Court Decides Case Regarding Claims Arising Out of Transfers of Mortgages

A.R.S. § 33-420 permits a cause of action to quiet title to property and, among other things, also permits a claim for damages arising out of recording of documents that are forged, groundless, contains a material misstatement or false claim, or is otherwise invalid.

The Court of Appeals for the State of Arizona recently considered a case dealing with these issues as they arise within the context of multiple assignments of the lender’s interests in the home through MERS (Mortgage Electronic Registration System).

The case is Sitton v. Deutsche Bank National Trust Co. which was decided on September 5, 2013. In this case, the homeowner undeniably fell behind on her mortgage payments. During the time she owned the home, the mortgage loan was transferred to a variety of assignees. Crucial, however, was the fact that the original mortgage lender assigned its interest to MERS who then became the mortgage of record (and privately kept track of assignments from MERS to subsequent assignees even though MERS always remained the mortgage of record).

Before getting to the ultimate question presented by the homeowner, the Court addressed a couple of important preliminary questions. First, the Court had to decide if the homeowner still had a right to claim damages under A.R.S. § 33-420 even though her home had been foreclosed on and she was now no longer the owner. The Court reasoned that some claims under A.R.S. § 33-420 are precluded by the foreclosure of her home because it divested her of title. Case law interpreting trustee’s sales (non-judicial foreclosures) indicates that many claims (i.e. quiet title claims, tort claims against the purchaser, and damage claims against purchasers for conversion, fraud and trespass) are waived once the trustee’s sale is complete. However, the Court concluded that the trustee’s sale does not preclude a cause of action under A.R.S. 33-420(A) for a monetary award arising out of documents recorded when she was the owner of the property.

Second, the defendants argued that even if the Homeowner had standing to bring an action for monetary damages under A.R.S. § 33-420(A), that she had failed to do so within the appropriate time limits. The defendants argued for a one year time limit which began to run after the first assignment. Their argument was based on A.R.S. § 12-541(5) which limits claims made under statutes to one year. The statute they cited to, though, provides an exception in the instances where the liability is for a penalty or forfeiture. The Court then proceeded to determine that the nature of the liability created under A.R.S.§ 33-420(A) was a penalty, and thus was controlled by a four year general limitations period under A.R.S. § 12-550. This interpretation gives much needed extra time for people suffering from the effects of recorded documents containing false information.

On the ultimate question at issue, the homeowner alleged that there were
errors and misrepresentations in the various assignments. The Court found against the homeowner though, because she was not affected by those misrepresentations. The subsequent assignees who received the assignments might be able to bring a claim, but since the Homeowner was not a party to those transactions, the Court found that she was not materially affected, as required by the statute.

In coming to this conclusion, the Court relied on the definition of what is “material” from the law of fraud which makes a misrepresentation material if a “reasonable person would attach importance” to the “existence or nonexistence” of the fact in “determining his or her choice of action in the transaction in question.” The Court stated in no uncertain terms that the most relevant transaction between the homeowner and the defendants was the agreement to borrow money to purchase the home, and to repay that money. The homeowner’s liability was created under the note she signed, and that liability remained no matter what transpired between the mortgage lenders and its assignees.

If you need assistance in clearing title to your property because of wrongfully recorded documents, or other issues affecting your real estate, contact the offices of Platt & Westby, P.C. for a no obligation consultation.