QUIET TITLE: A.R.S. Section 12-524 requires a quiet title action to be brought within 5 years after the cause of action accrues. The court held that this 5-year limitation applies even where a deed to the defendant was allegedly forged.

CONDOMINIUMS: Petitioners are former condominium unit owners who object to the forced sale of their unit by their condominium association following dissolution of the condominium. The court held that the Arizona Condominium Act, A.R.S. Section 33-1201, et seq., which authorized and governed the sale’s execution, does not violate the eminent domain provision of the Arizona Constitution However, the court also held that under these circumstances, the Condominium Act required the sale of all property, rather than individual units as occurred here.

DEEDS OF TRUST: The court held that A.R.S. Section 33-816 requires the beneficiary of a deed of trust to commence foreclosure proceedings within the six-year statutory period for enforcing the note under Section 12-548. Because defendant's recorded deed of trust is barred by limitation, the lien has been discharged and plaintiffs are entitled to judgment under Section 12-1104 in their action to quiet title.

boundary by acquiescence: The court held that Arizona law recognizes a cause of action for boundary by acquiescence, and that the claimant bears the burden of proving by clear and convincing evidence the following elements: 1) occupation or possession of property up to a clearly defined line, 2) mutual acquiescence by the adjoining landowners in that line as the dividing line between their properties, and 3) continued acquiescence for 10 years, and 4) the actual boundary is uncertain or disputed. The court also held that occasionally parking a car partially on an adjoining landowner’s property is insufficient to establish the open and notorious element of an adverse possession claim.

BENEFICIARY DEEDS: In this action to set aside a beneficiary deed based on undue influence the court held that plaintiff did not establish undue influence because none of the eight McCauley factors applied. The court refused to add post-execution statements of a grantor as a ninth factor. Post-execution statements could be relevant if they support one of the existing eight factors, but that was not the case here. The alleged post-execution statements were made fourteen months after the deed was executed and they did not reference the grantor's state of mind, his mental condition, or the circumstances present when the deed was executed.

BAD FAITH: The court summarized its holding as follows:
Centerpoint Mechanic Lien Claims, LLC ("CMLC") appeals the grant of summary judgment on its insurance contract coverage claims in favor of Commonwealth Land Title Insurance Co. ("Commonwealth"). Because in so ruling, the superior court impermissibly applied contractual liability defenses to coverage questions, we hold that the court erred in granting summary judgment as to CMLC's contract claims. CMLC further appeals the court's denial of its motion in limine, arguing the court violated the collateral source rule. But the collateral source rule is inapplicable to this case. CMLC also challenges the court's refusal to give its requested jury instructions on punitive damages and tort damages. While we hold the court erred in declining to instruct the jury on punitive damages, we discern no error in the court's refusal to give a special instruction on tort damages.

In its cross-appeal, Commonwealth challenges the 2019 jury award for $5 million to CMLC on its remaining insurer bad faith claims, arguing that the jury's verdict is not supported by substantial evidence establishing damages. But because sufficient evidence supports this award, we conclude the award is not speculative and the court did not err by refusing to enter a directed verdict as Commonwealth requests.

TAX SALES: Defendant Othon purchased property from Carreon but never recorded the deed with the county recorder. The property was encumbered by delinquent property taxes, and Plaintiff purchased a tax lien on the property. Plaintiff then filed a tax lien foreclosure action against Carreon, and the trial court entered a default judgment. In this quiet title action, the court determined that Othon may not collaterally challenge the default judgment entered in the separate tax lien foreclosure action.

TITLE INSURANCE: Defendant's predecessor was a construction lender that stopped making payments on a construction loan when the developer defaulted, which was in compliance with the construction loan agreement. A contractor filed a mechanics lien and defendant made a claim under its title insurance policy issued by plaintiff. Plaintiff denied the claim on the basis that Exclusion 3(a) of the policy applied because defendant had "created" the claim by stopping payments. The court held that whether defendant was within its contractual rights to "create" the mechanics liens is irrelevant because the exclusion applies if the insured's actions caused the lien, regardless of the insured's intent. However, the court reversed and remanded in order for the trial court to make the following determinations:

1. Did the developer fail to pay the contractor because defendant withheld remaining funding, or did the developer's failure to pay the contractor precede defendant's withholding of funds.

2. Did the work the contractor performed occur before or after defendant withheld funds, and did defendant notify the contractor that funding would cease.

3. The precise sum owed the contractor for its mechanics lien remains in dispute. Defendant argues that plaintiff's contention that defendant caused the mechanics lien by withholding funds is incorrect because the amount owed on the mechanics lien (approximately $2 million) vastly exceeds the $1.1 million that was withheld. The trial court must undertake the necessary factfinding.

DEEDS OF TRUST: The court held that when a debtor defaults on a debt secured by a deed of trust and the trustee chooses to sell the property, the trustee's act of recording and serving a notice of trustee's sale does not accelerate the debt as a matter of law.

FORECLOSURE: A.R.S. Section 33-727(B), which governs the distribution of excess proceeds following a foreclosure sale, does not entitle a senior lienholder to the excess proceeds that the junior lien's foreclosure generates.

TAX LIEN FORECLOSURE: The court held that in tax lien foreclosure actions, delivery of a pre-litigation notice to each of the three addresses referred to in Ariz. Rev. Stat. 42-18202(A)(1)(a)-(c) is sufficient to satisfy the statute's pre-litigation-notice requirement, even if the lienholder has reason to believe that the property owner never received the notice.

CONDOMINIUMS: The court held that A.R.S. Section 33-1228, providing for the termination of a condominium upon approval of 80% of the unit owners, is constitutional, but that if there have been substantive post-purchase changes to the statute, the version of the statute in place at the time of purchase of the plaintiff's unit controls.

BENEFICIARY DEEDS: In this action to set aside a beneficiary deed on the basis of undue influence, the court held that the grantor's post-deed statements regarding his distrust of the grantee were relevant and admissible evidence, and were sufficient to overcome a summary judgment.

FOREIGN JUDGMENTS: A foreign judgment is enforceable in Arizona courts only if domesticated within the four-year statute of limitations to enforce foreign judgments. (A.R.S. Section 12-544(3).) But a foreign judgment for support is exempt from this deadline. The court held that where a foreign judgment contains both support and non-support awards, only the portion of the judgment that is for support is exempt from the statute of limitations.

DEEDS OF TRUST: The court held: 1) a bankruptcy discharge does not commence the limitations period on the lender's ability to foreclose, nor does a bankruptcy discharge trigger an optional acceleration clause, which is exercisable only at the lender's discretion, and 2) the nature and extent of a security interest is a matter of state law, and thus Arizona law controls the resolution of this issue.

HOMEOWNERS ASSOCIATIONS: The court held that a Homeowners Association cannot rely on a general provision allowing amendments to CC&Rs in order to create new affirmative obligations where the original declaration did not provide notice to the homeowners that they might be subject to such obligations. Future amendments cannot be entirely new and different in character, untethered to an original covenant.

HOMESTEADS: Answering a question certified to the Arizona Supreme Court by the United States Bankruptcy Court for the District of Arizona, the court held that a recorded judgment lien attaches to homestead property where the judgment debtor has equity in excess of the amount exempt under Arizona law.

NOTE: The statutes cited in the opinion were amended by HB 2617, Ch. 368 (2021) effective January 1, 2022. A.R.S. Section 33-964(B) now provides in part "On the sale of homestead property that is subject to a judgment lien, the judgment creditor shall be paid from the proceeds of the sale after the homestead exemption amount is paid to the judgment debtor as prescribed in section 33-1101 and after payment of any liens on the property that have priority over the judgment lien.

DEEDS OF TRUST: The court held that the six-year statute of limitations to enforce a deed of trust under A.R.S. Sections 12-548(A)(1) and 33-816 does not begin to run until the earlier of the maturity date or the creditor's acceleration of the underlying debt. The court further held that the discharge in bankruptcy of the underlying debt does not start the running of the statute of limitations.

EASEMENTS: The court held that property owners who lack physical access to an outlet street are entitled to use a federal land patent right-of-way partly on their neighbor's property. However, the court vacated the portion of the judgment entitling the defendants to use the entirety of the right-of-way and remanded for the trial court to determine the proper scope of defendants' entitlement.

TAX SALES: The court held that 1) a tax deed is void where proper notice required by A.R.S. 42-18202(A)(1) was not sent and 2) a person who previously purchased property, and whose deed was not recorded, has standing to assert the invalidity of the tax sale.

TITLE INSURANCE: Fidelity accepted the defense of an action to foreclose mechanics liens with a reservation of the right to deny coverage on the basis that the mechanics liens were caused by the insured's cutoff of construction loan funds. The insured entered into a settlement with the lien claimants. The court held that when a title insurer agrees to defend its insured against a third-party claim but reserves the right to challenge coverage, the insured may independently settle with the third-party claimant without violating the insured's duty of cooperation as long as the settlement is reasonable. However, even though the insured had a contractual right under the loan agreement to stop funding the loan, the court held Exclusion 3(a) of the title policy excluded coverage because the mechanics liens were created by lender's own conduct of cutting off funding.

INSURANCE BAD FAITH: The court held that an insurer cannot, as a general matter, assert waiver as an absolute defense to a bad-faith claim. But a contract defense, such as a waiver, may be raised in resolving an issue that informs, but does not decide, a determination concerning the elements of an insurance bad-faith claim.

HELOC STATUTE OF LIMITATIONS: The court held that the 6-year statute of limitations (A.R.S. 12-548(A) on a home equity line of credit with a defined maturity date commences on the due date of each matured but unpaid installment and, as to unmatured future installments, the period commences on the date the creditor exercises the optional acceleration clause.

COMMUNITY PROPERTY: Title to two properties was acquired in the wife's name and the husband provided disclaimer deeds. Mortgage payments and apparently other contributions were made from a bank account that contained both separate funds of the wife and community funds. The court held that the disclaimer deeds were effective to convert the properties to the wife's separate property, but the community was entitled to reimbursement for its contributions and with a proportionate share of appreciation.

TRUSTEE'S SALES: A.R.S. 12-548(A)(1) provides that an action to collect a debt evidenced by a written contract must be commenced within six years after the cause of action accrues. Here, defendant commenced a non-judicial foreclosure more than six years after recording notices of default and sale. However, the notices did not state that the optional right to accelerate the debt was being exercised. The court held that the entire debt had not become due, so the statute of limitations did not apply.

PUBLIC EASEMENTS: A transfer of real property, where the land transferred abuts or is along or bounded by a roadway, is presumed to pass title to the center of the abutting roadway and is subject to a public easement for roadway use.

ANTI-DEFICIENCY: In determining whether a loan qualifies as a "construction loan" entitled to anti-deficiency protection under A.R.S. 33-729(A), as opposed to a home improvement loan that is not entitled to such protection, the court rejected the appellate court's requirement that in order to qualify as a construction loan, the home must be "built from scratch". Instead, the court identified five non-exclusive factors indicating whether a loan qualifies as a construction loan under the statute:
1. whether there was a complete or substantially complete demolition of an existing structure and a new building constructed in its place;
2. the intent of the parties when executing the loan documents;
3. whether the structure was inhabitable or inhabited during construction;
4. whether the structure was largely preserved and improved or substantially expanded; and
5. whether the project is characterized as "home improvement" or "construction" in the loan documents and in the permits or other official documents.

JUDGMENTS: The court considered the application of the four-year statute of limitations in A.R.S. 12-544(3) to a foreign judgment originally issued in 2010, but amended in 2019. It held that the amended judgment is entitled to full faith and credit as a final judgment and that the Arizona limitations period on domesticating and enforcing that judgment did not begin to run until 2019.

MINERALS: The court held that a mineral reservation in a deed does not include "stone, rock, sand, and clay" where another provision in the deed allowed the grantor to take stone, rock, sand, and clay when necessary or convenient to the process of extracting minerals from the property.

HOMEOWNERS ASSOCIATION LIENS: The court that, even though defendant's payment after a foreclosure action had been commenced eliminated the principal sum of unpaid assessments, foreclosure could proceed for remaining fees and costs.

UNLAWFUL DETAINER: A.R.S. 12-1173.01 requires post-trustee's sale forcible detainer actions be filed only in the superior court. The justice court lacks jurisdiction to hear such actions.

COMMUNITY PROPERTY: In a dissolution action, where a married couple acquired title to real property in the husband's name alone and the wife signed a disclaimer deed, the property was the husband's separate property. Since the community paid all costs associated with purchasing and improving the separate property – with no separate capital contributions – and the property appreciated in value, the community is entitled to an equitable lien for the full contribution, including the full increase in equity. Accordingly, the wife was entitled to an equitable lien in the amount of one-half of the sales proceeds.

