Arizona Court of Appeals Division One Holds That A Prior Recorded Deed of Trust Can Create a Valid Senior Lien Even if the Deed Fails to Include a Legal Description of the Real Property.

America’s Wholesale Lender (“AWL”) made two loans to homeowners.  The loans were to be secured by senior deeds of trust.  A third loan, made by Camis, Inc., was to be secured by a new deed of trust junior to the AWL deeds.  The homeowners executed two deeds of trust in favor of AWL, both of which incorporated an Exhibit B listing the legal description of the property.  Both of the deeds, however, were recorded without Exhibit B and consequently without a legal description.  Eventually, AWL recorded corrected deeds but not before Camis recorded its deed.  Camis eventually held a trustee’s sale and assigned beneficial interest in its deed to 3502 Lending via a sales agreement, which expressly noted that Camis held an encumbrance with “third lien priority.”  3502 Lending later filed suit to quiet title, claiming that the trustee’s sale extinguished AWL’s deeds because neither had included a legal description.  The trial court eventually granted summary judgment in AWL’s favor.  This appeal followed.

The Arizona Appeals Court held that AWL’s deeds of trust were valid despite that they were recorded without containing a legal description.  The Court reasoned that the deeds contained legal descriptions at the time they were executed and sent for recording, and therefore the deeds were valid when executed and enforceable as between the parties to the original transaction.  The Appeals Court further concluded that the deeds were binding as to 3502 Lending, as a subsequent purchaser, because 3502 Lending was on constructive notice of the senior deeds – the deeds themselves were recorded and the sales agreement between Camis and 3502 Lending stated that Camis was in the third lien position.

Judge Weisberg authored the opinion; Judges Hall and Gemmill concurred.