Case of the Week: The Price of Redemption for a Junior Lienholder

What price must a junior lienholder pay when redeeming a property after a foreclosure sale? The Arizona Court of Appeals answered this question in the case of Helvetica v. Giruado.

Michael and Kelly Pasquan took out a $3.4 million loan serviced by Helvetica in 2006 secured by a deed of trust against their property (the “Fanfol Property”). The following year, Joseph Giruado gave a $200,000 loan to the Pasquans, secured by a junior deed of trust on the Fanfol Property.

The Pasquans defaulted, and Helvetica initiated foreclosure proceedings without joining any of the junior lienholders. Helvetica purchased the Fanfol property for $400,000 as the sole bidder at the foreclosure proceedings.

Giruado later filed a notice of his intent to redeem the property with the Maricopa County Recorder’s Office, and furnished a $432,000 cashier’s check. Helvetica moved to quash Giruado’s redemption, arguing that he had to pay the full amount of Helvetica’s original lien, which totaled over $3.7 million. The superior court granted Helvetica’s motion, reasoning that Helvetica’s lien had survived the foreclosure proceeding as represented by its Deed of Trust.

Did the Junior Lienholder Have a Right to Redeem?

On appeal, the court first determined that Giruado had the right to redeem the Fanfol Property. The deed of trust gave him the right to redeem the property in order to protect his interests. The more difficult issue faced by the court was determine the redemption price of the Fanfol property.

Giruado argued that he should only have to pay the sale price, based on A.R.S. § 12-1556(C), which provides that the redemption price “shall be calculated on the sales price of the real property”. The court disagreed, stating that the statute did not provide that the redemption price equal the sales price, only that it was “calculated” on the sales price.

A.R.S. § 12-1285(B) provided the rest of the details of the calculation of the redemption price, which includes the amount of a senior lien.

When determining the amount of the senior lien, the court hold that it includes only the portion of the lien that survives any actions between the foreclosing creditor and the mortgage debtor. Helvetica’s lien would not be valued at its face value immediately following the foreclosure. Instead, it would be the value of the deficiency judgment that is enforceable against the mortgage debtors when the junior lienholder’s redemption right ripens.

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