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Equity Income Partners, LP v. Chicago Title Insurance Co.

United States Court of Appeals, Ninth Circuit

July 12, 2016

Equity Income Partners, LP, an Arizona Limited Partnership; Galileo Capital Partners Limited, a Cayman Islands Exempted Company, Plaintiffs-Appellants,
v.
Chicago Title Insurance Company, a Delaware Corporation, Defendant-Appellee.

         D.C. No. 2:11-cv-01614-SMM

          Before: Andrew J. Kleinfeld, Johnnie B. Rawlinson, and Andrew D. Hurwitz, Circuit Judges.

         ORDER CERTIFYING QUESTIONS TO THE ARIZONA SUPREME COURT

         SUMMARY[*]

         Certification to Arizona Supreme Court

         The panel certified the following questions of law to the Arizona Supreme Court pursuant to Ariz. Rev. Stat. § 12-1862:

1. When a lender purchases property by full-credit bid at a trustee's sale, does Section 9 [of the standard form lender's title insurance policies] apply, or does Section 2 apply?
2. Is a full-credit bid at a trustee's sale a "payment" or "payment[] made" under sections 2 or 9 of the policies?
3. To what extent does a full-credit bid at a trustee's sale either (a) terminate coverage under section 2(a)(i) of the policies, or (b) reduce coverage under Section 2 and any possible liability under section 7?

          ORDER

          Johnnie B. Rawlinson United States Circuit Judge, Presiding.

         The issue for decision in this diversity case is whether a lender's full-credit bid at an Arizona trustee's sale constitutes payment under a lender's title insurance policy. Arizona law is dispositive, but unsettled. We therefore request the Arizona Supreme Court to interpret, under Arizona law, the provisions of a standard form lender's title insurance policy. See Ariz. Rev. Stat. §§ 12-1861 to -1867; Ariz. Sup. Ct. R. 27.

         I. Factual and Procedural Background

         We summarize the material facts and procedural history as they relate to the questions to be certified.

         In May 2006, Scott Mead and Keith Vertes ("Borrowers"), obtained two $1.2 million loans from Equity Income Partners Limited Partnership ("Equity") to purchase two adjacent parcels (the "Properties") in Maricopa County, Arizona. LER 6, 174–83, 343, 351; IER 19–30.[1] The loans were each secured by deeds of trust.[2] LER 187, 198. At the time, the Properties were collectively appraised as worth over $3, 000, 000. IER 54–77. Borrowers purchased owner's title insurance from Transnation Title Insurance Company; LER 14, 169; Lenders purchased an American Land Title Association Loan Policy (10-17-92) with ALTA Endorsement – Form 1 Coverage from Ticor Title Insurance Company.[3] IER 371–85. Ticor's successor-in-interest is Chicago Title Insurance Company ("Insurer"). IER 267.

         In September 2006, Borrowers learned that they did not have legal access to the Properties, and so informed Transnation. LER 170, 287–88. Transnation sued Maricopa County, the owner of the surrounding land, in an attempt to establish access. IER 353.

         In January 2007, Lenders submitted a claim to Insurer. LER 310. In February 2007, Insurer denied the claim, stating that Lenders had not provided evidence of "any actual loss." LER 311–12.

         Borrowers failed to make payments on the loans. IER 134. In March 2007, Lenders noticed trustees' sales for the Properties. See Ariz. Rev. Stat. § 33-808; see also IER 501– 06. Shortly before the scheduled sales, Borrowers asked Transnation to make the loan payments. IER 248–49. With Lenders' agreement, Transnation began making interest-only monthly payments "until the access issue is resolved."[4]IER 134–35.

         In March 2010, the Superior Court found in favor of Maricopa County in Transnation's suit seeking access to the Properties. IER 265. Transnation stopped making payments on the loans in August 2010, and Borrowers made no further payments.[5] IER 267–68. On January 18, 2011, Lenders purchased the Properties at two trustees' sales through full-credit bids totaling over $2.6 million.[6] See Ariz. Rev. Stat. §§ 33-810(A), 33-811 (providing for credit bids); see also IER 536–37; LER 315, 324.

         In October 2010, Lenders submitted a claim to Insurer for the $1.2 million amount of each loan. LER 305–09. In July 2011, Lenders filed this suit in Maricopa County Superior Court; Insurer removed to the United States District Court for the District of Arizona. LER 320–30, 355–65.

         In August 2011, Insurer obtained an appraisal of the Properties which set the diminution of value of the parcels caused by the lack of ingress/egress at $343, 000 as of the foreclosure sale date. LER 127–29. Insurer issued Lenders a check for that amount and stated that it considered the matter concluded. LER 122–25, 128, 132.

         In September 2012, the district court ruled that Lenders "suffered loss at the time they made the loans in reliance upon the Policies, " in 2006. LER 37–41.

         Insurer then obtained appraisals for the diminution of value of the Properties because of the lack of ingress or egress as of the loan date, May 16, 2006; that diminution of value was ...


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