Manicom v. CitiMortgage, Inc.

• Decision Date: 28 October 2014
• Docket Number: No. 2 CA–CV 2014–0049.,2 CA–CV 2014–0049.
• Citation: 236 Ariz. 153,336 P.3d 1274,698 Ariz. Adv. Rep. 21
• Parties: Michele MANICOM and Donald Conrad Manicom, wife and husband, Plaintiffs/Appellees, v. CITIMORTGAGE, INC., successor in interest by merger to ABN Amro Mortgage Group, Inc.; Defendant/Appellant.
• Court: Arizona Court of Appeals

236 Ariz. 153

336 P.3d 1274

698 Ariz. Adv. Rep. 21

Michele MANICOM and Donald Conrad Manicom, wife and husband, Plaintiffs/Appellees

v.CITIMORTGAGE, INC., successor in interest by merger to ABN Amro Mortgage Group, Inc.; Defendant/Appellant.

No. 2 CA–CV 2014–0049.

Court of Appeals of Arizona, Division 2.

Oct. 28, 2014.

As Corrected Nov. 19, 2014.

Burch & Cracchiolo, P.A., By James M. Stipe and Andrew Abraham, Phoenix, Counsel for Plaintiffs/Appellees.

Gust Rosenfeld P.L.C., By Scott A. Malm, Phoenix, Counsel for Defendant/Appellant.

Chief Judge ECKERSTROM authored the opinion of the Court, in which Presiding Judge MILLER and Judge ESPINOSA concurred.

OPINION

ECKERSTROM, Chief Judge:

¶ 1 This appeal concerns a deed of trust in favor of the defendant/appellant CitiMortgage, Inc. (Citi). The trial court determined that an error in the legal description of the real property in the deed made the plaintiffs/appellees Michele and Donald Manicom bona fide purchasers without notice of Citi's lien. The court therefore granted summary judgment for the Manicoms on this and other grounds, declaring the deed of trust invalid and clearing their title to the property pursuant to A.R.S. § 33–420(B). We reverse and remand for the reasons that follow.

Factual and Procedural Background

¶ 2 We view the record in the light most favorable to Citi, the party against whom summary judgment was entered. See Hill–Shafer P'ship v. Chilson Family Trust, 165 Ariz. 469, 472, 799 P.2d 810, 813 (1990). The subject property previously was owned by Ronnie and Wanda Owens before they sold it to Robert Whyte, who in turn sold it to the Manicoms. When the Owens purchased the property, in 2005, they received a $252,000 loan that was secured by a recorded deed of trust. That deed described the property as follows:

LOT 027, PHASE II PARCEL 26A AT RANCHO EL DORADO, ACCORDING TO THE PLAT OF RECORD IN THE OFFICE OF THE COUNTY RECORDER OF PINAL COUNTY, ARIZONA, RECORDED IN CABINET D, SLIDE 168 ... which currently has the address of 21943 NORTH BACKUS DRIVE, MARICOPA, Arizona 85239

(emphasis added). The correct legal description of the property is slide “166,” not slide “168.”

¶ 3 In 2006, the Owens obtained a second loan and recorded a second deed of trust that correctly described the subject property. When Whyte purchased the property, in March 2012, he discovered and satisfied the second loan. A deed of release and reconveyance was subsequently recorded for the second deed of trust.

¶ 4 In May 2012, the Manicoms purchased the property from Whyte without actual notice of the first deed of trust. When Citi later provided the Manicoms with a notice of trustee sale pursuant to the first deed of trust, they commenced the present action. The parties then filed cross-motions for summary judgment.

¶ 5 The trial court denied Citi's motion but granted the Manicoms' requests for declaratory relief finding that they were bona fide purchasers for value (count one of the complaint) and clearing title to the property in their favor (count four). The court also granted “special action relief” pursuant to § 33–420(B) on count five of the complaint, ordering the county recorder to record a document clearing the Manicoms' title. The court dismissed the Manicoms' remaining claims as alternative theories for relief, and it entered a final judgment pursuant to Rule 54(c), Ariz. R. Civ. P. We have jurisdiction pursuant to A.R.S. § 12–2101(A)(1).

Summary Judgment

¶ 6 A trial court is required to grant summary judgment when “there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law.” Ariz. R. Civ. P. 56(a) ; see Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990). “We independently determine whether questions of material fact exist and whether the superior court properly applied the law.” DeSilva v. Baker, 208 Ariz. 597, ¶ 10, 96 P.3d 1084, 1087 (App.2004).

Deed of Trust: Validity, Notice, BFP

¶ 7 As noted, the trial court found the first deed of trust invalid because it erroneously described the property and therefore failed to provide notice to the Manicoms, making them bona fide purchasers without notice who took the property free of the lien pursuant to A.R.S. §§ 33–411(A) and 33–412(A).¹ We disagree with these legal conclusions.

