Farris v. Advantage Capital Corp. – 11/1/2007

November 6, 2007

Arizona Supreme Court Holds That a Creditor’s Action Under Arizona’s Version of the Uniform Fraudulent Transfer Act to Void a Debtor’s Allegedly Fraudulent Transfer of Real Property Is an Action “Affecting Title to Real Property” Under Arizona’s Lis Pendens Statute.

In 2006, Advantage Capital Corporation (“Advantage”) sued former employee, Charles Bolton, to recover money that had gone missing from its customers’ accounts after his termination. Also named in the suit were Bolton’s wife and Marian Farris, Bolton’s mother. Advantage sought to void the sale of the Boltons’ residence to Farris on the grounds that it was a fraudulent transfer of real property. Advantage also filed a lis pendens against the property pursuant to A.R.S. § 12-1191(A). Farris filed suit to remove the lis pendens, and Advantage removed the case to District Court. In a certified question to the Arizona Supreme Court, the District Court of Arizona asked whether an action under Arizona’s version of the Uniform Fraudulent Transfer Act (“UFTA”), A.R.S. §§ 44-1001 to -1010, to void an allegedly fraudulent transfer of real property, is an action “affecting title to real property” under the Arizona lis pendens statute.

The Supreme Court accepted jurisdiction, and answered the question in the affirmative. Arizona’s lis pendens statute allows parties to an action affecting title to real property to file a notice of the pendency of the action with the recorder of the county where the property is situated. A lis pendens action is therefore proper if the underlying action affects the title to the real property. Under Arizona’s version of the UFTA, a creditor may void a debtor’s fraudulent transfer of real property to satisfy the creditor’s claim. The transfer of real property requires the transfer of title to that property; therefore, an action to void an allegedly fraudulent transfer of real property is an action “affecting title to real property.” A creditor can permissibly file a lis pendens under these circumstances.

Justice Ryan wrote the opinion for the unanimous Court.