JUDGMENTS: The court held: (1) a final judgment obtained in a Dutch court is recognizable under Arizona's version of the Uniform Foreign-Country Money Judgments Recognition Act, A.R.S. Section 12-3251 to -3254, because the Netherlands has a reciprocal law related to foreign-country money judgments that is similar to Arizona's Act; and (2) the money judgments obtained by the Netherlands can be recognized because they are not a fine or other penalty prohibited under the Act. The court noted that "A Reciprocal Law" can include case law and court practice.

COMMUNITY PROPERTY: The court held that parties acquire community property and debt even during a marriage that results in an annulment.

CC&R'S: The court held that CC&R's providing for operating a golf course in a residential development was an "affirmative covenant" that imposes an affirmative duty to operate a golf course, and not a "restrictive covenant" that restricts activity. The circumstances surrounding the creation of the covenant and the covenant's language itself demonstrate that covenant must be interpreted to require the owner of the golf course property to operate a golf course on the property.

STATUTE OF FRAUDS: Part performance, as a limited exception to the Statute of Frauds, applied to a purchase of real property.

DEFICIENCY JUDGMENTS: The court held that the portion of funds, and associated interest, late fees and costs, used to refinance a purchase money loan is entitled to anti-deficiency protection under A.R.S. Section 33-729(A) after a judicial foreclosure. However, the portion of funds used for home improvement, as opposed to new construction, is not entitled to anti-deficiency protection.

DEFICIENCY JUDGMENTS: In an action for a deficiency judgment after a judicial foreclosure, the court held (1) the six-year statute of limitations in A.R.S. Section 47-3118(A) controls the underlying debts, the deeds of trust, and a guaranty (not the four-year limitations period under A.R.S. Section 12-544(3)); (2) Appellees had standing to seek foreclosure of the deeds of trust; (3) the certification of each class satisfied the requirements for initiating a foreclosure action as outlined in the deeds of trust; and (4) Nevada Revised Statutes Section 645B.340 (requiring a majority vote of lenders of a multi-beneficiary loan) did not apply to bar Appellees’ claims.

EASEMENTS: The court held that:
(1) an unactivated easement is subject to a merger;
(2) a common law easement by implied way of necessity does not exist if the severance of the parcel did not cause the lot to lack a reasonable outlet;
(3) unity of ownership for a merger may occur even if the parties are technically different;
(4) in a private condemnation action, a finding that a more reasonable route exists through the subject property precludes the condemnor from condemning its selected route; and
(5) a private condemnation judgment must be paid before a final order of condemnation can issue and an easement recorded.

TRUSTEE'S SALES: The court held that if a junior claimant files an application for excess proceeds resulting from a trustee's sale, and the superior court has reason to know a senior claimant may exist, the court may not issue an order releasing the proceeds until at least 180 days from the date the complaint is filed. See A.R.S. Sections 33-812(G) and (J). In so holding, the court rejected the argument that A.R.S. Section 33-812(J) imposes a 180-day deadline for applying for excess proceeds.

HOMESTEADS: The court held that:
1. A judgment lien does not attach to homestead property, but instead the creditor may execute on its judgment only by way of a forced sale of the property under A.R.S. Section 33-1105.
2. When a homestead exemption is abandoned by a conveyance of the property, the judgment lien does not re-attach to the property upon the sale.
3. The judgment debtor did not abandon their homestead under A.R.S. Section 33-1104(A)(3) by vacating the home four days before they sold it because that section also states that a homeowner "may remove from the homestead for up to two years" without abandoning it.

STATUTE OF FRAUDS:

The trial court granted plaintiffs a life estate in real property even though there was no written contract. The court applied the "part performance" exception to the Statute of Frauds (A.R.S. 44-101) based on plaintiffs' following actions: (1) selling their home in Mexico; (2) moving to the property with their young son; (3) contributing approximately $155,000 to finishing and furnishing the house; and (4) working on the property for two of the defendants. The appellate court reversed, holding that plaintiffs' actions were not unequivocally referable to a contract for a life estate since there were several other plausible explanations for plaintiffs' actions.

ENCUMBRANCES: Defendants recorded affidavits alleging that the Plaintiffs' properties were in violation of neighborhood covenants, conditions, and restrictions, but did not assert that the violations gave the Defendants or anyone else a claim or interest in the affected properties. The court held that because the affidavits did not claim or purport to create encumbrances, they are not subject to A.R.S. Section 33-420.

REFORMATION: In this action to reform a deed of trust to correct the legal description, the court held that when a claim for reformation is time-barred, a request for declaratory judgment seeking substantively the same relief as the reformation claim is also time-barred. The doctrine of replacement of mortgages did not apply because plaintiff's deed of trust recorded prior to defendant's deed of trust. The replacement doctrine allows a senior lender that discharges its mortgage of record and records a replacement mortgage to keep its priority as against the holder of an intervening interest in the property, but defendant's deed of trust recorded subsequent to plaintiff's deed of trust.

FORECLOSURE: The court reversed a summary judgment in favor of plaintiff, holding:
1. a purchaser of real property at an execution sale under A.R.S. Section 12-1622 has standing to assert a statute of limitations defense under A.R.S. Section33-816 and no additional contractual privity is necessary;
2. a creditor may unilaterally revoke its acceleration of debt;
3. unilateral revocation of the debt’s acceleration requires an affirmative act by the creditor, which must communicate to the debtor that the debt's acceleration has been cancelled;
4. a notice of cancellation of the trustee's sale may be an affirmative act by the creditor sufficient to communicate to the debtor, and to any third party investigating title to the property, that the creditor cancelled the debt's acceleration if it contains a statement revoking the acceleration; and
5. recording the notice of cancellation of trustee's sale with language revoking the acceleration constitutes sufficient notice that the creditor has revoked the debt's acceleration.

TRUSTEE'S SALES: The court held that a homeowner's failure to obtain an injunction before a trustee's sale under A.R.S. Section 33-811(C) results in the waiver of her damages claim arising from the trustee's sale, where the homeowner alleges that her name was forged on the promissory note and deed of trust. The court did not take this opportunity to recognize a cause of action for wrongful foreclosure in Arizona because even if it recognized such a cause of action, it would still be subject to the requisites of Section 33-811(C). Finally, the court acknowledged that its holding does not preclude plaintiff from pursing an action for damages arising from the recording of the allegedly forged deed of trust, because as long as such a claim does not depend on whether a trustee's sale occurred, it would not be barred by Section 33-811(C).

OPTIONS: The court held that an option to purchase real estate was not enforceable where it was silent as to the timing of payment or closing, terms of payment (earnest money, down payment, financing, and allocation of closing costs), condition of title upon conveyance, method of conveyance, whether escrow would be handled by a title agency and did not provide an alternative to selecting an appraiser to determine the sales price where the seller did not agree to the buyer's appraisal. The court did not reach the questions of whether the court could have issued an order specifying the method of selecting an appraiser or whether plaintiff may seek damages for breach of contract.

QUIET TITLE: Dominic Tripodi conveyed property to a trust, which provided that the property would go to Jennifer Robinson if she survived him. Jennifer died after Dominic, and Dominic's wife, Josephine, had previously conveyed title to herself as administrator of Dominic's estate. The court quieted title in favor of Jennifer's heirs, holding that Josephine did not establish that the property was community property and did not provide evidence that would support her assertion of adverse possession.

EQUITABLE SUBROGATION: An equitable subrogation claim is not a challenge to a trustee's sale and is therefore not waived when it is not raised as an objection to a trustee's sale pursuant to A.R.S. 33-811(C). Accordingly, Bank of America's action for equitable subrogation can proceed even though it was brought after defendant's deed of trust was foreclosed.

EQUITABLE SUBROGATION: The court explained that although replacement and equitable subrogation are similar doctrines, they apply in different situations. Subrogation applies when there are two different lenders because, by definition, one cannot be subrogated to one's own previous deed of trust. Conversely, replacement applies to a refinancing by the same lender. Here, the court applied the replacement doctrine to give US Bank priority to the extent it had refinanced its prior deed of trust. However, the court refused to give US Bank priority under the doctrine of equitable subrogation over JPMorgan Chase's HELOC deed of trust because that loan was not fully discharged, and the doctrine only applies when a loan is fully discharged. ($211,148 was paid on the HELOC deed of trust, leaving a balance of $3,452, and the trustors subsequently took advances until the total balance was $203,000.)

COMMUNITY PROPERTY: Where guarantors and their spouses were California residents, and the spouses did not sign guaranty agreements pertaining to real property in Arizona, the court applied Arizona law and dismissed the breach of contract action as to the spouses. A.R.S. 25-214(C)(2) requires joinder of both spouses to bind marital community to a guaranty or suretyship, whereas Cal. Fam. Code Section 910(a) provides that community property is liable for a debt incurred by only one spouse during marriage unless otherwise provided by statute.

DEFICIENCY JUDGMENTS: The court held that a promissory note's choice-of-law provision - not the deed of trust's - applies to an action for a deficiency judgment because deficiency actions stem from the underlying debt. The court further concluded that the deed of trust is effectively extinguished after the security property is sold at a trustee's sale and therefore provides no remedies to the lender beyond the trustee's sale. Accordingly, since the promissory note contained a Utah choice of law provision and the deed of trust contained a Missouri choice of law provision, Utah law governed and the deficiency action was barred by Utah's shorter 90-day statute of limitations.

LIQUIDATED DAMAGES: The court explained that a liquidated damages contract provision is enforceable if the pre-determined amount for damages seeks to compensate the non-breaching party rather than penalize the breaching party. It held that a nearly $1.4 million late fee assessed on a final loan balloon payment (5% of the amount due) constitutes an unenforceable penalty, even in a commercial transaction.

MEDICAL MARIJUANA: The court held that the lease to permit plaintiff to operate a medical marijuana dispensary was not void from its inception, and to the extent plaintiff is seeking damages for a breach, the lease was enforceable.

SUBORDINATION AGREEMENTS: The court held that subordination agreements functioned as conveyances of the landowner's interest in the encumbered property where the agreements contained language stating that the landowner "hereby grants, transfers, and assigns to the Trustee of the Deed of Trust all right, title, and interest of Owner . . . in and to the Property, in trust pursuant to the Deed of Trust with the power of sale".

STREET ABANDONMENT: The court held that the City was not precluded from conditionally abandoning a roadway even though, pursuant to the 1926 Dedication, the City received the roadway in trust for the public's use. The owners made the 1926 Dedication subject to the City's right to abandon city-owned property.

TRUSTEE'S SALES: The court held that the redemption price for a junior deed of trust holder redeeming from the foreclosure sale of a senior deed of trust is the sales price at auction, plus eight percent, plus the value of the deficiency judgment that is enforceable against the mortgage debtors when the junior lienholder's redemption right ripens.

TITLE INSURANCE: The Court answered three questions certified to it by the 9th Circuit Court of Appeals:
1. Section 2 of a 1992 ALTA Loan Policy applies when a lender purchases property by a full-credit bid at a trustee's sale, so policy coverage continues.
2. A full-credit bid at a trustee's sale is not a "payment" under Sections 2 or 9 of the policy, which provide for a reduction of the amount of insurance by the amount of the payment.
3. A full-credit bid neither terminates nor reduces coverage under Section 2 or 7 of the policy.

The court points out that a trustee sale may reduce or even eliminate a title insurer's ultimate liability under the policy. However this reduction or elimination is not a function of the credit bid amount. Rather, the amount of the reduction, if any, is the fair market value of the property the lender receives as a result of its credit bid or, if the property is acquired by a third party, the amount that party pays for the property.

NOTARIES: Plaintiff alleged that a deed was invalid because the notary had failed to notarize it with her official seal, and instead used only an embossing seal, also known as a "crimper". See A.R.S. 41-313 (E)(3) (2013) (notaries must use official seal to authenticate "all official acts on every certificate or acknowledgment signed and sealed by the notary"); A.R.S. 41-321 (Supp. 2015) (embossing seal is not an official seal and may be used only in conjunction with notary's official seal). The court held that the grantor had duly acknowledged the deed under the Uniform Recognition of Acknowledgments Act, codified in A.R.S. 33-501 to -508 (2014).

