Advanced Prop. Tax Liens, Inc. v. Othon

• Decision Date: 25 October 2021
• Docket Number: No. 2 CA-CV 2021-0001,2 CA-CV 2021-0001
• Parties: ADVANCED PROPERTY TAX LIENS, INC., an Arizona Corporation, Plaintiff/Appellant, v. Jorge OTHON and Spouse of Jorge Othon, if any in September 2017, Defendants/Appellees.
• Court: Arizona Court of Appeals

56 Arizona Cases Digest 4

501 P.3d 249

ADVANCED PROPERTY TAX LIENS, INC., an Arizona Corporation, Plaintiff/Appellant,

v.Jorge OTHON and Spouse of Jorge Othon, if any in September 2017, Defendants/Appellees.

No. 2 CA-CV 2021-0001

Court of Appeals of Arizona, Division 2.

Filed October 25, 2021

Barry Becker P.C., Phoenix, By Barry C. Becker, Counsel for Plaintiff/Appellant

Law Offices of Gregory L. Droeger, Nogales, By Gregory L. Droeger, Counsel for Defendants/Appellees

Judge Eckerstrom authored the opinion of the Court, in which Presiding Judge Espinosa and Vice Chief Judge Staring concurred.

ECKERSTROM, Judge:

¶1 In this quiet title action, Advanced Property Tax Liens, Inc. ("APTL") appeals from the trial court's rulings in favor of Jorge Othon on cross-motions for summary judgment. For the reasons that follow, we affirm.

Factual and Procedural Background

¶2 On appeal from the entry of summary judgment, we view the facts in the light most favorable to the party against whom summary judgment was granted, here APTL. Delo v. GMAC Mortg., L.L.C. , 232 Ariz. 133, ¶ 2, 302 P.3d 658 (App. 2013). The material facts in this matter are undisputed. At issue is a parcel of commercial warehouse property located in Nogales, Arizona (the "Property"), formerly owned by Victalina Carreon.

¶3 In late 2014 or early 2015, Othon entered into an oral agreement with Carreon to purchase the Property for $450,000, and began making payments toward that purchase. The agreement was never documented, and Othon paid Carreon with money on which he had avoided paying taxes. Both Carreon and Othon knew the Property was encumbered by delinquent property taxes. Because they mutually understood that payment of those taxes would eventually fall to Othon, they accounted for the encumbrance by deducting the outstanding taxes from the purchase price.

¶4 When Carreon and Othon entered into their agreement, the Property had been vacant. Immediately after Othon made his first payment, he occupied the Property. He rented the warehouse space to three companies that operated there, two owned by him and one owned by his brother. The Property was, at all relevant times, "a fully occupied commercial property" that was open during normal business hours.

¶5 In February 2015, APTL purchased a tax lien on the Property at a Santa Cruz County tax lien auction, paying the unpaid property taxes and accrued interest. At some point afterward, Othon attempted to purchase APTL's tax lien.¹ But APTL refused to sell the tax lien to him.

¶6 In September 2017, after the purchase price had been paid in full, Carreon executed a deed conveying the Property to Othon. The deed was properly notarized and manifested Carreon's intent to convey the Property to Othon. However, Othon did not record the deed with the Santa Cruz County Recorder. Nor did he notify the Santa Cruz County Treasurer or Assessor of his ownership of the Property or provide an appropriate mailing address at which he could be reached with tax bills or valuation notices. When he received the deed, Othon knew the Property was encumbered by unpaid property taxes, but he did not pay them. By 2018, Othon was aware the Property remained in Carreon's name and that the delinquent property taxes had not been paid.

Prior Tax Lien Foreclosure Action

¶7 In January 2018, APTL mailed a notice of intent to foreclose via certified mail to two addresses it had identified as belonging to Carreon: a residential address in Nogales and the situs address for the Property.² See A.R.S. § 42-18202(A)(1) (requiring tax lien purchaser to send notice of intent to file foreclosure action at least thirty days before doing so). But both envelopes were returned by the Postal Service and marked as follows: "Return to Sender, Unclaimed, Unable to Forward." APTL made no further attempts to locate Carreon for purposes of sending the thirty-day notice to her.³

¶8 The records of the Santa Cruz County Recorder had shown since August 2017 that the residential address to which APTL sent the thirty-day notice in January 2018 no longer belonged to Carreon. That residence had been sold at public auction in July 2017. After both notices were returned unopened and unclaimed, APTL never approached personnel at the Property—the situs address—or at neighboring buildings to seek additional information regarding Carreon's whereabouts.