¶ 8 Arizona's Deeds of Trust Act, A.R.S. §§ 33–801 through 33–821, “is a comprehensive set of statutes governing the execution and operation of deeds of trust.” In re Bisbee, 157 Ariz. 31, 33, 754 P.2d 1135, 1137 (1988). A deed of trust recorded under the act provides constructive notice of the deed's contents to “all persons,” including subsequent purchasers. § 33–818 ; Main I Ltd. P'ship v. Venture Cap. Constr. & Dev. Corp., 154 Ariz. 256, 259, 741 P.2d 1234, 1237 (App.1987). Constructive notice contrasts with actual notice, Onekama Realty Co. v. Carothers, 59 Ariz. 416, 424, 129 P.2d 918, 921–22 (1942), and is defined as knowledge of a fact or circumstance that is imputed by operation of law. Main I, 154 Ariz. at 259, 741 P.2d at 1237 ; Black's Law Dictionary 1227 (10th ed.2014).

¶ 9 As the trial court correctly observed below, a deed of trust is a creature of statute, Binder v. Fruth, 150 Ariz. 21, 22, 721 P.2d 679, 680 (App.1986), and must contain “the legal description of trust property.” § 33–802(A). But our supreme court has rejected “a theory of strict statutory construction” that would hold any defect in such an instrument as fatal to providing constructive notice to third parties. Bisbee, 157 Ariz. at 32–33, 754 P.2d at 1136–37 ; accord Watson Constr. Co. v. Amfac Mortg. Corp., 124 Ariz. 570, 575, 606 P.2d 421, 426 (App.1979) (finding deed of trust provided constructive notice despite omission of two pages containing foreclosure clauses).

¶ 10 Instead, the court in Bisbee reiterated the rule that “an instrument is constructive notice of the rights claimed thereunder if it is of a character which the recording statutes permit to be recorded and if it sufficiently apprises third parties of the rights claimed by it.” 157 Ariz. at 35, 754 P.2d at 1139 ; see Carley v. Lee, 58 Ariz. 268, 272, 119 P.2d 236, 238 (1941) ; cf. § 33–808(E) (stating erroneous legal description of trust property does not invalidate trustee sale “if considered as a whole the information provided is sufficient to identify the trust property”). Arizona is thus in accord with the general rule that when “a part of the land description is incorrect or omitted, such as a boundary or block number, but the balance appears to relate to the property involved, a title examiner is placed on inquiry and the record constitutes constructive notice.” Joyce Palomar, Patton and Palomar on Land Titles, § 81 (3d ed.2003); see, e.g., Wheeler Perry Co. v. Mortg. Bond Co., 41 Ariz. 247, 250–51, 17 P.2d 331, 332 (1932) (upholding homestead exemption despite omission of block number in description of land). “ ‘Notice of facts and circumstances which would put a [person] of ordinary prudence and intelligence on inquiry is ... equivalent to knowledge of all of the facts a reasonably diligent inquiry would disclose.’ ” Hall v. World Sav. & Loan Ass'n, 189 Ariz. 495, 500–01, 943 P.2d 855, 860–61 (App.1997), quoting Maricopa Utils. Co. v. Cline, 60 Ariz. 209, 214, 134 P.2d 156, 158 (1943) (omission in Hall ).

¶ 11 In this case, the deed of trust contained an incorrect legal description insofar as it referred to slide “168” rather than slide “166.” Otherwise, however, the legal description of the trust property was accurate. The deed also correctly identified the subject property by its street address, and it correctly listed the trustors' names.

¶ 12 The Deeds of Trust Act clearly contemplates that legal descriptions sometimes will be incorrect and that information such as street addresses may then assist in identifying the property at issue, even though such addresses ordinarily are not an acceptable substitute. See § 33–808(C)(2) (requiring notice of sale to contain “the street address ... as well as the legal description of the trust property”), (E) (“Any error in the legal description of the trust property shall not invalidate a trustee's sale if considered as a whole the information provided is sufficient to identify the trust property being sold.”). Section 33–815 also specifically requires a county recorder to index the trustor of a deed of trust in the same manner as a mortgagor, thereby providing a means other than a legal description for discovering a lien on real property. See A.R.S. §§ 11–462, 11–463 (requiring recorder to maintain alphabetical indices by grantor and grantee).

¶ 13 Here, the correct address was sufficient to identify the trust property in question. And, as in Bisbee, 157 Ariz. at 35, 754 P.2d at 1139, the erroneous legal description did not affect the indexing of the deed of trust by the trustor. Such proper indexing gives “constructive notice to the world” of the substance of a recorded deed. Watson, 124 Ariz. at 576, 606 P.2d at 427.

¶ 14 Thus, when we consider the present circumstances together with these features of the overall act, see Bisbee, 157 Ariz. at 33, 754 P.2d at 1137, we cannot agree that the deed of trust in this case was invalid or failed to provide constructive notice. Given the totality of the information in the deed, it adequately identified the subject property and alerted a reasonably prudent person to the erroneous legal description. Cf. Hamilton v. Wash. Mut. Bank FA (In re Colon), 563 F.3d 1171, 1173 (10th Cir.2009) (concluding incorrect lot number in description of otherwise accurate mortgage did not invalidate instrument); Valley Nat'l Bank of Ariz. v. Educ. Credit Bureau, Inc., 23 Ariz.App. 148, 151–52, 531 P.2d 193, 196–97 (1975) (finding writ gave constructive notice of property subject to lien, notwithstanding incorrect lot number in otherwise accurate description). Despite the single-digit error in the legal description, the deed of trust “sufficiently apprise[d] third parties of the...