EQUITABLE SUBROGATION / CREDIT BIDS: The court held that a second loan and deed of trust were subrogated to the original loan and deed of trust's first-priority position over plaintiff's mechanics lien to the extent of the payoff amount. The court also held, however, that under the facts of this case the lenders' foreclosure of their deed of trust did not extinguish plaintiff's interest. At the trustee's sale, the lenders made a "credit bid" that exceeded the subrogation amount, thereby acquiring the property and retaining the full amount of their bid (minus the costs and expenses of the trustee's sale) when the portion of the bid in excess of the subrogation amount should have been distributed to the appellant, or the appellant's lien left in place. Because no proceeds were distributed, the doctrine of equitable subrogation requires that plaintiff's lien remain in place.

PARTITION: A home owned by two Qualified Personal Residence Trusts, each holding undivided one-half interests in the property, may be partitioned and sold under A.R.S. 12-1220(A), even though the former wife's beneficial residency interest extends to 2030 while former husband's beneficial residency interest extends to 2020.

TITLE INSURANCE: The court held that when an undisclosed title defect prevents the known, intended use of the property (in this case CC&R's that prevented the commercial development of the property) and causes the borrower to default on the loan, the lender's diminution-in-value loss should be calculated as of the date the title policy was issued rather than as of the date of foreclosure. Because the record did not establish that the title defect caused the borrowers' default and the ensuing foreclosure, the court reversed the court of appeals' opinion and remanded for further proceedings on that issue.

COMMUNITY PROPERTY: The presumption under A.R.S. 25-211(A)(1) that all property acquired during marriage is community property is a strong presumption. To overcome that presumption, the spouse maintaining that property was acquired by that spouse as a "gift, devise or descent," and is, thus, separate property under A.R.S. 25-213(A), has the burden of establishing the separate character of the property by clear and convincing evidence. Here, the husband failed to prove by clear and convincing evidence that he had inherited certain personal property.

DEFICIENCY JUDGMENTS: The court held that where a creditor under a deed of trust can obtain a deficiency judgment, he can also elect to waive the security under A.R.S. 33-722 and sue on the note, but that a specific waiver is not necessary. Rather, simply by suing on the note and not exercising its rights under its junior deed of trust, the lender waived the security in the deed of trust.

FORECLOSURE: After a judicial foreclosure of a deed of trust encumbering residential real property, Arizona's redemption statutes grant the holder of a junior homeowners' association assessment lien the right to redeem the property.

PROMISSORY NOTES: The court held that absent unusual circumstances the imposition of a flat 5% late-fee on a balloon payment for a conventional, fixed-interest rate loan is not enforceable as liquidated damages.

GUARANTY: In this action to recover under a loan guaranty, the court concluded Great Western breached the loan agreement by unilaterally terminating its obligation to extend financing without conducting case-by-case review of individual loan requests. The court also determined that Great Western's breach had prevented the borrower from receiving the benefit of the contract - namely, financing it required to build and market homes within the subject development, which would have, in turn, provided borrower with revenues through which it would be able to repay the loan. The court found Great Western had no valid excuse for doing so because the borrower had the ability to begin construction and was not in default of the loan agreement. Finally, the court determined that borrower had proven with reasonable certainty it would have profited in an amount that exceeded the outstanding balance on the loan, and defendant's liability under the guaranty was thereby reduced to zero.

TITLE INSURANCE: Under United Services Automobile Ass'n v. Morris, 154 Ariz. 113, 741 P.2d 246 (1987), when an insurer agrees to defend its insured against a third-party liability claim, but reserves the right to challenge coverage under the insured's policy, the insured may independently settle with the third-party claimant without violating the insured's duty of cooperation under the insurance contract; this settlement may assign to the claimant the insured's rights against the insurer, subject to the insurer's retained right to contest coverage. Here, the court held that the insured's settlement with mechanics lien claimants fell outside the permitted parameters of Morris because the insureds controlled the entity that purchased the mechanics liens, and the stipulated judgment between them was artificially inflated to an amount that vastly exceeded the amount paid to the lien claimants. The court specifically did not address Fidelity's argument that Morris does not apply to title insurance claims.

JUDGMENT LIENS: The court held that failing to attach an information statement, required by A.R.S. 33-967,  to a certified copy of a judgment does not invalidate an otherwise valid lien; rather the judgment lien simply lacks priority against competing creditors who record liens against the property before the information statement is filed. Accordingly, the judgment lien was effective as to a subsequent purchaser of the property, even though it lacked an information statement.

DEFICIENCY JUDGMENTS: The court held that the anti-deficiency protections of A.R.S. 33-729(A) extend to the costs commonly associated with a loan and, therefore, to the subject loan which was a residential construction loan that also refinanced a purchase money loan. Accordingly, interest, late fees and a mandatory construction deposit paid to a homeowner's association were entitled to anti-deficiency protection. The court specifically did not address whether A.R.S. 33-729(A) applies to the interest reserve amount because defendant did not raise the issue on appeal. Finally, the court held that defendant did not waive his arguments by failing to raise them at trial because A.R.S. 33-729(A) cannot be waived.

TITLE INSURANCE: The court held that where an undisclosed defect in title has caused a borrower's default, and the insured lender subsequently acquires the property through foreclosure, the date of the loan is the proper date to measure a property's diminution in value as a result of the undisclosed title defect, not the date of the foreclosure. The court stated that failure of the policy to specify the date the loss is to be calculated creates an ambiguity, and quoted the trial court's statement regarding the loss provisions of the policy: "insurance companies know how to write sentences that say 'on the date of foreclosure' in them. I don't know why they don't."

DEFICIENCY JUDGMENTS: The court held that, assuming A.R.S. 33-814(G) applies to guarantors, the protections afforded under the statute can be prospectively waived. Because the guarantors in this case entered written agreements expressly waiving anti-deficiency protections, the court affirmed the superior court's grant of summary judgment in favor of the lender. NOTE: For purposes of the court's analysis, it assumed, without deciding, that the "no action" provision in A.R.S. 33-814(G) precludes an action against anyone, including a guarantor, to recover the difference between the amount owed on the borrower's indebtedness and the fair market value of the property securing the residential deed of trust.

BENEFICIARY DEEDS: The court held that only a natural person who owns real property can execute a beneficiary deed pursuant to A.R.S. 33-405. Accordingly, because the decedent executed a beneficiary deed for property held by decedent in her capacity as trustee of a trust, the deed was invalid and did not transfer title to the grantee.

DEFICIENCY JUDGMENTS: A.R.S. 33-814(G) does not bar a deficiency judgment against an owner of vacant property, even where the owner intended to construct a house and reside in it. For Section 33-814(G) to apply, a dwelling must have been completed.

BAD FAITH: The court held that Everest Indemnity did not impliedly waive the attorney-client privilege by asserting subjective good faith as a defense in this bad faith case. The attorney-client privilege may be deemed waived when application of the privilege would deny an opposing party access to necessary information to counter a claim or defense asserted by the other party. It is not sufficient that the information sought is relevant or important to a claim or defense; the party holding the privilege must take steps to place the privileged information at issue. Waiver is implied only when, after receiving advice from an attorney, a party makes an affirmative assertion that it was acting in good faith because it relied on counsel's advice to inform its own evaluation and interpretation of the law.

DEFICIENCY JUDGMENTS: A.R.S. 33-814(A), which allows debtors and guarantors to have the fair market value of foreclosed property to be credited against the amount owed on a secured note, cannot be prospectively waived by either borrowers or guarantors.

MECHANICS LIENS: A.R.S. 33-1002(B), which prohibits subcontractors from filing mechanics liens against a dwelling of an owner-occupant, applies even where the owner-occupant transfers title to a wholly owned limited liability company.

LEGAL DESCRIPTIONS: A deed of trust that contained an incorrect legal description along with a correct street address was sufficient to impart constructive notice. Accordingly, the court reversed a summary judgment in favor of the plaintiffs (successors to the original trustor), holding that since plaintiffs were charged with constructive notice of the deed of trust, they were not bona fide purchasers without notice. The court also rejected plaintiffs' argument that they did not have a duty to search the grantor index for any lien created by an owner before their immediate predecessor. In a footnote the court noted that even though it may be common title industry practice to perform abbreviated searches, that practice does not determine constructive notice imparted by law.

VENDEE'S LIENS: Plaintiffs are condominium purchasers who entered into purchase agreements with a developer prior to construction of a condominium project. The construction lender (who was eventually taken over by the FDIC) required that before making the loan, the developer was required to have contracts for at least 100 units, that the plaintiffs' earnest money deposits be available for construction and that the purchasers be notified of this fact. After the deed of trust securing the construction loan foreclosed, plaintiffs brought this action asserting that they had vendee's liens that were senior in priority to the construction loan. The court held in favor of plaintiffs, holding that:
1. The purchase contracts contained a provision limiting purchasers' remedies to those specified in the contracts, but the provision was not sufficiently clear and unequivocal to waive the purchasers' rights to a vendee's lien.
2. The holder of a vendee's lien is protected against a purchaser with notice of the facts upon which the equitable right to the lien depends. Since the lender was aware of the use of the purchasers' funds for construction and, in fact, made that a condition of funding, the vendee's liens were senior to the deed of trust securing the construction loan.
3. The D'Oench, Duhme doctrine (which invalidates side agreements as to the FDIC when it takes over a bank) was inapplicable because the vendee's liens were not side agreements.

JUDGMENT LIENS: The court held that the failure to attach an information statement to a judgment lien affects a judgment lien's priority, but not it's validity. Accordingly, where a subsequent purchaser acquires an interest in a judgment debtor's real property after a judgment creditor records a judgment but before attaching an information statement, the resulting judgment lien loses its priority and the judgment creditor cannot satisfy his or her judgment by executing on that property.

HOMESTEADS: The trial court ordered that defendant's transfer of certain property was a fraudulent conveyance designed to evade the lien of plaintiff's money judgment, and ordered the property returned to defendant. Defendant then moved into the property and claimed a $150,000 homestead exemption under A.R.S. Section 33-1101. The trial court denied the homestead exemption due to defendant's inequitable conduct. The appellate court reversed that portion of the judgment, holding that a person cannot be deprived of the protection of the homestead exemption on equitable grounds.

EQUITABLE SUBROGATION: A.R.S. Section 33-992(A) does not preclude equitable subrogation that results in the subrogee, through assignment by operation of law, obtaining lien priority over a mechanics' lien. Also, when a single mortgage is recorded against multiple parcels, a third party is not precluded from attaining equitable subrogation rights when it pays the pro rata amount of the superior obligation and obtains a full release of the parcel at issue from the mortgage lien.

JUDGMENT LIENS: Recording an unsigned minute entry does not create a valid judgment lien.

DEFICIENCY JUDGMENTS: In an action to recover a deficiency judgment, a borrower does not waive defenses to liability under a promissory note by not enjoining the trustee's sale. A.R.S Section 33-811(C) provides that a borrower waives all defenses and objections to the sale not raised in an action that results in the issuance of an injunction against the sale. But a completed trustee's sale does not operate to deprive the trustor of the ability to pursue defenses that are independent of the sale in a subsequent action to recover a deficiency.

GUARANTIES: Plaintiff lender filed this action against guarantors without foreclosing on property. Defendants asserted that plaintiff failed to mitigate its damages by failing to foreclose at a time when the property value would have been sufficient to cover the full amount of the loan, and prior to a subsequent decline in value. The court held that a summary judgment in favor of the lender was properly granted because the obligations to mitigate damages and to foreclose before suing the guarantors were waived by the terms of the guarantee.

TRUSTEE'S SALES: A borrower filed an action seeking to set aside a trustee's sale based on allegations that the lender did not have the authority to foreclose because of defects in assignments of the deed of trust and because of lender's tortious conduct in negotiations to modify the deed of trust. The appellate court reversed the trial court's dismissal of the action. The main holdings were:
1. A borrower may bring an action challenging the a trustee's and lender's authority to conduct a trustee's sale if the borrower possesses a good faith basis to dispute their authority. The court distinguished the Supreme Court's decision in Hogan v. Washington Mutual Bank because in that case the plaintiff failed to affirmatively allege that respondents did not have the authority to conduct a trustee's sale.
2. Plaintiff stated a cause of action for "negligent performance of an undertaking" allegedly caused by defendants' improper conduct in connection with negotiations for a loan modification.
3. The trial court properly dismissed the quiet title cause of action because it was based solely on the alleged deficiencies of the putative trustee and beneficiary, and not on the strength of plaintiff's own title and because plaintiff failed to plead a willingness or ability to pay off the loan.
4. The trial court properly dismissed the cause of action asserting that the debt had been paid due to destruction of the promissory note because plaintiff alleged only that the note was not in defendants' possession, and not that defendants intentionally destroyed the note or manifested an intent to renounce the loan.

