Hanley v. Pearson

Aaron Pearson (Aaron) held two deeds of trust on his condominium. The first deed was in favor of World Savings Bank (World Savings) and contained the requirement that Aaron pay the taxes assessed against the property. The second deed was in favor of John Pearson (defendant). Aaron defaulted on his agreement with World Savings, and it foreclosed on its deed. At a trustee’s sale, Linda Hanley, acting as trustee for the Hanley Family Trust (plaintiff), purchased the condominium for more than the debt owed to World Savings. At the time of Hanley’s purchase, there was also a $2,809 property-tax lien. Hanley filed for a declaratory judgment stating that the outstanding property taxes must be paid prior to paying Pearson as junior lienholder. Hanley’s argument was based on a provision of Arizona law establishing that “other obligations” secured by the deed of trust should be paid prior to junior lienholders. Because the payment of property taxes was identified as an obligation in the first deed, Hanley claimed this elevated it to a higher priority than the junior lienholder. Pearson filed suit seeking payment of all excess proceeds, alleging that the requirement pertaining to other obligations only applied to obligations existing between the debtor and lender at the time of the foreclosure sale. The court consolidated the two cases and issued summary judgment in favor of Pearson, along with attorney’s fees. Hanley appealed the judgment.