Arizona Court of Appeals Division Two Holds That Later-Recorded First Deeds of Trust are Superior to Planned Community Association Assessment Liens.

Plaintiff (the “Association”) filed a complaint seeking judicial foreclosure of liens it claimed against 19 parcels of real property in Pinal County.  The Association claimed the liens arose as a result of unpaid Association assessments.  It further claimed the liens had been perfected upon the recordation of the Association’s Covenants, Conditions and Restrictions (“CC&Rs”), and that the liens were superior to other claims of interest in the properties.

 Defendant banks (the “Banks”) filed a motion for summary judgment.  The trial court granted the motion and awarded attorneys’ fees to the Banks pursuant to statute and as a Rule 11 sanction against the Association.  The Association appealed.  The Court of Appeals affirmed.

Pursuant to A.R.S. § 33-1807(B), a lien for planned community association assessments has priority over all other liens, interests and encumbrances, except for those enumerated by the statute.  The enumerated exceptions include (1) liens and encumbrances recorded before the assessment declaration, (2) a recorded first mortgage or recorded first deed of trust, and (3) liens for real estate taxes and other government assessments.

The Court of Appeals rejected the Association’s argument that a “first deed of trust” must be first-in-time recorded to obtain priority under the statute.  If that were true, then the “recorded first deed of trust” exception would be superfluous to the exception giving priority to all encumbrances recorded before the assessment lien.  The trial court therefore correctly granted summary judgment to the Banks.   

The trial court also did not err by awarding sanctions under Arizona Civil Procedure Rule 11.  A court is required to impose Rule 11 sanctions when (1) there was no reasonable inquiry into the basis for a pleading or motion; (2) there was no chance of success under existing precedent; and (3) there was no reasonable argument to extend, modify or reverse the controlling law.  Here, all three criteria were met.

The trial court also did not err by awarding attorneys’ fees to the Banks pursuant to A.R.S. § 33-1807(H) (providing for award of costs and attorneys’ fees to prevailing party in an action addressing the priority of planned community assessment liens).

The Court of Appeals also awarded fees on appeal pursuant to Arizona Civil Appellate Procedure Rule 25 (allowing fee awards for frivolous appeals).

Judge Kelly authored the opinion.  Judges Vásquez and Eckerstrom concurred.