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Court Decides Case Regarding Claims Arising Out of Transfers of Mortgages

A.R.S. § 33-420 permits a cause of action to quiet title to property and, among other things, also permits a claim for damages arising out of recording of documents that are forged, groundless, contains a material misstatement or false claim, or is otherwise invalid.

The Court of Appeals for the State of Arizona recently considered a case dealing with these issues as they arise within the context of multiple assignments of the lender’s interests in the home through MERS (Mortgage Electronic Registration System).

The case is Sitton v. Deutsche Bank National Trust Co. which was decided on September 5, 2013. In this case, the homeowner undeniably fell behind on her mortgage payments. During the time she owned the home, the mortgage loan was transferred to a variety of assignees. Crucial, however, was the fact that the original mortgage lender assigned its interest to MERS who then became the mortgage of record (and privately kept track of assignments from MERS to subsequent assignees even though MERS always remained the mortgage of record).

Before getting to the ultimate question presented by the homeowner,
the Court addressed a couple of important preliminary questions. First,
the Court had to decide if the homeowner still had a right to claim
damages under A.R.S. § 33-420 even though her home had been foreclosed
on and she was now no longer the owner. The Court reasoned that some
claims under A.R.S. § 33-420 are precluded by the foreclosure of her
home because it divested her of title. Case law interpreting trustee’s
sales (non-judicial foreclosures) indicates that many claims (i.e. quiet title claims, tort claims against the purchaser, and damage claims
against purchasers for conversion, fraud and trespass) are waived once
the trustee’s sale is complete. However, the Court concluded that the
trustee’s sale does not preclude a cause of action under A.R.S.
33-420(A) for a monetary award arising out of documents recorded when
she was the owner of the property.

Second, the defendants argued
that even if the Homeowner had standing to bring an action for monetary
damages under A.R.S. § 33-420(A), that she had failed to do so within
the appropriate time limits. The defendants argued for a one year time
limit which began to run after the first assignment. Their argument was based on A.R.S. § 12-541(5) which limits claims made under statutes to
one year. The statute they cited to, though, provides an exception in
the instances where the liability is for a penalty or forfeiture. The
Court then proceeded to determine that the nature of the liability
created under A.R.S.§ 33-420(A) was a penalty, and thus was controlled
by a four year general limitations period under A.R.S. § 12-550. This
interpretation gives much needed extra time for people suffering from
the effects of recorded documents containing false information.

On the ultimate question at issue, the homeowner alleged that there were
errors and misrepresentations in the various assignments. The Court
found against the homeowner though, because she was not affected by
those misrepresentations. The subsequent assignees who received the
assignments might be able to bring a claim, but since the Homeowner was
not a party to those transactions, the Court found that she was not
materially affected, as required by the statute.

In coming to this conclusion, the Court relied on the definition of what is
“material” from the law of fraud which makes a misrepresentation
material if a “reasonable person would attach importance” to the
“existence or nonexistence” of the fact in “determining his or her
choice of action in the transaction in question.” The Court stated in
no uncertain terms that the most relevant transaction between the
homeowner and the defendants was the agreement to borrow money to
purchase the home, and to repay that money. The homeowner’s liability
was created under the note she signed, and that liability remained no
matter what transpired between the mortgage lenders and its assignees.

If you need assistance in clearing title to your property because of wrongfully recorded documents, or other issues affecting your real estate, contact the offices of Platt & Westby, P.C.  for a free consultation.