Articles Posted in Quiet Title litigation

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As a result of the national real estate crisis many Phoenix and Arizona homes remain underwater. The recovery has helped, but not enough to lift all homeowners into positive equity territory.

It has come to our attention in speaking with clients that many times people have ceased payments on a second deed of trust. Usually this was done as a matter of necessity to reduce living costs.   A loan secured by a first deed of trust must be paid or the home will be foreclosed upon.   However, a holder of a second deed of trust will seldom foreclose on an underwater property. So payments on the second loan can be stopped and often were stopped to obtain short term relief.

It is now eight years since the housing crash and we are finding individuals who have deeds of trust recorded against their homes where no payment has been made for years. In many cases, their homes are still underwater. If the old deed of trust could be eliminated, it could make the difference between having an underwater home or a home with substantial equity.

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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).

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A recent case illustrates at least one of the pitfalls for those who invest in property tax liens. In Delo v. GMAC Mortgage, an investor (Delo) purchased a property tax lien on a property that had been acquired by Pinal County. Mr. Delo paid the outstanding property taxes and received an assignment from the County.

Following the three year waiting period for the owners to redeem the property tax lien by paying the past due taxes (plus interest), Mr. Delo proceeded to foreclose. Neither the owners nor the lenders defended and Mr. Delo obtained a default judgment.

However, while Mr. Delo’s lawsuit was proceeding, the lender on the property initiated a separate non-judicial foreclosure proceeding on the property. The original lender was EquiFirst with MERS (Mortgage Electronic Registration System) “as a nominee for Lender and Lender’s successors and assigns” and as “the beneficiary under the Security Instrument” and as legal title holder.

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Boundary disputes, which are disagreements regarding who owns a piece of property, can be quite common. Boundary questions often arise when a property owner makes an improvement, such as building a fence.

For example, when you are raising a fence outside of your house, you may unknowingly be placing your fence on your neighbor’s property. On the other hand, you may be erecting the fence entirely on your property, but your neighbor may argue that the fence is encroaching on his property. It is important that any issues concerning boundary disputes get resolved in a timely manner.

There are a number of factors that can be reviewed to determine who has rightful ownership of the land. If a survey was prepared at the time of purchase, it will show the actual boundary lines. Otherwise, the property description in the deed, which is usually recorded with the county, includes a description of the boundary lines of the property. However, if the property description was originally recorded many years ago, it may not be entirely accurate. Therefore, you may want to have a survey done if no survey was done at the time of purchase.

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The lis pendens itself is not a lien, but it often has a similar effect on the property it is recorded against and, many court battles have been fought over the appropriateness of a lis pendens in the first place. However, to be sure, A.R.S. § 12-1191(A) is not a license to litigants to freeze their opponents’ real property and may be subject to abuse. In fact, A.R.S. § 33-420(A) states that, one who:

causes a document asserting [a] claim to be recorded . . . knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial title holder of the real property for the sum of not less than five thousand dollars, or for treble the actual damages caused by the recording, whichever is greater, and reasonable attorney fees and costs of the action.

Furthermore, be cautious when filing a lis pendens in Arizona, because A.R.S. § 33-420 (E) clearly states that:

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Most debates about when a lis pendens is appropriate center around whether the underlying lawsuit truly “affects title” to real property as is required by A.R.S. § 12-1191. Some Arizona Courts have interpreted this statutory language broadly, meaning any lawsuit to determine rights “incident” to title will permit recording of a lis pendens. Other Arizona Courts have interpreted the term “affects title” more narrowly. For instance, a recent decision determined that a Homeowner’s Association (HOA) exceeded its rights to file a notice of lis pendens when seeking injunctive relief against a homeowner for violation of the HOA’s governing documents. See Santa Fe Ridge Homeowners’ Association v. Bartschi, 219 Ariz. 291, 199 P.3d 646 (App. 2008). In that case the Arizona Court of Appeals case held that, where the HOA was not seeking to expand, restrict or burden the rights of a homeowner, but merely enforcing the existing CC&R’s (codes, covenants and restrictions), the filing of a notice of lis pendens was not proper.

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Are you seeking to buy or sell real property in Arizona that a third-party is or may be claiming an adverse ownership that is disputed? Or, are you claiming an interest in a real property that someone else disputes? If the answer to either of these questions is yes, then your next step should be to determine whether a legal action has been filed that affects title to the subject real property.

In Arizona, a filing with the County Recorders Office of a notice of lis pendens, which is Latin for “pending litigation”, places potential buyers on notice that title to the property is involved in real estate litigation of some sort, including but not limited to claims to quiet title, avoidance or to void an allegedly fraudulent transfer, or specific performance for the sale of a home or real property.

Arizona law permits a party to a legal “…action affecting title to real property” to file a lis pendens with the county recorders office where the property is located giving notice that a legal action or defenses to a legal action has been filed. (See Ariz. Rev. Stat. (“A.R.S.”) § 12-1191(A) (2003 & Supp. 2006). In fact, the recording of a lis pendens also prevents a potential future buyer from acquiring any interest in the subject property that is greater than that of the original buyer. Therefore, in Arizona, anyone who acquires property with a lis pendens recorded takes that property subject to the outcome of the lawsuit and may be binding on the purchaser or lender who became involved with the property after the lis pendens was recorded.