INDIANS: Where the marketing director of an Indian casino signed an agreement waiving the Tribe's sovereign immunity, but without approval of the Tribal Council as required by the Tribe's constitution, the waiver was invalid and could not be validated under principles of apparent authority or other equitable grounds.

DEFICIENCY JUDGMENTS: Defendants were not entitled to invoke the anti-deficiency protection of A.R.S. Section 33-814(G) because the property consisted of vacant land and was not utilized as a dwelling. Defendants' professed intent to construct a home on the property was irrelevant. The court distinguished M&I Marshall & Ilsley Bank v. Mueller, 228 Ariz. 478, 268 P.3d 1135 (App. 2011), which held that property owners where entitled to anti-deficiency protection, because in that case the property owners had commenced construction of a dwelling that they intended to live in.

EQUITABLE SUBROGATION: The court held that because A.R.S. Section 33-992(A) expressly provides that mechanics liens have priority over all subsequent encumbrances (subject to a narrow exception not applicable here), the doctrine of equitable subrogation is not available to allow a subsequent lienholder to equitably subrogate its loan to a position ahead of a mechanics lien. The prior loan had been only partially paid down, but the court did not address whether Arizona law permits partial equitable subrogation.

EASEMENTS: The statute of limitations for bringing an action against a governmental entity that blocked plaintiff's easement is one year under A.R.S. 12-821.

TITLE INSURANCE:
1. Under A.R.S. 20-1562, a title company is not liable for negligence in failing to reflect an encumbrance in a commitment or title policy because these products are not representations of the condition of title. Rather, a title policy is a contract under which the insurer agrees to indemnify the insured for losses caused by claims arising from encumbrances not identified in the insurer's commitment or policy.
2. A title policy generally only covers loss or damage incurred during the period of ownership (although it continues as to warranties of title made upon a sale of the property), but it does not require the insured to make such a claim before it sells the affected property. Therefore, plaintiff's sale of the property does not bar its claim for damages it alleges it incurred prior to the sale.

DEFICIENCY JUDGMENTS: Except in cases involving purchase money loans for collateral covered by A.R.S. Section 33-814, when the creditor has not conducted a trustee’s sale of the property, the creditor remains free to waive the security, sue directly on the note, and obtain a deficiency judgment against either the debtor or guarantor. The guaranty in this case contained a waiver of antideficiency protections, but the court decided the case by interpreting Section 33-814 and the guaranty without deciding whether, in general, a guarantor can waive protections afforded under that statute. The court pointed out that it has determined that a borrower may not prospectively waive the protection of the anti-deficiency provisions of this statute, but specifically left open whether a guarantor could do so.

DEFICIENCY JUDGMENTS: A borrower or guarantor cannot contractually waive its right to a determination of fair market value in a deficiency action.

TRUSTEE'S SALES: An action may be brought by the former owner of property under A.R.S. Section 33-420(A), alleging that recorded documents contained false statements, even after the owner's interest has been wiped out in foreclosure. Here recorded assignments of defendant's deed of trust misstated the assignment dates and assignor's identity, but a summary judgment was properly granted because the misrepresentations were not material as to the property owner.

TRUSTEE'S SALES: The court overruled the trial court's dismissal of plaintiffs' complaint, holding:
1. Plaintiffs properly stated a cause of action under A.R.S. 33-420.A, for allegedly falsely recording documents asserting "an interest in, or a lien or encumbrance against" real property, because the Notice of Trustee's Sale, Substitution of Trustee and Assignment of Deed of Trust (the "Recorded Documents") asserted an interest against property, although they did not constitute liens.
2. Plaintiffs properly stated a quiet title action under A.R.S. 33-420.B because, while Recorded Documents were not liens as required by the first two sentences of the section, the third sentence permits a quiet title action where an interest against the property is asserted by an allegedly false document.
3. Plaintiffs had standing to bring an action under A.R.S. 33-420.B because they were "owners" within the meaning of that section.

TRUSTEE'S SALES: The court held that 1) Arizona courts have held that non-judicial foreclosures do not require production of the promissory note prior to a sale, 2) Arizona law permits successor trustees to initiate foreclosure proceedings, 3) Arizona precedent foreclosed plaintiffs' contention that non-judicial foreclosure sales must comport with the Uniform Commercial Code, under which plaintiff contended would require the trustee to take possession of the note, and 4) plaintiffs did not provide any legal authority for their claim that A.R.S. Section 33-811(B), which authorizes non-judicial foreclosures, is unconstitutional.

CONTRACTS: Buyers of a new home anticipatorily breached the purchase contract and then sued to recover progress payments made to the seller during the home's construction. The court held that the defendant seller, in order to retain the payments, must prove that it was ready, willing and able to perform under the contract, even though the contract characterized the deposits as liquidated damages. A liquidated damages clause relieves the plaintiff of the burden of proving the amount of actual damages caused by the breach, but it does not establish whether a breach sufficient to support damages has occurred.

ANTI-DEFICIENCY: The anti-deficiency protections of A.R.S. Section 33-814(G) cannot be waived because they serve an important public purpose. However, the promissory note contained a provision choosing the law of Illinois, which would allow a deficiency judgment, as the governing law. Accordingly, the court remanded the case to the trial court to determine the relative interest of the states and the extent to which Illinois law is "contrary to a fundamental" policy of Arizona, in order to determine whether the choice of law provision is enforceable.

QUIET TITLE: Plaintiff filed a quiet title action more than one year after he became aware that the Town had rescinded an abandonment of a roadway that had originally resulted in the roadway being added to plaintiff's property. The court held that the action was timely because the statute of limitations does not run against a plaintiff in possession who brings a quiet title action to remove a cloud on the title to his property. Specifically, A.R.S. Section 12-821, which provides that all actions against a public entity must be brought within one year, does not apply to a quiet title action where the plaintiff is in possession of the disputed property.

TAX SALES: Where MERS, as nominee for a lender, is the beneficiary of a deed of trust, a tax lien certificate holder must join MERS in a foreclosure action in order to foreclose MERS' redemption right.

TITLE INSURANCE: The court held:
1. A title company does not have an obligation to issue another title policy following the issuance a title policy or trustee's sale guarantee.
2. Refusal to issue a title policy does not constitute a cloud on title.
3. Where the legal description in a title policy is correct, the title company does not have a duty to verify that the assessor's parcel number is correct.

EQUITABLE SUBROGATION: Under the doctrine of equitable subrogation, a lender obtained priority over a prior recorded option to the extent the loan proceeds paid off the first deed of trust on the property. However, the owner made payments in an amount that exceeded the amount owed on the loan secured by the first deed of trust, thereby extinguishing the first priority lien and moving the option into first position.

WATER RIGHTS: Federal water rights were not impliedly reserved in state trust lands granted by the United States government to the State of Arizona to support education and other public institutions. There was no withdrawal, reservation for a federal purpose or Congressional intent to reserve water rights in those lands.

ANTI-DEFICIENCY: A 1/10 interest in a vacation home is a "dwelling" under A.R.S. Section 33-814(G), precluding a deficiency judgment.

TRUSTEE'S SALES: 1. A.R.S. Section 33-811(C), which provides that defenses to a trustee's sale are waived if the objecting party fails to enjoin the sale, applies to also preclude tort claims that are dependent on allegations that the sale was invalid.
2. Section 33-811(C) applies even where the plaintiff filed an action and recorded a lis pendens prior to the sale because she did not obtain an injunction of the sale.
3. Section 33-811(C) may deprive a trustor of due process if the trustor is not given sufficient notice of the trustee's sale to obtain an injunction. However, plaintiff's allegation that a Notice of Sale was not properly mailed to her does not preclude application of Section 33-811(C) because she was in fact aware of the sale in time to seek an injunction.

TRUSTEE'S SALES: Arizona’s non-judicial foreclosure statutes do not require the beneficiary to show possession of, or otherwise document its right to enforce, the note before the trustee may commence a non-judicial foreclosure.

INSURANCE / BAD FAITH: Most of the case is not relevant to title insurance because it involves casualty insurance, but the discussion of bad faith and punitive damages is significant. The case contains a good discussion of claims handling in relation to an insurance company's "profit goal", and the constitutional limitation on punitive damages is significant. The jury awarded $155,000 in compensatory damages and $55 million (!!) in punitive damages. The trial court reduced the punitive damages to $620,000. The appellate court further reduced the punitive damages to $155,000.

TRUSTEE'S SALES: A trustee's sale was held at which the subject property was sold to plaintiff. The trustee had mistakenly failed to increase the credit bid as instructed by the lender, so the trustee refused to issue a trustee's deed and, instead, a new sale was scheduled. Plaintiff filed an action and obtained an injunction. The trial court granted summary judgment in favor of the lender and trustee and lifted the injunction. Plaintiff appealed but meanwhile the second trustee's sale was held and the lender was the successful bidder. The Supreme Court affirmed the appellate court's holding that the sale mooted the appeal, so plaintiff could not void the sale. Under A.R.S. Section 33-811(C), all defenses and objections to the sale are waived if the sale is not enjoined by 5:00pm on the previous day. In addition, plaintiff's claim for damages cannot survive because they depend on objections that have been waived.

EQUITABLE SUBROGATION: The Norcutts purchased property for $667,500 cash, with a payoff to the first mortgage holder of $621,000. The purchasers were unaware of plaintiff's $3 million judgment lien, which was junior to the mortgage that was paid off. The court held:
1. The purchasers were equitably subrogated to the mortgage lien's priority.
2. Equitable subrogation does not turn on whether the person invoking the doctrine is labeled a volunteer, as has been required by some courts. The meaning of the term "volunteer" is highly variable and uncertain, and has engendered considerable confusion.  Instead, it is sufficient that the purchasers paid a preexisting debt in order to protect their concurrently acquired interest in the property.
3. Equitable subrogation does not require an express or implied agreement, as has been required by some courts. Equitable subrogation does not turn on contractual principles, but instead on the concern to prevent unjust enrichment.
4. Equitable subrogation is not precluded where the purchasers obtained title insurance from which they could recoup any losses.
5. The court specifically did not address whether a purchaser with actual notice could ever be equitably subrogated because there was no suggestion the purchasers had actual notice of the judgment lien. But the court did point out that there is no general requirement that a person seeking subrogation lack notice in order to obtain equitable relief.
6. The purchasers were not entitled to a right to foreclose on the interest to which they were subrogated. "Instead, the purposes of equitable subrogation are fully served by deeming the [purchasers] to have a priority to proceeds from any sale of the property in the amount they paid to satisfy the debt, $621,000." [Ed. Note: Is the court referring to the price paid by the purchasers, so that payment of $46,500 would satisfy the lien? Or is it referring to a future sale, so that the purchasers have to wait until they sell someday and pay the lienholder the difference between that sales price and $621,000? The title company may have to keep its file open for a very long time!]

FORECLOSURE / REDEMPTION / DEFICIENCY JUDGMENTS: A.R.S. 12-1566(C) provides that after a judicial foreclosure of a deed of trust, any judgment debtor may file an application for a fair market value determination, and that if an application is filed there is no further right of redemption. The court held that if any one debtor files an application, the right of redemption terminates as to all debtors. The court pointed out that the debtor who did not file the application nevertheless benefits from the fair market value determination because it limits the amount of the deficiency judgment as to all debtors.

EQUITABLE SUBROGATION: The court applied the doctrine of equitable subrogation to give priority to plaintiff's deed of trust, which recorded subsequent to defendant's deed of trust. The court held that defendant was not materially prejudiced because the total amount of plaintiff's lien was less than the original senior liens, even though plaintiff's loan a) had a fixed rate, while the subrogated loans had variable rates, b) imposed higher late charges and c) called for larger monthly payments. The court also held that notice of subrogation to intervening claimants is not required.

DEFICIENCY JUDGMENTS: The court held:
1. Refinancing a purchase money loan does not destroy purchase money status and forfeit anti-deficiency protection to the extent proceeds from the refinancing transaction are disbursed in satisfaction of the underlying purchase money obligation.
2. Loan proceeds used to construct a qualifying residence merit anti-deficiency protection if (a) the deed of trust securing the loan covers the land and the dwelling constructed thereon; and (b) the loan proceeds were in fact used to construct a residence that meets the size and use requirements set forth in A.R.S. § 33-729(A)
3. Sums disbursed in a loan transaction for non-purchase money purposes may be traced, segregated, and recovered in a deficiency action.

