Arizona Court of Appeals Division Two Holds That (1) a Tax Lien Purchaser is Not a Bona Fide Purchaser Because the Recorded Default Judgment Provides Constructive Notice of the Land Owner’s Interest in the Land, (2) the Trial Judge Has Discretion to Extend the Time Period for Filing a Motion for Attorneys’ Fees, and (3) Tax Lien Holders are Entitled to Reasonable Attorneys’ Fees in Contesting the Redemption of the Lien Even When the Resistance is Ultimately Unsuccessful.

Hodges was served with notice by publication of a tax lien redemption foreclosure initiated by Leveraged Land Company (“LLC”).  In June 2005, LLC obtained a default judgment and took title to Hodges’s land.  LLC sold the land to Raven and Raven conveyed a partial interest in the property to Bingham in February 2007. 

In November 2005, Hodges moved to set aside the default judgment for insufficient service of process and moved for a new trial on the ground that he was able to redeem the tax lien.  LLC and Raven successfully opposed both motions at the trial court.  On appeal, the Court of Appeals determined that the service was sufficient, but reversed the trial court’s denial of Hodges’s motion for a new trial because Hodges had timely shown he was able to redeem the tax liens.  On remand Hodges redeemed the tax liens with money provided by Cain, Hodges successor in interest and intervener in the action.

LLC filed a complaint against Hodges and Cain (Hodges II), challenging the validity of Hodges’s redemption of the lien.  The trial court granted partial summary judgment in favor of Hodges and Cain, dismissed LLC’s claims, and entered judgment pursuant to Rule 54(b).  The Court of Appeals affirmed Hodges’s redemption on appeal.

While Hodges II was pending, Hodges and Cain moved for summary judgment against Raven and Bingham, and asked the court to quiet title to the property to Cain.  The trial court granted the motion and, in its final judgment, ordered Bingham and Raven to pay attorneys’ fees to Hodges and Cain.  The trial court also required Hodges and Cain to pay $1,500 of LLC’s attorneys’ fees pursuant to A.R.S. § 42-18206.  LLC, Raven, and Bingham filed separate appeals.

Raven and Bingham argued that trial court erred in quieting title to Cain because they were bona fide purchasers.  The Court of Appeals affirmed, finding that neither Raven nor Bingham qualified as a bona fide purchasers – one who purchases property for value and without notice.  The Court reasoned that prior decisions make clear that pursuant to Arizona Rule of Civil Procedure 59(j) a person served by publication has one year to redeem a tax lien and, if successful, a prevailing party under a Rule 59(j) motion is placed in the same legal position he was in before the entry of default.  The Court noted that purchasing a tax lien entails risk and the purchaser bears the burden of protecting its own interests.  In this matter, LLC properly recorded the treasurer’s deed with the default judgment attached.  LLC, Raven, and Bingham, therefore, had constructive notice of Hodges’s interest in the property and, therefore, were not bona fide purchasers.

Bingham contended that the trial court erred in ordering it to pay attorneys’ fees to Cain because Cain’s application was untimely under Rule 54(g)(2).  Rule 54(g)(2) states that a “motion for attorneys’ fees shall be filed within 20 days from the clerk’s mailing of a decision on the merits of the cause unless extended by the trial court.”  (Emphasis added.)  The Court of Appeals found that the rule’s plain language gave the trial court discretion to extend the time for requesting attorneys’ fees, which it did.

Bingham further argued that the trial court erred in awarding attorneys’ fees in the quiet title action because Cain did not tender five dollars with a request for the execution of the quitclaim deed as required by A.R.S. § 12-1103.  The Court of Appeals found that the record supported the trial court’s finding that Cain’s counsel sent Bingham correspondence that included a quitclaim deed and a check for five dollars. 

LLC appealed the trial court’s award of $1,500 in attorneys’ fees to LLC pursuant to A.R.S. § 42-18206.  Section 42-18206 provides that a person entitled to redeem a lien may do so, “but if the person who redeems has been served personally or by publication in the action, judgment shall be entered in favor of the plaintiff against the person for the costs incurred by the plaintiff, including a reasonable attorney fee to be determined by the court.”  The trial court determined that LLC’s request of $153,182 in attorneys’ fees was unreasonable and awarded it $1,500. 

The Court of Appeals addressed the issue of whether Hodges was required to pay attorneys’ fees reasonably incurred by LLC in resisting the redemption.  The Court found that the plain language of § 42-18206 does not suggest that there is a temporal limit to its application or that it only applies to certain matters.  The Court of Appeals rejected both Hodges’s argument that LLC’s right to attorneys’ fees ended when it initially obtained the default judgment as well as Hodges’s contention that LLC’s right to attorneys’ fees ended when Hodges’s declared his intent to redeem the lien.  The Court found that the trial court abused its discretion because its award was based on the erroneous assumption that LLC was not entitled to fees for an unsuccessful appeal.  Section 42-18206, however, contemplates the award of attorneys’ fees regardless of whether the plaintiff is successful in the underlying litigation.  On remand, the Court of Appeals noted that the trial court has discretion to determine reasonable fees and whether at some point in the proceedings it became apparent that LLC’s continued resistance was unreasonable.  The trial court must determine whether LLC’s objections to Hodges’s attempt to redeem were sufficiently reasonable and meritorious to justify the award of fees. 

Judge Brammer authored the opinion; Judge Kelly concurred.

Judge Eckerstrom dissented.  He maintained that the majority misconstrued § 42-18206 by requiring property owners to pay for all of a lien holder’s non-frivolous attorneys’ fees and costs.  He argued that the purpose of the statute is to make lien holders whole for any expenses they incurred in taking the necessary steps to foreclose before the property owner demonstrated the ability and intent to redeem the property.  He contended that the majority’s broad interpretation of §42-18206 confuses a determination of whether the amount of fees requested is reasonable with a determination of the reasonableness of the scope of the litigation, and will ultimately discourage redemption by property owners.