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Beck v. Deem - 1/14/2010

Arizona Court of Appeals Division One Holds That A.R.S. §§ 14-3910 and 14-3972(C) Protect a Third-Party Purchaser of a Beneficial Interest in a Deed of Trust Even When the Original Transferor Wrongly Obtained Title Through a Fraudulent Affidavit for Transfer of Real Property.


When Rodney Olson died in 2003, he left a home to his three children – Sherry, Beck, and Todd.  Sherry hoped to refinance the home’s mortgage through Landmarc Capital & Investment Company and executed a deed of trust in Landmarc’s favor.  Beck and Todd signed quitclaim deeds disclaiming their interest in the home.  In exchange, Sherry agreed to pay Beck $25,000.

To obtain title from the estate, Sherry executed an Affidavit for Transfer of Real Property Title under A.R.S. § 14-3971(E).  Among other things, the statute required that such an affidavit involve property not worth more than $50,000 and imposed penalties for false statements.  Sherry’s affidavit stated she was the only “living heir” and that the home’s value did not exceed $50,000, although the home had been appraised a month earlier for $244,000. After obtaining title, Sherry refinanced the mortgage with Landmarc for $155,000 and Landmarc later assigned its beneficial interest to Deem.

Meanwhile, Sherry did not pay Beck the agreed $25,000, causing Beck to attempt to recover the home on behalf of Olson’s estate.  The trial court ordered Sherry to return the home to the estate, concluding that Sherry’s affidavit was based on false statements and was ineffective to transfer title to Sherry.  Beck also brought a claim against Landmarc, Deem, and others, asking the court to invalidate the deed of trust.  The trial court granted summary judgment for Beck, finding that the deed of trust was invalid.  Deem, Landmarc, and others appealed.

In a unanimous opinion, the Court of Appeals reversed, holding that Deem’s beneficial interest in the deed of trust was valid.  First, the Court explained that A.R.S. §§ 14-3910 and 14-3972(C) extend certain protections to purchasers or lenders who acquire interests in property through transfer affidavits – like Sherry’s affidavit – or through “deeds of distribution,” which involve an estate’s appointed “personal representative.”  The Court explained that the statutes protect purchasers who rely on improper transfer affidavits, so long as the purchaser is not implicated in any fraud.  Second, the Court held that the fact that Deem did not purchase or lend directly with Sherry did not affect Deem’s interest.  A narrow reading of A.R.S. § 14-3910 suggests that the statute would only protect an interest of a third-party like Deem only if it were acquired through a “deed of distribution.”  The Court reasoned, however, that it did not make sense to afford less protection to interests acquired through transfer affidavits, which are a “simplified means” of transfer not requiring an appointed personal representative.  Thus, read together, A.R.S. §§ 14-3972 and 14-3910 afforded Deem the same protections regardless of the form of transfer.  Finally, because no evidence suggested that Deem had any involvement in Sherry’s false affidavit, Arizona law protected Deem’s interest.

Judge Irvine authored the opinion; Judges Gemmill and Thompson concurred.

PRACTICE NOTE:  Although Appellants prevailed on appeal, the Court declined to grant their request for attorneys’ fees and costs.  First, the Court held that A.R.S. § 12-341.01 did not apply because the parties requested statutory relief, not relief “arising out of contract.”  Second, A.R.S. § 33-420 did not apply.  That statute allows an award of fees against a party who files a “wrongful document” against property, but Sherry was not a party to this suit.  Finally, A.R.S. § 33-806(B) did not apply.  Although that statute allows fees “to prevent . . . [i]mpairment of the security provided by the trust deed,” the “impairment of the security” means actual damage, waste, destruction, or improper maintenance of the secured property.

Posted By: Joseph N. Roth

Posted On: 1/26/2010