MECHANICS LIENS: A property owner conveyed title to a title company, as trustee of a subdivision trust. Subsequently, the owner obtained a construction loan secured by a deed of trust executed by the former owner, and not by the trustee. In this action by a mechanics lien claimant asserting priority over the deed of trust, the court held:
1. The deed of trust was invalid because the property owner had previously conveyed title to the trust and no longer owned the property, and the trust agreement provided "the whole equitable and legal title to the said property shall be vested in the Trustee and no equitable and legal interest in and to said property shall be vested in the Beneficiary."
2. The mechanics lien is invalid as to the construction lender because the lien claimant failed to provide the lender with a preliminary notice pursuant to A.R.S. 33-992.01(B), when it had constructive notice that the loan was for construction.
[Ed. note: the court remanded, apparently so that the trial court can decide which invalid lien has priority over the other invalid lien!]

MECHANICS LIENS: Defendant property owner filed a lien release bond pursuant to A.R.S. 33-1004. Plaintiff mechanics lien claimant filed an action after the 6-month period required by A.R.S. 33-998 had expired. The court held that the action was not timely and, in particular, that A.R.S. 33-1004(D)(2) does not grant a claimant an additional ninety days to file its lawsuit, but only allows an additional ninety days to add the principal and sureties to a complaint that has already been filed.

DEFICIENCY JUDGMENTS: A.R.S. 33-814(G) bars a deficiency judgment after a trustee's sale "[i]f trust property of two and one-half acres or less which is limited to and utilized for either a single one-family or a single two-family dwelling". The court held that this statute barred a deficiency judgment where defendants never actually occupied the dwelling, but they intended to personally occupy it upon completion of construction of a residence on the property.

CC&R's: The court held that covenants requiring payment of dues for landowners' membership in a recreational association met the requirement that covenants "touch and concern" the land. The court noted that subsequent to the execution of the covenants in this case, statutory amendments appear to have eliminated the "touch and concern" requirement. The court also held that the covenants were not void due to being unconscionable because they were neither procedurally unconscionable (something wrong in the bargaining process) nor substantively unconscionable (terms so one-sided as to oppress or unfairly surprise an innocent party).

QUIET TITLE:
1. The court refused to reform a deed to include an additional parcel where the parties were aware that the parcel was excluded from the legal description, even though the grantee claimed that the parties to the deed would have included the parcel if they had known that the grantor owned the omitted parcel.
2. A quitclaim deed does not give rise to a claim under A.R.S. 33-420(c) (pertaining to groundless documents) where the chain of title was very confusing and the grantor could have had reason to believe it was the owner of the land. The court pointed out that the grantor of a quitclaim deed does not assert an interest in the property but, instead, only releases whatever interest the grant may have, if any.
3. A deed of trust gives rise to a claim under A.R.S. 33-420(c) where the lender had reason to know that the trustor did not own the disputed parcel.
4. A dedication of easements and rights of way gives rise to a claim under A.R.S. 33-420(c) where the entity making the dedication had reason to know that it did not own the disputed parcel.

DEEDS OF TRUST: An assignment of deed of trust does not have to be recorded prior to filing a notice of sale. Unrecorded instruments are valid as between the parties. While the failure to record an assignment of a deed of trust might leave an assignee unprotected against claims by some purchasers or creditors, it does not affect a deed of trust's validity as to the obligor. The court also rejected plaintiff's assertion that A.R.S. Section 33-411.01 requires recordation of an assignment. Rather, the statute presents a transferor of a real property interest with options and consequences - either record a document evidencing the transfer or indemnify the transferee in any action in which the transferee's interest is at issue.

EASEMENTS: The court quieted title to two easements for ingress, egress and utilities. As to the first easement, the court held that it was not abandoned because an easement is not abandoned by mere non-use and acts indicating abandonment must decisively, conclusively and unequivocally establish the holder's clear intent to abandon the easement. The fact that the easement holder obtained alternative access and did not use the easement is not an unequivocal act indicating intent to abandon the easement. As to the second easement, the court held that it was an exclusive easement because the deed granting the easement specifically stated that it was exclusive. Accordingly, the easement holder could exclude the owner of the servient estate. Accordingly, a grant of an easement over the same area by the owner of the servient estate to a third party was void.

MECHANICS LIENS: The court held that a mechanics lien was valid, finding that:

1. A preliminary 20-day notice need not necessarily contain the handwritten signature of the claimant. An intent to authenticate a document is sufficient to satisfy the requirement of a "signature".
2. A notice and claim of lien is not invalidated by the claimant's failure to deliver a form of acknowledgment to the recipient upon service of the 20-day notice. A proof of service is sufficient.
3. A notice and claim of lien is not invalidated by the claimant's failure to prove the time of day it mailed the 20-day notice.

MECHANICS LIENS:
1. Plaintiff's mechanic's lien was invalid because the descriptions of the jobsite and labor and materials it had provided in its preliminary notices were inadequate. The street address used in the preliminary notice applied to all blocks in the subdivision, but the jobsite was described as "work on Tutor Time Child Care", the owner of another block in the subdivision. This description did not constitute notice that it included work on defendant's site.
2. Defendant was entitled to damages and attorney fees for the wrongful recording of a lien and lis pendens under A.R.S. Section 33-420(A) because plaintiff had "reason to know" the documents were invalid. Reason to know of the invalidity of a lien generally follows from the fact that the lien is facially invalid.

TRUSTEE'S SALES: The trustee under a deed of trust attempted to set aside a trustee's sale because the trustee inadvertently failed to bid the initial credit bid up to the amount instructed by the lender. A third party bid $1.00 more than the opening bid, which was drastically lower than what the property was worth. The court held:

1. Since there was no timely objection to the trustee's sale pursuant to A.R.S. Section 33-811(C), which requires a party objecting to a the sale to obtain an injunction prior to 5:00pm on the day before the sale, neither plaintiff nor defendant had the ability to void the sale after the close of bidding.
2. A trustee does not have the authority to set aside a trustee's sale based on irregularities in the sale because there is no statutory authority to do so.
3. A lender's opening credit bid is not conclusive evidence of value.
4. Inadequacy in the sales price, coupled with irregularities in the sales process, may justify setting aside a foreclosure sale as a matter of equity.

The court remanded the case to the trial court to determine if, in conjunction with irregularities in the sale, the sales price was "grossly inadequate", which would justify setting aside the sale.

PRESCRIPTIVE EASEMENTS: A private party may not acquire a prescriptive easement over a railway because a prescriptive easement cannot be obtained over public property, and Article XV, Section 10 of the Arizona Constitution declares that railways are public highways.

MECHANIC'S LIENS: A.R.S. Section 33-1002B provides that a mechanic's lien may not be filed against the dwelling of a person who became an owner-occupant prior to the work of improvement, except by a person having executed in writing a contract directly with the owner-occupant. The court held that this statute applies where title is held by individuals as trustees of their family trust.

EASEMENTS: The appellate court upheld a grant of a preliminary injunction in favor of plaintiff to prevent defendant from blocking an easement.
1. The standard for granting a preliminary injunction includes a showing that there is a "possibility" of irreparable injury. This standard was adopted in Arizona by applying a federal case. That federal standard was later overruled by the U.S. Supreme Court in favor of a standard that there be a "likelihood" of irreparable injury. However, Arizona is under no obligation to follow the federal courts in changing the standard. The court also pointed out that the trial court found a likelihood of irreparable injury anyway.
2. The court rejected defendant's parol evidence indicating that the easement was intended to by used only for emergencies because it conflicted with the easement's clear provision stating that it is for pedestrian and passenger vehicle access, without any such limitation.
3. The court rejected defendant's assertion that the easement had been abandoned because there was no evidence of an intent to abandon the easement, and the owner of an express easement is under no duty to make use of the easement in order to retain his entitlement.

EQUITABLE SUBROGATION: Existing Arizona law recognizes the right of one lender to pay off a senior real property lien and thereby become equitably subrogated to that senior position over a junior lienholder. The court extended the Doctrine of Equitable Subrogation to allow a purchaser who pays off a senior mortgage to be equitably subrogated into that position over a junior judgment lienholder.

TRUSTEE'S SALES: The court upheld the dismissal of a complaint to restrain a trustee's sale. Plaintiff asserted that the Bank did not prove that it owned a note evidencing a loan made by the Bank's predecessor in interest. The Court pointed out that Arizona's non-judicial foreclosure statute does not require presentation of the note before commencing foreclosure proceedings, and held that regardless of who has possession of the note the trustee has the authority to conduct a trustee's sale.

PROPERTY TAX LIENS: The court set aside a default judgment foreclosing a property tax lien because the notice of intent to foreclose was not properly served where it was sent to an address of property the taxpayer had sold 5 years previously. If a lien holder is not confident that the available address for the owner of record is current, the lien holder should follow the more extensive notice procedure set forth in A.R.S. Section 42-18202(A)(1)(a)-(c).

CC&R's: This is a special action involving Dreamland Villa Community Club v. Raimey. There the court held that deed restrictions for a community without common areas, containing only restrictive covenants pertaining to each lot owner's personal residence, cannot be amended by majority vote of lot owners to require membership in an association and the imposition of assessments. The Court further explained that homeowner's associations cannot use CC&R's amendment provision as a vehicle for imposing a new and different set of covenants, thereby substituting a new obligation for the original bargain of the covenanting parties. In this action, the Court held that that the amended CC&R's are invalid as to all homeowners, not only as to homeowners who participated in the prior appeal.

INSURANCE: An insurance company sought a declaratory judgment and obtained a ruling, later reversed, in its favor. The court held that if a superior court erroneously concludes there is no coverage, the claim's "fair debatability" is not established as a matter of law. Therefore, in spite of the favorable trial court ruling, whether the insurers acted reasonably in challenging plaintiff's claims based on the meaning of "occurrence" in the policies was a question for the jury to resolve. The court also held that an insurer that seeks a judicial interpretation of a disputed policy provision may not ignore its claims-handling responsibilities while the declaratory judgment action proceeds.

MERGER: Generally, when one person obtains both a greater and a lesser interest in the same property, and no intermediate interest exists in another person, a merger occurs and the lesser interest is extinguished. However, even if a merger would otherwise occur at law, contrary intent or equitable considerations may preclude merger under appropriate circumstances. The trial court granted a motion for summary judgment by a guarantor of a lease, on the basis that the lease was extinguished when it merged with the fee. The appellate court reversed and remanded, holding that the trial court had to consider the parties' intent to avoid merger, as expressed in the sale agreement.

MECHANIC'S LIENS: There were five main holdings:
(1) A mechanic's lien claimant's claim a lien on the lots for work done at the "instance" of the developer, as the agent of the lot owners; (2) A mechanic's lien claimant can serve the preliminary twenty-day notice on the developer as an owner/reputed owner or, alternatively, as an interested party; (3) The beginning of the time period for recording a mechanic's lien presents an issue of material fact that cannot be resolved as a matter of law; (4) A mechanic's lien claimant can correct documents filed with the lien within the time period for perfecting it; and (5) A lis pendens filed with a lien foreclosure action does not have to be notarized.

EQUITABLE SUBROGATION / REPLACEMENT: A deed of trust, which was senior to mechanic's liens, was refinanced after mechanic's liens had attached. The court held that under the Doctrine of Replacement (which is basically the same as equitable subrogation), the new deed of trust retains the same priority as its predecessor up to the amount of the original loan.

HOMEOWNERS ASSOCIATIONS: Under A.R.S. 33-1807(B)(2) plaintiff HOA's assessment lien is junior to defendant's first deed of trust, regardless of when it recorded. The court set aside a default judgment against defendants because the HOA's allegation of priority was such a severe misrepresentation that it constituted a fraud on the court. In Footnote 6 the court pointed out that it was not addressing whether a junior deed of trust can ever have priority over an HOA assessment lien.

HOMEOWNERS ASSOCIATIONS: Under A.R.S. 33-1807(B)(2) a first deed of trust is senior to HOA assessment liens even where the deed of trust records after the CC&R's that create the obligation to pay assessments. The court also awarded sanctions on the basis that plaintiff's attorney's position was not made in good faith because it was contrary to the plain language of the statute.

FORFEITURE: In a civil forfeiture proceeding, the State must give proper notice (personal service or certified mail) to a person with an interest in the property even if that person has actual knowledge of the proceeding.

INSURANCE: A Morris agreement between an insured and an insurer that avoids the primary insurer's obligation to pay policy limits and passes liability in excess of those limits on to other insurers is invalid.

