## Facts

- World Savings made a loan to Aaron Pearson secured by a first deed of trust on a condominium; the deed of trust required the trustor to pay property taxes.
- Aaron Pearson later granted John H. Pearson a second deed of trust on the same property, making Pearson a junior lienholder.
- After default on the first deed of trust, the trustee conducted a trustee’s sale; Linda C. Hanley, as trustee of a family trust, purchased the property for an amount exceeding the foreclosing debt by \$10,618.64.
- At the time of sale, the property was encumbered by a senior property-tax lien; the purchaser took the property subject to that lien, and junior liens (including Pearson’s) were extinguished by the sale.
- Hanley sought a declaration that the excess proceeds should be applied first to unpaid property taxes as an “other obligation” under the foreclosed deed of trust, before any payment to Pearson.
- Pearson sought all excess proceeds as the former junior lienholder under the statutory distribution scheme.

## Issues

1. Whether A.R.S. § 33-812(A)(3) required excess proceeds from a trustee’s sale to be applied to unpaid property taxes referenced as an obligation in the foreclosed deed of trust before paying junior lienholders.
2. Whether attorneys’ fees were properly awarded to Pearson under A.R.S. § 12-341.01 as an action “arising out of a contract.”

## Decision

- The court affirmed summary judgment awarding the excess proceeds to Pearson.
- The court held A.R.S. § 33-812(A)(3) did not require payment of unpaid property taxes from excess proceeds ahead of junior lienholders.
- The court vacated the attorneys’ fee award to Pearson under A.R.S. § 12-341.01.

## Legal Principles

- A.R.S. § 33-812 sets an order for distributing trustee’s sale proceeds but does not, by itself, require a trustee to pay third-party tax liens from excess proceeds.
- “Other obligations provided in or secured by the trust deed” under A.R.S. § 33-812(A)(3) refers to obligations arising under the deed of trust and owed in connection with that security arrangement, not governmental property taxes owed to a nonparty.
- Property-tax liens retain statutory superiority and remain attached to the property; a trustee’s sale purchaser generally takes title subject to senior tax liens even when sale proceeds are sufficient to produce an excess.
- Attorneys’ fees under A.R.S. § 12-341.01 require a dispute that arises out of contract; a statutory dispute over distribution of trustee’s sale proceeds and lien priority does not qualify merely because a deed of trust exists in the background.

## Conclusion

The court held that unpaid property taxes were not payable from excess trustee’s sale proceeds under the “other obligations” clause of A.R.S. § 33-812(A)(3), so the extinguished junior lienholder received the excess proceeds, while the purchaser remained subject to the senior tax lien; the court also vacated the contract-based fee award because the action was primarily statutory rather than contractual.


Hanley v. Pearson, 204 Ariz. 147, 61 P.3d 29 (Ct. App. 2003)