfy the judgment?

3. Was the defense with respect to the right to a deficiency litigated and decided adversely to the plaintiff-appellant in this case?

Appellant seems to rely almost entirely on the case of Bank of Douglas v. Neel, 30 Ariz. 375, 247 P. 132 (1926). However, it does not appear that the particular questions involved in this case were actually raised in the Neel case. In the Neel case the defendants filed a motion to quash the general execution on the ground that the special execution was still outstanding, that no return had been made thereon, and, that there was no deficiency judgment in the action either then or when the general execution was issued. The lower court granted the motion to quash the general execution and set aside the levy. Our Supreme Court said:

“The single assignment of error in effect presents one single proposition: That the court erred in quashing the general execution and vacating the levy for the reason that at the time the order was made the sheriff’s return on the special execution showed a deficiency on the judgment, and, the reason which made the issuance of the general execution irregular having ceased, the latter was full of life and vitality and should have been sustained.”

Then the Court in the Neel case discussed our then existing statutes in regard to deficiencies on mortgage foreclosures and held that the general execution should not have been quashed inasmuch as the order quashing the same was entered after the return of the special execution showing a deficiency. Nowhere does the Neel case discuss the questions, nor are they raised, as to whether or not deficiency provisions have to be specifically set forth in the judgment of foreclosure in order to have the right to a deficiency, and, as to whether or not if a judgment is silent in regard to deficiency, is the deficiency statute, nevertheless, read into the judgment.

This brings us then to the interpretation of Section 33-725, subsecs. A and B, in its relation to 33-727, subsec. A.

Section 33-725, subsec. B says: “Judgments for the foreclosure of mortgages and other liens shall provide * * ” and then the rest of the paragraph sets forth what the judgment shall provide with regard to a deficiency. We interpret the words “shall provide” to mean that a foreclosure judgment shall specifically provide for the things set forth in said subsection B, except when as set forth in Section 33-727 there has not been personal service and the defendant has not appeared in the action. Of course, there would be one additional exception and that is where the documents themselves precluded a deficiency judgment.

If Section 33-725, subsec. B is incorporated into a decree of foreclosure even when such a decree is silent with respect thereto and if in all instances the right to establish a deficiency is part and parcel of every decree of foreclosure, then, even in cases where service is procured by constructive service and in cases where the documents or defenses preclude a deficiency, a deficiency right would still be read into the decree. This would at least in part be violative of Section 33-727, subsec. A.

It therefore appears to us and we hold that before a deficiency can be established on a mortgage or lien foreclosure, the judgment must specifically provide therein contingently for establishment of deficiency in the event the proceeds of the foreclosure sale are not sufficient to satisfy the judgment. In other words, Section 33-725 and Section 33-727, subsec. A read together mean in effect that there are certain cases in which a deficiency cannot be obtained and that therefore, if there is to be a deficiency, it shall be provided for in the judgment of foreclosure. To hold otherwise would mean that we would then be saying that the terms of Section 33-725, subsec. B are read into a judgment regardless, and we would seem to be further saying that in all types of judgments of foreclosure there shall be a deficiency unless the foreclosure sale is for a sufficient amount to pay off the full judgment. This is not the intent of the law.

With regard to the final question as to whether or not the question of deficiency was litigated, it has heretofore been noted that the prayer specifically requested that the judgment provide for a deficiency. However the judgment of foreclosure was completely silent with respect to a deficiency and was approved as to form, accepted and signed by the Judge. It therefore appears to us and we hold that this matter was in effect litigated and decided adversely to the plaintiff. The court does not deem it necessary to decide whether or not the matters pleaded state a prima facie defense to a deficiency, and we expressly decline to rule thereon.

The judgment of the lower court is affirmed.

STEVENS, J., concurs.