EASEMENTS: When multiple dominant estate holders use an easement, the doctrine of equitable contribution applies to require that they share in the costs reasonably necessary to maintain and repair the common easement, even in the absence of a cost-sharing agreement or a provision imposing such an obligation in the document conveying the easement. Each party's contribution should be based on an equitable apportionment based on each party's proportionate use of the easement and on other factors described by the court.

EASEMENTS: Unless the grant conveying an easement specifically characterizes the easement as as exclusive, the grantor of the easement retains the right to use the property in common with the grantee. Here, although an easement for drainage restricted the use of the servient estate, it nevertheless permitted other compatible uses, including the construction and use of a driveway that would allow water to drain through the ravine without diverting or obstructing its flow. Nevertheless, the court required the defendant to remove the improvements because they were poorly constructed and would interfere with drainage. The court also found that there was no dedication of the easement to the public because the language of the plat was silent as to any public dedication.

CONTRACTS: The advertisement for the sale of a house overstated the house's square footage. The court held in favor of the seller in the homebuyer's action for breach of contract based on a provision that imposed on the buyer the obligation to verify any representation about square footage if it considered the size of the house to be material. The court also rejected buyer's claim of negligence because the statute of limitations had expired. The court rejected buyer's argument that the statute of limitations should be tolled due to delayed discovery because the buyer did not present evidence that it exercised reasonable diligence in discovering the true square footage.

CC&R's / EASEMENTS: Plaintiff sought to remove a restriction in CC&R's that prohibits non-residential structures from being constructed on lots in the subdivision in order to build a roadway providing access to other property owned by plaintiff adjacent to the subdivision. The roadway would constitute a non-residential structure. The court made several determinations:
1. Frequent violations of CC&R's may result in a waiver of the ability to enforce a specific covenant, but here the two instances of the Homeowner's Association permitting roadway easements to be granted were not sufficient to result in a waiver.
2. Additionally, the subject CC&R's contained a non-waiver provision. When CC&R's contain such a provision, a restriction remains enforceable, despite prior violations, so long as the violations did not constitute a "complete abandonment" of the CC&R's.
3. Plaintiff could not establish an implied way of necessity because he did not prove that his property was landlocked when it was severed from the larger parcel over which he is seeking an easement.
4. The court remanded the case to the trial court on the question of whether plaintiff can establish a private right of condemnation under A.R.S. 12-1202 to condemn defendants' interests in the CC&R's

COMMUNITY PROPERTY:
1. Community contributions to sole and separate property create equitable lien rights. If the property value has increased, the community is entitled to a pro-rata share of the appreciation. But if the value has decreased, the community's share is charged with a pro-rata share of the depreciation.
2. Where both spouses receive a gift of property, absent an affirmative act demonstrating an intent by the spouses to transfer their interests to the community, they hold their interests jointly as separate property interests.

JUDGMENTS: The Court answered two questions certified to it by the 9th Circuit Court of Appeals: 1) Do collection activities (such as filing for a writ of garnishment or applying for orders from the court to inspect a safety deposit box or require a debtor's exam) taken within Arizona, renew a judgment previously registered in Arizona? Answer: NO, 2) Does the filing of a related lawsuit in a state other than Arizona renew a judgment previously registered in Arizona? Answer: NO.

The Court explained that there are two ways to renew a judgment in Arizona: 1) File an affidavit of renewal at any time within 90 days before the 5-year expiration of the judgment or 2) Bring an action on the judgment within 5 years of entry of the judgment. Neither Fidelity's collection activities, nor a separate action it filed asserting a violation of federal racketeering laws by reason of defendants' efforts to evade collection efforts, constituted an action on the judgment. (Fidelity filed a renewal affidavit more than 90 days before expiration of the judgment, but that issue was not certified to the Court.)

INSURANCE: An insurer may meet its duty to equally consider settlement offers when presented with multiple claims in excess of policy limits, by promptly and in good faith interpleading its policy limits and continuing to provide a defense to its insured.

EASEMENTS: The grantor of three parcels included an road easement in favor of each parcel that ran along each parcel and between two public roads. Owners of neighboring parcels of land, but not part of the original property, asserted a right to travel over the road, claiming that dedication to the public is presumed when a road easement is granted. The court held that mere creation of a roadway easement does not raise a presumption that the road has been dedicated for public use.

TAX SALES: This case pertains to awards of attorney's fees and does not have much relevance to title insurance. What is more interesting is the description of a previous holding by the court that became the law of the case. In the previous case the court held that a treasurer's deed that was recorded with a default judgment attached to it imparted constructive notice that the default judgment was subject to being set aside for one year under A.R.S. Section 12-1560(A) and Ariz. R. Civ. P. 59(j)(1).

TRUSTEE'S SALES: Senior deeds of trust were recorded without legal descriptions, but contained proper street addresses and parcel numbers. A.R.S. Section 33-802(A) requires a deed of trust to contain a legal description, but the court held that the deeds of trust were valid when executed because the legal descriptions were attached when the deeds of trust were executed and were subsequently lost prior to recordation. Also, plaintiff (holder of a 3rd deed of trust) was actually aware of the existence of the two senior deeds of trust, so plaintiff was not in a position to attack them on account of informalities or irregularities.

NAVIGABLE WATERS: In order to determine navigability of the Salt River, the Arizona Navigable Stream Adjudication Commission is required to determine what the river would have looked like on February 14, 1912, in its ordinary (i.e., usual, absent major flooding or drought) and natural (i.e., without man-made dams, canals, or other diversions) condition. If it was navigable, title to the bedlands passed to the State from the federal government at statehood on February 14, 1912, and the State retains title to those bedlands. If the River was not navigable, the neighboring riparian owners hold title.

CC&R's: Deed restrictions for a community without common areas, containing only restrictive covenants pertaining to each lot owner's personal residence, cannot be amended by majority vote of lot owners to require membership in an association and the imposition of assessments. The Court further explained that homeowner's associations cannot use CC&R's amendment provision as a vehicle for imposing a new and different set of covenants, thereby substituting a new obligation for the original bargain of the covenanting parties.

RECORDING: Plaintiff was unable to obtain financing to purchase property pursuant to an Agreement of Purchase and Sale. Plaintiff recorded the agreement in order to prevent defendant from re-selling the property until defendant returned plaintiff's $10,000 deposit. Plaintiff also sued defendant for return of the deposit. The court held that recording the agreement did not constitute a violation of A.R.S. 33-420 and did not constitute slander of title because the agreement itself was not groundless, even though there is no statute that authorizes the recordation of such an agreement. The court also held that defendant breached the contract by failing to return the deposit.

DECEDENTS / AFFIDAVIT OF SUCCESSION: A.R.S. Sections 14-3972 and 14-3910 protect purchasers or encumbrancers of property who rely on an Affidavit of Succession to Real Property, even when portions of the affidavit were false. This protection also applies to subsequent purchasers or encumbrancers even where there is evidence that the original purchaser or encumbrancer engaged in fraudulent activity.

EASEMENTS: The grantor of three parcels granted an easement to each of the parcels for an access easement to a road that ran along each parcel and between two public roads. Owners of neighboring parcels of land, but not part of the original property, asserted a right to travel over the road. The court held that when land is sold subject to a roadway easement it is presumed that the grantor intended to dedicate the roadway to public use. [Ed. comment: Read the dissent. It makes a lot more sense.]

LIS PENDENS: Plaintiff filed an action against several people for breach of a real estate purchase contract. An attorney representing five defendants improperly filed a lis pendens against plaintiffs real property prior to filing a cross complaint. The court held that A.R.S. Section 33-420(A) provided for a single sanction of $5,000, not $5,000 for each defendant.

PROPERTY TAXES: When a portion of a parcel is sold, a split occurs, for tax purposes, when the Assessor completes the process of identifying and valuing the resulting parcels -- not at the moment of the sale.

SPECIFIC PERFORMANCE: A real estate agent's inequitable acts may be imputed to the principal whether or not the principal knew of the agent's misconduct. Here the court denied specific performance where the buyer's agent, without the knowledge of the buyer, misrepresented the source of plaintiff's earnest money deposit.

JUDGMENTS:
1. The time for renewing a judgment is not tolled during the debtor's bankruptcy under either state or federal law.
2. A garnishment proceeding is not "an action brought on" a judgment pursuant to A.R.S. 12-1551 and therefore does not renew the judgment.
3. Where a judgment is vacated and an amended judgment is subsequently entered, the time for renewing the judgment is tolled and extended to accommodate the time the judgment had been vacated. 

WATER: Landowners outside of "Active Management Areas" do not have a real property interest in the potential future use of groundwater that may be severed from the overlying land.

[SUMMARY TO FOLLOW]

PUNITIVE DAMAGES: The court held that a punitive damages award was unconstitutionally excessive where its ratio to compensatory damages was 8:1 and the reprehensibility of the defendant's conduct fell "within the low to middle range of the reprehensibility scale". The court reduced the $4,000,000 punitive damages award to $500,000, which was a 1:1 ratio.

COMMUNITY PROPERTY: Property acquired by a spouse prior to marriage is that spouse's separate property and retains this character after the marriage. However, when community funds are later used to make mortgage payments on the property, the community is entitled to some form of compensation and has an equitable lien against the property. The community is entitled not only to reimbursement for the money applied to the principal, but also to a percentage share of any increase in the value of the property from the date of marriage to the date of dissolution. The separate property interest is entitled to appreciation prior to marriage.

TAX SALES: A.R.S. Section 42-18202 requires that notice of intent to file a tax foreclosure action must be mailed by certified mail. This is a directory, rather than a mandatory, provision. Therefore, mailing the notice by regular mail is an insubstantial failure to comply with the statute and does not invalidate the foreclosure.

LIS PENDENS: A lawsuit filed by a homeowners' association to compel a homeowner's compliance with deed restrictions regarding property maintenance does not affect title to real property, so the association is not authorized to record a notice of lis pendens against the homeowner's property.

TITLE INSURANCE: The insureds paid $3,500 at a sheriff's sale following the foreclosure of a homeowner's association lien. The property had equity of $140,000 to $240,000 (over the value of encumbrances). [NOTE: The policy appears to be a Homeowner's Policy of Title Insurance.] The Supreme Court held:

1. The policy's exclusion for loss resulting from the insureds' "failure to pay value" for the title means a loss resulting because the insureds had not paid "valuable consideration" and therefore are not protected under the recording statutes. However, here the $3,500 payment was sufficient to secure recording act protection. The "failure to pay value" exclusion, therefore, does not preclude recovery.
2. The policy also excludes coverage for loss resulting from risks "created, allowed, or agreed to by" the insured. The court held that the exclusion is not ambiguous and that it applies whenever the insured intended the act causing the defect, not only when the insured intended the defect or when the insured engaged in misconduct. In this case, by bidding $3,500, the purchasers created the risk that resulted in the loss. Their bid was an intentional, affirmative act that resulted in the sale being set aside. Therefore, the court held that the "created" risk exclusion applies to preclude coverage.
3. The court also provides (pages 15 - 16) a good list of the situations in which an insured's reasonable expectations can override the provisions of a policy, but held that they did not apply in this case.

RULE AGAINST PERPETUITIES: The rule against perpetuities does not render void a real estate sales agreement that fails to include a specific time period for performance if it is reasonable to conclude that the parties intended performance within a reasonable time period.

INSURANCE: An insurer unequivocally defended its insured for 10 months before attempting to reserve the right to contest coverage. Factors to consider when determining whether an insurer has lost its right to assert coverage defenses because of a delayed reservation of rights include 1) the potential prejudice to the insured and 2) the reasonableness of the delay. But unreasonable delay without prejudice to the insured will not cause loss of the insurer's coverage defenses. Finally, the question of prejudice to the insured, caused by a delayed reservation of rights, must be measured after issuance of the reservation of rights but prior to any Morris agreement.

SPECIFIC PERFORMANCE: 
1. The buyer cured a breach by depositing the earnest money with escrow prior to the seller's written cancellation, even though it was after verbal cancellation, because the contract required the cancellation to be in writing. The court points out that the general rule is that a party who has materially breached a contract is given a reasonable period of time in which to cure, even if the contract contains no express cure provision and even if the contract contains a time of the essence clause.

2. Specific performance (or any equitable relief) may not be denied a party on the basis of unclean hands or inequitable conduct unless the party himself participated in or had knowledge of the alleged inequitable acts. The rule that an agent's knowledge is imputed to the principal can operate to bind the principal contractually, but does not operate to otherwise preclude equitable relief for "unclean hands".

