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Stauffer v. U.S. Bank National Association - 8/20/2013

Arizona Court of Appeals Divison One Holds That Recorded Documents That Assert an Interest in Real Property, Such As a Notice of Trustee Sale, Are Subject to Arizona’s Groundless Lien Statute, A.R.S. § 33-420.


In 2005, the Stauffers owed money under a promissory note secured by a deed of trust.  At some point in 2010, the Stauffers allegedly failed to make installment payments.  Over several months in 2010, several documents were recorded in connection with the deed of trust: a Notice of Substitution of Trustee, appointing First American Title Insurance Company (FATCO) as trustee; FATCO’s Notice of Trustee Sale; and an Assignment of Deed of Trust, assigning all beneficial interest to U.S. National Bank Association. 

The Stauffers then filed a special action complaint against FATCO and U.S. Bank, among others, alleging that they caused the recording of documents containing false statements in violation of Arizona’s false recording statute, A.R.S. § 33-420.  The Stauffers also sought to quiet title in their favor under § 33-420.B. The trial court granted a motion to dismiss the Stauffers’ complaint, finding that the recorded documents did not assert an “interest in, or a lien or encumbrance against, real property” as A.R.S. § 33-420.A requires.  In addition, the trial court ruled that the Stauffers could not clear title under § 33-420.B because that section only applies if “false or fraudulent liens have been recorded,” something the Stauffers did not allege.  Finally the trial court ruled that the Stauffers lacked standing to clear title because they were not “owners” or “beneficial title holders” under § 33-420.B.  The Stauffers appealed.

A.R.S. § 33-420.A generally prohibits the filing of false or groundless documents.  The statute makes a “person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded, knowing or having reason to know that the document” contains groundless or false claims “liable to the owner or beneficial title holder of the real property.”  The Stauffers argued that the two recorded notices are “liens” because they could not exist but for the Deed of Trust and thus “grow out of the Deed of Trust.”  Although the statute does not define the word “lien” or “encumbrance,” the Court rejected this interpretation.  Looking to dictionary definitions, the Court noted that a “lien” is a “charge upon . . . property for the satisfaction of some debt” or “the security interest” itself.  The recorded notices are “not security interests and do not secure any debt or duty” and therefore are not “liens” under § 33-420.A.

The Court held that the recorded notices did, however, assert an “interest” in the property within the meaning of § 33-420.A.  An “interest” is a “right, title, or legal share in something.” The “Notice of Substitution of Trustee” qualified as an interest because it provided FATCO with a right to sell the property.  Furthermore, the “Notice of Trustee Sale” asserted FATCO’s right to sell of the property.  The Assignment of Deed of Trust also asserted “an interest in” the property because it transferred rights in the property to U.S. Bank.

As for the dismissal of the Stauffers’ claim to clear title, the Court affirmed the trial court in part but allowed the claim to move forward.  A.R.S. § 33-420.B allows an “owner or beneficial title holder” to “bring an action” to “clear title . . . based on the ground that the lien is forged, groundless, contains a material misstatement or false claim or is otherwise invlaid.”  The Court held § 33-420.B did not apply because the recorded documents were not “liens.”  Consequently, the Stauffers could not bring a separate action to clear title.  Subsection B, however, also provides that a claim to clear title may be joined with an “action for damages” under 33-420.A.  The Court held that this language covered the Stauffers’ claim because, presumably, that language was not restricted to the removal of a “lien.”

Finally, as to standing, the Court concluded that the Stauffers are “owners” under the statute because they had the “right to possess, use, or sell the property.”  The fact that they had not yet fully paid off their loan obligation did not change the fact that they still had all traditional rights of ownership. 

Judge Orozco authored the unanimous opinion; Judge Swann and Judge Pro Tempore Cruz concurred.

PRACTICE NOTE: The Stauffers requested fees under A.R.S. § 33-420.A.  The Court denied the request without prejudice, noting that the request was premature because their “success on appeal merely results in their case being remanded to the trial court in order to allow the Stauffers to pursue their claim.”

Posted by: Joseph Roth

 

Posted On: 8/27/2013