Foreclosure v. Farmington ( 2020 )

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
FORECLOSURE EXCESS PROCEEDS LLC, Applicant/Appellant,
v.
FARMINGTON GLEN HOMEOWNERS ASSOCIATION, et al.,
Applicants/Appellees.
No. 1 CA-CV 19-0296
FILED 2-6-2020
Appeal from the Superior Court in Maricopa County
No. CV2018-008898
The Honorable Lindsay P. Abramson, Judge Pro Tempore
VACATED AND REMANDED
COUNSEL
John N. Moore, Attorney at Law, Peoria
By John N. Moore
Counsel for Applicant/Appellant
MEMORANDUM DECISION
Presiding Judge Lawrence F. Winthrop delivered the decision of the Court,
in which Judge Maria Elena Cruz and Judge David B. Gass joined.
FORECLOSURE v. FARMINGTON, et al.
Decision of the Court
W I N T H R O P, Judge:
¶1 Foreclosure Excess Proceeds, LLC (“Foreclosure”) appeals the
superior court’s order approving distribution of funds to Vantage West
Credit Union (“Vantage”) from the excess proceeds obtained through the
sale of real property owned by Adam and Diana Jaramillo. Because the
Jaramillos automatically held their interest in the real property as a
homestead exempt from attachment, Vantage’s recorded judgment did not
attach as a lien to the homestead property. Accordingly, we vacate the
superior court’s ruling and remand for proceedings consistent with this
decision.
FACTS AND PROCEDURAL HISTORY
¶2 The Jaramillos purchased real property in Arizona and lived
in a dwelling located on the property from May 2014 to October 2016.
Vantage recorded a judgment against the Jaramillos in 2015 pursuant to
Arizona Revised Statutes (“A.R.S.”) section 33-961.
¶3 The Jaramillos filed bankruptcy in Texas in March 2017 and
listed a Texas address as their residence. The Jaramillos did not move to
avoid any judgment liens during the bankruptcy proceedings.
¶4 After the bankruptcy case closed, a trustee sold their Arizona
real property at a trustee’s sale on April 20, 2018, pursuant to the Jaramillos’
deed of trust. The trustee sold the home and made disbursements to the
beneficiary under the deed of trust. On June 12, 2018, the Jaramillos signed
an agreement with Foreclosure assigning their right, title, and interest in
the identifiable cash proceeds from the trustee’s sale to Foreclosure.
¶5 The trustee deposited excess funds from the sale of the
Jaramillos’ real property totaling $36,594.82 with the Maricopa County
Treasurer and filed a complaint for distribution of excess proceeds.
Vantage filed an application for distribution of excess proceeds pursuant to
its recorded judgment against the Jaramillos for $33,569.11. Foreclosure
also filed an application for excess distribution seeking to collect on behalf
of the Jaramillos pursuant to Arizona’s homestead statutes, A.R.S. §§ 33-
1101 to -1153.
¶6 After an evidentiary hearing, the court found that the Arizona
homestead exemption did not apply because the Jaramillos “filed their
bankruptcy petition with their Texas address” and noted that the Jaramillos
did not present any evidence that they resided in Arizona at the time they
filed their bankruptcy petition. Presumptively finding that Vantage’s
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FORECLOSURE v. FARMINGTON, et al.
Decision of the Court
recorded judgment became a lien on the Jaramillos’ real property pursuant
to A.R.S. § 33-964, Arizona’s judgment lien statute, the court also noted that
the Jaramillos did not move to avoid Vantage’s recorded judgment lien in
bankruptcy. The court thus found that Vantage had a superior claim to the
excess proceeds under Arizona’s priority distribution statute, A.R.S.
§ 33-812. The court ultimately approved distribution of $21,421.37 to
Vantage and $15,113.45 to another entity.1
¶7 Foreclosure timely appealed, and we have jurisdiction
pursuant to A.R.S. § 12-2101(A)(1).2
ANALYSIS
¶8 This appeal requires us to analyze Arizona’s homestead
exemption and judgment lien statutes. We review questions of statutory
interpretation de novo. Rogone v. Correia, 236 Ariz. 43, 49, ¶ 17 (App. 2014).
We look to the statutes’ language as the best indicator of legislative intent.
Id. When the statutory language is clear, Arizona courts must follow it.
Jackson v. Phoenixflight Prods., Inc., 145 Ariz. 242, 245 (1985).
¶9 We liberally construe the homestead exemption statutes. Pac.
W. Bank v. Castleton, 246 Ariz. 108, 110, ¶ 7 (App. 2018). When analyzing
the relationship between the homestead exemption and judgment lien
statutes, we keep in mind that the homestead exemption statutes are
1 Pursuant to stipulation, the court approved distribution to
Farmington Glen Homeowners Association (“Farmington”), which had
also filed an application for distribution of excess proceeds. In its Opening
Brief, Foreclosure does not challenge Farmington’s receipt of the amount of
excess proceeds related to its claim, stating that Farmington had priority
distribution status as a homeowners’ association under A.R.S. § 33-812.
Foreclosure further advises that Farmington has already received its
portion of the excess proceeds. Accordingly, our decision addresses solely
the remaining portion of excess proceeds and its distribution as between
Vantage and Foreclosure.
2 Despite being served with the notice of appeal and subsequent
orders of this court concerning the deadline for filing an answering brief,
neither Vantage nor Farmington filed an answering brief. We could
consider the failure to file an answering brief to constitute a confession of
error; however, in our discretion we address the merits of the appeal. See
Summers Grp., Inc. v. Tempe Mech., LLC, 231 Ariz. 571, 573, ¶ 7 n.6 (App.