STATUTE OF FRAUDS: The statute of frauds, A.R.S. Section 44-101(6), applies to an oral agreement to partition real property . Part performance of an oral agreement can be an exception to the Statute of Frauds if 1) the acts of part performance are "unequivocally referable" to the agreement and 2) enforcing the agreement is necessary to avoid an injustice to the party who relied on its existence. However, here the following acts relied upon by appellant were insufficient because they were as consistent with the continued existence of the co-tenancy as they were with an agreement to partition: 1) appellee's withdrawal of appellant's tree removal, 2) appellant's payment of 1/3 of the cost of tree removal and 3) appellee's use of a portion of the property.

ADVERSE POSSESSION/PRESCRIPTIVE EASEMENTS: Once the party claiming adverse possession or a prescriptive easement has shown that his or her use during the statutory period of 10 years was "open, visible, continuous, and unmolested," Arizona law presumes that the use was under a claim of right and not permissive. The burden then shifts to the owner of the property to show that the use was permissive.

DEDICATION: Under Pleak v. Entrada Property Owners Association, the sale of lots referencing a recorded plat containing a dedication constitutes an acceptance of the dedication. However, in this case the plaintiffs' deed merely excluded the north 30 feet, but did not expressly refer to a recorded plat or to the recorded deed of dedication. This is insufficient to meet the Pleak test for acceptance of a common law dedication. If a grantor wants to effectively complete a common law dedication to the public, he needs to expressly refer to the deed of dedication so that buyers will have had notice of the dedication.

However, an alternative way for a dedication to be accepted by the public is through use. Although use is not a necessary prerequisite to acceptance of an offer to dedicate, it can still be sufficient. The court held that questions of fact remain as to whether there has been any general public use of the property described in the deed of dedication. Finally, the court held that based on the facts in this case, the county is not estopped from revoking a previously issued permit to maintain a fence in the disputed area if the trier of fact determines that the dedication has been accepted by use.

INSURANCE/RESERVATION OF RIGHTS: An insurer was estopped from asserting coverage defenses where it delayed for 18 months before informing the insured that it reserved its right to deny indemnity coverage, thereby prejudicing the insured.

CONTRACTS:
1. Time of the essence: The court upheld a seller's cancellation of a sales contract where the buyer funded the day after the agreed closing date where a) the contract contained a "time of the essence" clause and 2) the contract specifically stated that failure to pay funds by the scheduled close of escrow shall be construed as a material breach. (It is not clear that the "time of the essence" provision, alone, would have been enough.)
2. Liquidated damages: A liquidated damages clause whereby the buyer forfeits the deposit is enforceable as long as the sum of damages is not so unreasonably large that it is deemed to be a penalty.
3. Lis pendens: A lis pendens is not improper where there was an arguable basis for plaintiff's claim, even though it turned out to be unsuccessful.

AFFIDAVIT OF SUCCESSION: Under A.R.S. Sections 14-3972(C), 14-3910 and 14-1106, a purchaser of real property relying upon an affidavit of succession is protected from subsequent claims by heirs or devisees who would otherwise have a superior right to the property, even if the affidavit of succession includes false or inaccurate information.

STATUTE OF FRAUDS: Modification of a real estate option contract that extends the life of the option is a material modification that must be in writing under the Statute of Frauds. Promissory estoppel can preclude the statutes' application, but was not present in this case.

• Arizona's bifurcated system of allocating water rights differentiates groundwater users from surface water users.
• Surface water (including water in definite underground channels) is subject to the doctrines of prior appropriation and beneficial use. (Appropriation requires application for a permit from the State.)
• Percolating groundwater is not appropriable and may be pumped and transported to other property unless the withdrawal of the water injures the rights of others whose lands overlie the common supply.
• Although percolating groundwater is not subject to appropriation, subsurface water that is surface-stream subflow constitutes surface water and therefore is subject to appropriation.
• A reservation of water rights cannot reserve an ownership interest in a source of water; instead, one may own, and reserve, only a right to use water.
• The right to ground water is a hereditament and must be conveyed by deed.
• A reservation of an interest in the proceeds of the commercial use of percolating groundwater is a grant of an interest in real property.
• A deed that reserved "all commercial water rights" is ambiguous as to whether it reserves only rights to percolating groundwater or whether it also includes appropriable surface water rights.

FORECLOSURE: Under A.R.S. Section 33-813 a trustor must cure both monetary and non-monetary defaults in order to avoid foreclosure. Here the lender could proceed with judicial foreclosure of a deed of trust because the debtor cured the monetary default but did not cure the non-monetary default, which consisted of failing to complete construction by the construction deadline.

ESCROW: An escrow holder's fiduciary duty extends to a person whose signature on a deed of trust was forged and who was unaware that an escrow was opened by an imposter.

TRUSTEE'S SALES: Based on the language of A.R.S. Section 14-3104, secured creditors do not have to use probate proceedings to enforce any security, even after the appointment of a personal representative. A secured creditor can enforce its security and need not file a claim.

LIS PENDENS: An action under the Uniform Fraudulent Transfer Act (A.R.S. Sections 44-1001 to 44-1010) seeking to void an allegedly fraudulent transfer of real property is one "affecting title to real property" under A.R.S. Section 12-1191(A), the lis pendens statute.

TITLE INSURANCE: The exclusion in a title insurance policy for "[f]ailure to pay value" applied to preclude coverage where the price the insured paid for the property at a sheriff's sale shocked the conscience of the court. The court pointed out that a purchaser who acquires property for a grossly inadequate price is not a bona fide purchaser for value. Here, the insured had paid $3,500 for property with equity of $140,000 to $240,000. [NOTE: The policy appears to be a Homeowner's Policy of Title Insurance.]

COMMUNITY PROPERTY: In a dissolution proceeding the court awarded the family home to the wife where the husband had signed a disclaimer deed at the time of acquisition acknowledging the house as the wife's sole and separate property. The court rejected the husband's argument that the contribution of community funds entitled him to a 1/2 interest in the house because 1) there was no evidence that community funds were used for the purchase and 2) the disclaimer deed must be given effect because it was not executed as the result of fraud or mistake. (Ed. Note: It is not clear how the court would have ruled if the husband had proven that community funds were used to purchase the house.) The court was not persuaded by the fact that the only reason the parties took title in the wife's name was because of the husband's bad credit. Finally, the court held that the husband was entitled to reimbursement for community contributions toward mortgage payments and improvements, and remanded the case to the trial court to determine the amount of such reimbursement.

STATUTE OF FRAUDS:
1. An oral partition agreement is a "sale" of an interest in real property for purposes of the statute of frauds, A.R.S. Section 44-101(6). However, the court applied the doctrine of part performance as a defense to the statute. Part performance removes the agreement from the Statute of Frauds if it is "unequivocally referable" to the agreement, which the court held it was in this case.
2. The court supplied reasonable terms for equalizing payments among co-tenants.
3. The court noted that a diagram drawn in the dirt did not satisfy the requirement of a writing.

EASEMENTS: 
1. Follows Pleak v. Entrada Property Owners' Association: A sale of property with reference to a recorded plat containing the dedication is sufficient to accept a dedication.
2. A servient estate owner may erect a gate across an easement if the gate (1) is "necessary" for the use of the servient estate and (2) does not constitute an unreasonable interference with the right of passage. BUT what is "necessary" for use of the servient estate is merely what is "appropriate" to that use. So "necessary" = "appropriate", not "essential".
3. Declaratory relief concerning future liability to third parties for any failure to maintain the easement is non-justiciable because it involves future rights concerning an event that may never happen.
4. Declaratory relief concerning maintenance of the easement, on the other hand, is justiciable.

TAX LIENS / QUIET TITLE: A decedent's heir has the right to redeem a tax lien on decedent's real property, and must be named and served in an action to foreclose the lien. A lienholder who knows the owner is deceased, depending on the circumstances, may need to examine public records or court records, or may need to ask relatives, friends or neighbors of a decedent property owner about the existence of heirs. Therefore, the heir who was not named and served in the action was entitled to set aside the foreclosure judgment. [NOTE: This case demonstrates the danger of relying on default judgments and the need to closely examine the court file and surrounding circumstances before doing so.]

CC&R's: Where a party has actual or constructive notice of a restriction, knows or is informed prior to actually violating the restriction that his structure will violate the restriction, and then completes construction of the structure, the party may not claim the benefit of the Doctrine of Relative Hardships. The court rejected the party's contention that his violation of a height restriction was unintentional at the time he ordered the building material.

CC&R's: After recording a Declaration of Covenants, Conditions and Restrictions affecting a subdivision, a developer may not subsequently record private deed restrictions that impose different restrictions on some of the lots. The court specifically states that it does not address the scenario in which a private property owner, instead of the developer acting on multiple lots, conveys property to a grantee and records private deed restrictions which may be different from those in the applicable uniform covenants and restrictions.

STATUTE OF FRAUDS: The statute of frauds does not apply to 1) the imposition of a constructive trust because the constructive trust doctrine is an equitable doctrine imposed by law and is not based on contract, or 2) agreements between partners relating to real property within the framework of the partnership because the Revised Uniform Partnership Act provides adequate protection from fraudulent or mistaken claims of other partners, leaving little necessity for the protection of the statute of frauds.

TAX LIENS: A holder of a tax lien who redeems an earlier tax lien is not entitled to equitable subrogation because the liens are in parity and, therefore, it is not necessary to redeem the earlier lien in order to protect the subsequent lien. Consequently, the first lien could not be foreclosed after being redeemed. This is a different result than with assessment liens, which are not in parity. In contrast with redeeming, purchasing an assignment of the earlier lien would have given the purchaser all the rights of the original lien holder, including the right to foreclose.

PRESCRIPTIVE EASEMENTS: 
1) The 10-year limitations period for a prescriptive easement cannot run against a lienholder. So where an owner sold property and took back a deed of trust to secure part of the purchase price, the limitations period ceased to run against the seller/lienholder. Upon foreclosure, the lienholder reacquired the property free of any prescriptive easement, and the limitations period began to run anew.
2) The Court upheld the trial court's application of the balancing of hardship test in refusing to grant an injunction requiring the removal of underground footings for a block wall that encroached onto defendant's property. The cost of removal would be high and the burden on defendant's property was de minimus.

MECHANICS' LIENS:  Serving a mechanic's lien release bond prior to recordation does not satisfy the requirement of A.R.S. Section 33-1004 that the bond be served on the lien holder "upon recordation thereof". Consequently, the lien claimant had 6 months from discovery of the bond in order to file an action against the surety. With proper service, the bond would have been discharged within 6 months of recording the mechanic's lien. 

CC&R's: Restrictive covenants should be interpreted to give effect to the intention of the parties as determined from the language of the document in its entirety and the purpose for which the covenants were created. The court rejected the position that restrictions should be strictly construed in favor of the free use of land and against the restriction, although the court may have left the door open for such strict interpretation where the restrictions are ambiguous.

CC&R's: 1) A homeowner's association could amend condominium CC&R's (to prohibit renting units) by a majority vote of owners because the condominium was created prior to 1/1/86. A.R.S. Section 33-1227 provides that condominiums created after that date require a vote of 67% of unit owners, or any larger majority specified in the condominium declaration. 2) The amendment was not invalid because it contained additional language inserted by the association that was not approved by the condominium unit owners, but the additional language is not valid. 3) The Court interpreted an ambiguous portion of the amendment in accordance with the clear intention of the homeowners.

UCC FIXTURE FILINGS: A lender's unrecorded security interest in a tenant's goods installed on the leased premises is superior to the landlord's interest in those goods in two circumstances: (1) the landlord consents to the security interest or disclaims and interest or (2) when the tenant has the right to remove the goods.

JUDGMENTS / BANKRUPTCY: The time for filing an affidavit to renew a judgment is not extended when the debtor's bankruptcy is pending during that time. The automatic stay applies to actions to "create, perfect or enforce" liens or judgments, and not to the ministerial act of filing an affidavit of renewal. The Court then proceeds with the apparently inconsistent conclusion that the renewal deadline was extended for 487 days, which was the amount of time the automatic stay was in effect. This conclusion was based on the fact that the Bankruptcy Court had previously determined as a matter of federal law that the renewal deadline was extended.

EQUITABLE SUBROGATION: Equitable subrogation is allowed, regardless of negligence, as long as the intervening lien holder is not prejudiced, and as long as the mortgagee reasonably expected to get security with a priority equal to the mortgage that was paid. Although the lender did not have actual knowledge of the intervening mechanic's liens in this case, the court indicated that even actual knowledge of the  intervening liens would not have changed the outcome. The subrogated loan had a higher principal amount and interest rate, and the Court allowed equitable subrogation only to the extent of the balance that would have been due if the first loan had not been paid off.

