The Ninth Circuit certified three questions to the Arizona Supreme Court to help the Ninth Circuit decide what impact, if any, a lender’s full-credit bid made at an Arizona trustee’s sale has on an insurer’s liability under a standard form (ALTA) title insurance policy. The Arizona Supreme Court answered those three questions as follows:
- Q: When a lender purchases property by full-credit bid at a trustee’s sale, does Section 9 of the title insurance policy (which provides that payments of principal or the voluntary satisfaction or release of the mortgage reduce available insurance coverage, except as provided under Section 2(a) of the policy) apply, or does Section 2 (which provides that coverage continues in force when an insured acquires the property in a foreclosure sale, but the amount of coverage is reduced by all payments made) apply? A: Section 2 applies when a lender purchases property by full-credit bid at a trustee’s sale.
- Q: Is a full-credit bid at a trustee’s sale a “payment” or “payment made” under either section 2 or 9 of the policy? A: A full-credit bid at a trustee’s sale is not a “payment” or “payment made” under section 2 or 9 of the policy.
- Q: To what extent does a full-credit bid at a trustee’s sale either (a) terminate coverage under section 2(a)(i) of the title insurance policy, or (b) reduce coverage under section 2 and any possible liability under section 7 of the policy (which explains how the insurer’s liability is calculated and refers to both sections 2 and 9 of the policy)? A: The amount of the full-credit bid does not terminate coverage under section 2(a)(i) of the policy, reduce coverage under section 2 of the policy, or terminate or reduce liability under section 7 of the policy. Although a trustee’s sale may ultimately result in a termination or reduction of a title insurer’s coverage or liability under its policy, that result is not a function of the amount of the credit bid; it is a function of the fair market value of the property received by the lender (which is not necessarily equal to the amount of the credit bid).
To read the Arizona Supreme Court’s full opinion in this case, click here.