¶9 In May 2018, more than three years after its purchase of the Property tax lien, APTL filed its foreclosure action in Santa Cruz County Superior Court, naming Carreon as a defendant. In June, APTL's process server attempted to serve the summons and complaint on Carreon at the residential address of public record—which, as noted above, had been sold at public auction in 2017. He stated in his affidavit that Carreon no longer resided at that address, which he avowed was "a VACANT and EMPTY HOUSE." The Postal Service indicated that Carreon had moved without providing a forwarding address. In September 2018, after some additional efforts to locate Carreon but no inquiries at the Property itself,⁴ APTL published the tax lien foreclosure documents in Nogales International , a newspaper of general circulation within Santa Cruz County.⁵

¶10 In December 2018, APTL filed an affidavit of default, alleging that Carreon had been properly served but had failed to answer. In February 2019, the superior court entered a judgment of default, foreclosing Carreon's right to redeem. In March, the Santa Cruz County Treasurer acknowledged the default judgment and issued a treasurer's deed conveying the Property to APTL. APTL recorded the deed on March 12, 2019.

¶11 In April 2019, Carreon moved to vacate the default judgment. She claimed APTL had inappropriately utilized service by publication, rendering the default judgment void. Rather than submitting an affidavit of her own in support of this motion to vacate, Carreon attached an affidavit from Othon. In that affidavit, Othon falsely stated that Carreon was still the landlord of the Property and that he was merely her agent and tenant. He further attested that service on Carreon was never attempted at the Property and that no inquiry was made there to ascertain Carreon's whereabouts. However, on August 8, 2019, Carreon moved to withdraw her motion to vacate the default judgment. On August 28, the trial court granted that motion "with prejudice."

This Quiet Title Action

¶12 On August 21, 2019—seven days before the trial court in the tax lien foreclosure action granted Carreon's motion to withdraw her motion to vacate the default judgment—APTL filed the underlying complaint in this action seeking to quiet title to the Property, naming Othon as a defendant. In October, Othon (represented by the same attorney who had represented Carreon in the tax lien foreclosure action) filed an answer and counterclaim, asking the court to deny APTL's claim for quiet title, find the default judgment void, and declare title to the Property vested in him. The parties cross-moved for summary judgment.

¶13 After a hearing, the trial court granted Othon's motion and denied APTL's. In particular, it ruled that Othon, as a party with the right to redeem, had standing to challenge the default judgment in the foreclosure action as void for lack of jurisdiction due to insufficient service of notice and process on Carreon. It then ruled that APTL had failed to properly provide the statutorily required thirty-day notice to Carreon before filing the tax lien foreclosure action, or to properly serve her with the summons and complaint. The court thus concluded that the March 2018 tax lien foreclosure judgment "is void" and "did not operate to foreclose Othon's rights." This appeal followed. We have jurisdiction pursuant to A.R.S. §§ 12-120.21(A)(1) and 12-2101(A)(1).

Discussion

Standard of Review

¶14 In reviewing a trial court's rulings on cross-motions for summary judgment, we review questions of law de novo , construing the facts and reasonable inferences in the light most favorable to the party against whom summary judgment was granted, here APTL. Nelson v. Phx. Resort Corp. , 181 Ariz. 188, 191, 888 P.2d 1375, 1378 (App. 1994). We will affirm the grant of summary judgment if there are no genuine issues of material fact and the prevailing party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a) ; Green Cross Med., Inc. v. Gally , 242 Ariz. 293, ¶ 5, 395 P.3d 302 (App. 2017).

Othon's Standing to Challenge Default Judgment as Void

¶15 APTL asks us to reverse the trial court's ruling on the ground that "Othon does not have standing to contest the trial court's prior order of default" because "issues of notice and service are personal to a defendant (Ms. Carreon), and cannot be validly asserted by a third party (Mr. Othon)." This is a question of law, and "we review the trial court's standing determination de novo." Aegis of Ariz., L.L.C. v. Town of Marana , 206 Ariz. 557, ¶ 16, 81 P.3d 1016 (App. 2003).

¶16 Here, the trial court acknowledged that the "general rule" is that a claim of inadequate service is personal to the person upon whom service was to be made. But it concluded that Othon nonetheless had standing to attack the default judgment because his position as to Carreon "is similar" to that of an insurer, who has a "well-recognized right" to raise the issue of defective service as to its insured. APTL challenges this holding as "erroneous," arguing "the analogy of an insurance company to its insured is not justified as it relates to Othon and Carreon."

¶17 It is well established in Arizona that an insurer "has the right to set aside a default judgment against its insured, not only on behalf of the insured, but on its own behalf." Union Oil Co. of Cal. v. Hudson Oil Co., Inc. , 131 Ariz. 285, 288, 640 P.2d 847, 850 (1982). APTL contends this is only because of the insurer's status as the insured's legal representative, who bears a contractual duty to protect the insured. This argument, however, ignores a separate rationale for...