JUDGMENTS: A.R.S. Section 25-215(D) requires the joinder of both spouses before an obligation of one spouse can be enforced against community property. However, a federal judgment from a district outside Arizona, in which only one spouse was named, may nevertheless be enforced against community property in Arizona as long as 1) the judgment is for a community obligation and 2) the non-defendant spouse is given the opportunity to assert that the obligation that would be a separate obligation in Arizona.

TAX SALES: The transfer of property to the state by issuance of a treasurer's tax deed extinguishes any privately held tax liens, even though the private liens were for previous tax years.

PRESCRIPTIVE EASEMENTS: (1) In order to establish a prescriptive easement over property owned by the United States, it is necessary to demonstrate that the necessary elements for a prescriptive easement occurred prior to the United States' ownership. The Court held that plaintiff was entitled to a prescriptive easement. The case contains an excellent discussion of the elements necessary to establish a prescriptive easement under Arizona law. (2) Under the Alaska National Interest Lands Conservation Act ("ANILCA"), the U.S. must provide access to land "within the boundaries" of the National Forest System. This applies only to landlocked property and not to plaintiff's property, which is surrounded on only three sides by National Forest land.

ROADS: Common law dedication of a road for public use occurs where the dedication is made on a recorded record of survey. The sale of property referring to the map constitutes acceptance by the public, and formal acceptance by a public entity is not necessary.

RESTRICTIVE COVENANTS: A restriction prohibiting structures other than single-family dwellings applied to prohibit a 50-foot cell tower. Even though there were numerous violations of the restrictions, the Court held that plaintiffs had not waived the restriction because the restrictions contained a provision stating that failure to enforce violations would not be construed to be a waiver or consent to further violations.

The court pointed out that the non-waiver provision would be ineffective if the restrictions had been completely abandoned. The test for complete abandonment is "Whether the restrictions imposed upon the use of lots in this subdivision have been so thoroughly disregarded as to result in such a change in the area as to destroy the effectiveness of the restrictions, defeat the purposes for which they were imposed and consequently amount to an abandonment thereof."

STREETS: An abandoned street is divided between owners on each side of the street, unless the street is a street marginal to a subdivision or other tract of land, in which case it belongs entirely to the adjacent owner. Here, a street was created from a lot in a subdivision by an owner who also owned the lot on the other side of the newly created street. Because of the common ownership of both lots, the street is not marginal to the original lot from which it was created, and the owner of each lot receives title to 1/2 of the abandoned street.

DEEDS OF TRUST: A deed of trust was invalid because it was executed by only one spouse, contrary to the requirement of A.R.S. Section 25-214(C)(1) that both spouses sign. The Court held that the beneficiary is not liable under A.R.S. Section 33-420(A) for recording an invalid document because he did not actually know or have reason to know that the document is invalid.

INSURANCE: The trial court, when determining whether a Morris settlement agreement is reasonable, may not consider the insureds' risk of personal consequences that are not covered by the policy. Here, the court disallowed consideration of the potential loss of a real estate broker's license. (A Morris agreement allows insureds defended under a reservation of rights to stipulate to a judgment and assign their rights under the policy to a plaintiff in exchange for the plaintiff's covenant not to execute the judgment against the insured.)

CONDEMNATION: when a proposed taking for a redevelopment project will result in private commercial ownership and operation, the Arizona Constitution requires that the anticipated public benefits must substantially outweigh the private character of the end use so that it may truly be said that the taking is for a use that is "really public". The constitutional requirement of "public use" is only satisfied when the public benefits and characteristics of the intended use substantially predominate over the private nature of that use.

BOUNDARY BY ACQUIESCENCE: To establish the doctrine of boundary by acquiescence, the party asserting the doctrine must prove (1) occupation or possession of property up to a clearly defined line, (2) mutual acquiescence by the adjoining landowners in that line as the dividing line between their properties, and (3) continued acquiescence for a long period of time. Here, the plaintiffs were unsuccessful because they did not present evidence of a clear, certain, identifiable boundary as required by the doctrine.

RESTRICTIONS / HOMEOWNERS ASSOCIATIONS: A homeowners association, which was not originally provided for in a declaration of restrictions, can only be established by following the modification procedure set forth in the declaration. The modification procedure required a majority vote of homeowners and recordation of the modification.

TRUSTEE'S SALES: A.R.S. Section 33-812(A)(3) does not require the trustee of a foreclosed deed of trust to apply excess sale monies to delinquent real property taxes. Note that the version of A.R.S. Section 33-812(A)(3) cited by the court has been amended to make it even clearer that the court is correct. The section now includes the phrase "and actually paid by the beneficiary before the trustee's sale".

TRUSTEE'S SALES: A trustee's sale may be set aside where the price paid at the sale is "grossly inadequate", even though the sale is properly conducted. The Court states that a grossly inadequate price is generally less than 20% of the fair market value, but the parties are free to argue that under the facts of a particular sale a different percentage is or is not grossly inadequate.

The Court provides some comfort for subsequent purchasers and lenders by stating that "the balance of equities would be considerably different if the person who acquired the property for a grossly inadequate price sold it to a bona fide purchaser".

PRESCRIPTIVE EASEMENTS: Possession of property pursuant to an oral grant of an easement (or an insufficient written grant), which is unenforceable because of the Statute of Frauds, establishes the element of hostility because possession takes place contrary to record title. Also, such possession commences the beginning of the 10-year limitation period for establishing a prescriptive easement.

MECHANIC'S LIENS: A labor union's fringe-benefit trust fund may file a mechanic's lien to recover contributions owed by a subcontractor. However, the trust fund's lien was invalid because it failed to file a preliminary twenty-day notice required by A.R.S. Section 33-992.01.

CIRCUITY OF PRIORITY: The Court looked to the majority view in other states since this is a case of first impression in Arizona. The situation is that A, B & C have liens on the subject property, and A then subordinates his lien to C's lien. The problem with this is that on the surface C appears to be senior to A, which is senior to B, which is senior to C, so that each lien is senior and junior to one of the other liens.

The solution is partial subordination. If the third priority lien is larger than the original first priority lien, then the original first priority lien moves completely to the third position. The original third priority lien moves into first position but only to the amount of the original first priority lien. If the third priority lien is smaller than the original first priority lien, then the difference between the two amounts, up to the total of the original first priority lien, is still in a priority position relative to the second priority lienholder.

The holder of the second priority lien is neither advantaged nor disadvantaged by the agreement. The second priority lienholder is not a party to the agreement and should not be affected by it. His status remains the same to the extent of any remaining assets available once the amount of the first priority lien has been satisfied.

ESCROW/BROKERS: A real estate salesperson is not a third party beneficiary of commission instructions in an escrow. An escrow holder was originally instructed to make a salesperson's commission check payable to the salesperson and deliver it to the broker. The broker amended the instructions to make the commission check payable to the broker. The court held that since a salesperson is prohibited by A.R.S. Section 32-2155 from receiving a commission check from anyone other than his broker, he cannot be a third party beneficiary of the escrow instructions. The Court also states that escrow holders do not have a duty to disclose evidence of fraud to non-parties to the escrow.

"AS-IS" CLAUSE: Even where property is sold "as is", latent defects that are known to the seller, and that are basic to the transaction, must be disclosed to the purchaser. Also, a seller may be held liable for negligent nondisclosure of facts basic to the transaction when the purchaser is precluded by the seller from discovering those facts.

INSURANCE / BAD FAITH: The 2-year statute of limitations (A.R.S. Section 12-542) for a bad faith action commences when the judgment in the underlying action becomes final, and not when a declaratory relief action filed by the insurer becomes final. The Court suggests that the insured can avoid the running of the statute of limitations during the declaratory relief action by filing a cross-complaint for bad faith.

JUDGMENTS: A judgment rendered in a foreign country may be domesticated in Arizona if the foreign country's judicial system is compatible with due process, and the foreign judgment is not tainted by fraud or lack of notice.

A.R.S. Section 25-215(D) requires the joinder of both spouses before an obligation of one spouse can be enforced against community property. However, a judgment in a non-community property jurisdiction against one spouse may be enforced against community property as long as 1) the obligation would have been a community obligation if incurred in Arizona and 2) the non-defendant spouse is joined in the Arizona domestication action and has the opportunity to contend that the foreign judgment is based an obligation that would be separate in Arizona.

RESTRICTIONS: The case provides a definition of the term "structures" under a Declaration of Restrictions. While it does not deal with a title insurance policy, the case is instructive as to how a court might interpret that term in the Homeowner's and ALTA Residential policies. The Court held that the term "structure" includes a road, referring to a dictionary which defines the term to mean "something constructed".

Several homeowners in a subdivision acquired one of the lots, which was vacant, and proposed to construct an access road across it. The Court enjoined the construction of a road, holding: 1) The construction of the road was forbidden by the Declaration of Restrictions provision which prohibited the construction of any structure other than a single family dwelling, 2) The plaintiffs became "owners" entitled to enforce the restrictions at the time they acquired title pursuant to a foreclosure action, even though the treasurer's deed did not record until later, and 3) The plaintiffs were entitled to enforce the restrictions even if they took title with knowledge of the neighbors' intent to violate them.

WATER: Under A.R.S. Section 45-173, the holder of appropriative water rights may make beneficial use of an existing natural watercourse over private property for purposes of moving water and for water storage. The Court points out that the legislature disclaimed title to the riverbed pursuant to A.R.S. Section 37.1129.01 and that this section was declared unconstitutional in Defenders of Wildlife v. Hull (2/13/01 - CA Div. 1). However, Section 45-173 alone provides sufficient legal basis for the Court's decision, regardless of the constitutionality of Section 37.1129.01.

NAVIGABLE WATERS: A.R.S. Sections 37-1128(B) - (G) and 37-1101(2), pursuant to which the Arizona Navigable Stream Adjudication Commission determined certain waterways to be non-navigable, are preempted by federal law and therefore invalid. S.B. 1126 (A.R.S. Sections 37-1129 to 1129.03), pursuant to which the state disclaimed an interest in certain waterways, is an unconstitutional violation of the Arizona Constitution's gift clause and the public trust doctrine.

MECHANIC'S LIENS: Under A.R.S. Section 12-1198(A), a mechanic's lien expires unless a lis pendens is recorded within 5 days of filing the action to foreclose the lien.

TAX SALE: This case establishes the concept of "parity of title". All tax liens enjoy equal priority, so that the holder of one tax lien certificate cannot foreclose the rights of a competing tax lien certificate holder.

TRUSTEE'S SALES: No additional notice by a foreclosing lender to the owner is required after the automatic stay in the owner's bankruptcy is lifted.

RAILROAD CROSSING: The Corporation Commission does not have authority to force a railroad to permit crossing over tracks on a non-public road.

LIS PENDENS: A lis pendens describing an out-of-state action is valid. Even though the foreign state court cannot directly affect title to Arizona property, a court with personal jurisdiction over the owner of Arizona property can compel the person to act in relation to the property.

BIG BOX ORDINANCE: The City's referendum ordinances do not conflict with, and are not preempted by, the state referendum statutes.

ESCROW: An escrow company can be liable under a respondeat superior theory for an escrow officer's fraud.

RIGHT OF WAY: A private way of necessity is not permitted where the plaintiff did not pursue an implied easement of necessity against the seller (which was the Federal government). Necessity can be established under the private condemnation statute (A.R.S. Section 12-1202(A)) by showing that any other alternate routes are unreasonable or inadequate.

RIGHT OF WAY: A private way of necessity was not permitted where the plaintiff did not pursue alternate access against the state, based on the fact that the state usually grants requests for such access.

MECHANIC'S LIENS: Using an unconditional release form results in a partial waiver where the materialman modified the form to apply only to specific invoices.

RIGHT OF WAY: A roadway right-of-way along parcel boundaries, reserved in land patents issued pursuant to the federal Small Tract Act, could be enforced for access purposes, even though a roadway had not been publicly built and maintained.

The following pre-2000 case is included due to its significance:

Burkons v. Ticor Title Ins. Co. of California
813 P.2d 710     Arizona Supreme Court - 6/18/91

ESCROW:
1. Although not required to investigate, when the agent is aware of facts and circumstances that a reasonable escrow agent would perceive "as evidence of fraud," then there is a duty to disclose.

2. An escrow agent must be cognizant not only of the escrow instructions but of the provisions contained in the documents that are deposited in escrow.