2013).
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FORECLOSURE v. FARMINGTON, et al.
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“intended to preserve an amount of money equal to the value of the
homestead exemption.” Evans v. Young, 135 Ariz. 447, 450 (App. 1983)
(citing Union Oil Co. v. Norton-Morgan Commercial Co., 23 Ariz. 236, 242
(1922)); see also In re Elia, 198 B.R. 588, 600 (Bankr. D. Ariz. 1996)
(“[A]mendments to the homestead exemption statutes reinforce the
individual’s right to a homestead exemption, now in most cases
automatically, to preserve the individual’s ‘nest egg’ in the property.”).
I. Arizona Homestead Exemption Applies to Identifiable Cash
Proceeds
¶10 Foreclosure argues the Arizona homestead exemption
applied automatically to the real property the Jaramillos owned and lived
in, and applied to the identifiable cash proceeds from the sale of that
property.
¶11 Arizona’s homestead exemption statute provides that “[a]ny
person the age of eighteen or over, married or single, who resides within
the state may hold as a homestead exempt from attachment . . . not
exceeding one hundred fifty thousand dollars in value . . . [t]he person’s
interest in real property . . . upon which exists a dwelling house in which
the person resides.” A.R.S. § 33-1101(A)(1). The homestead exemption
exists “by operation of law and no written claim or recording is required.”
A.R.S. § 33-1102(A).
¶12 The Jaramillos lived in the real property owned by them from
2014 to 2016 and filed their bankruptcy petition in 2017. Subject to certain
exceptions not applicable here, by operation of law the Jaramillos
automatically held their interest in the real property as a homestead exempt
from attachment. A.R.S. §§ 33-1101(A)(1), -1102(A). That the Jaramillos
listed their Texas address on their bankruptcy petition is inapposite.
Residency in the property itself when filing a bankruptcy petition is not a
prerequisite to establishing a homestead exemption. A.R.S. § 33-1101(A);
In re Calderon, 507 B.R. 724, 730 (B.A.P. 9th Cir. 2014) (finding “continued
occupancy of the residence” is not a prerequisite “to be entitled to claim a
homestead exemption in the residence”).
¶13 Arizona’s homestead exemption statute provides that the
homestead exemption “automatically attaches to the person’s interest in
identifiable cash proceeds from the voluntary or involuntary sale of the
property. The homestead exemption in identifiable cash proceeds
continues for eighteen months after the date of the sale of the property
. . . .” A.R.S. § 33-1101(C). Moreover, the statute permits a claimant to
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remove from the residence or even the state of Arizona for up to two years
without such action constituting abandonment of the exemption. A.R.S.
§ 33-1104(A)(3). Accordingly, when the trustee sold their home, the
Jaramillos maintained a continuing exemption in the identifiable cash
proceeds for eighteen months from the date of the sale. A.R.S. § 33-1101(C);
see In re Smith, 515 B.R. 755, 761 (Bankr. D. Ariz. 2014) (finding no residency
requirement for A.R.S. § 33-1101(C)). Foreclosure, their assignee, timely
applied for distribution of the identifiable cash proceeds before the eighteen
months expired. The homestead exemption therefore applies.
II. A Recorded Judgment Does Not Attach as a Lien to Homestead
Property
¶14 Foreclosure next argues that a recorded judgment on real
property does not create a lien on homestead property; thus, Vantage
cannot claim the remaining excess proceeds pursuant to its judicial lien.
The superior court found that because the Jaramillos did not file motions in
bankruptcy court to avoid Vantage’s judicial lien, they did not avoid
Vantage’s lien and thus Vantage had a superior claim to the excess proceeds
pursuant to A.R.S. § 33-812.
¶15 The statute relevant to Vantage’s judicial lien states that a
judgment recorded pursuant to A.R.S. § 33-961 shall become a judgment
lien “on all real property of the judgment debtor except real property exempt
from execution, including homestead property.” A.R.S. § 33-964(A) (emphasis
added). Further, except for consensual liens, “a recorded judgment shall
not become a lien on any homestead property. Any person entitled to a
homestead on real property as provided by law holds the homestead
property free and clear of the judgment lien.” A.R.S. § 33-964(B). Here,
contrary to the superior court’s presumptive finding, Vantage’s recorded
judgment did not become a lien on the Jaramillos’ homestead property.
A.R.S. § 33-964(A)-(B); see also Pac. W. Bank, 246 Ariz. at 112, ¶ 21
(concluding that a judgment never attached as a lien to the property
owners’ home). Accordingly, the Jaramillos did not need to move in their
bankruptcy case to avoid a “non-existent lien” on their homestead
property. In re Rand, 400 B.R. 749, 755 (Bankr. D. Ariz. 2008) (stating debtors
in bankruptcy do not need to move to avoid non-existent liens on
homestead properties).
¶16 Because Vantage’s recorded judgment did not become a lien
on the real property, Vantage had no claim to the excess proceeds as a
lienholder under A.R.S. § 33-812. Foreclosure, however, as the Jaramillos’
assignee, was entitled to any remaining excess proceeds pursuant to A.R.S.
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§ 33-812(A)(5) (directing that, after payment in full to all higher priority
status entities, “payment shall be made to the trustor”).
CONCLUSION
¶17 Based on the foregoing, we vacate the superior court’s order
and remand for proceedings consistent with this decision. We award
Foreclosure its costs on appeal, subject to compliance with ARCAP 21.
AMY M. WOOD • Clerk of the Court
FILED: AA
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