Roosevelt Sav. Bank of City of New York v. State Farm Fire & Cas. Co.

• Decision Date: 21 September 1976
• Docket Number: CA-CIV,No. 1,1
• Citation: 27 Ariz.App. 522,556 P.2d 823
• Parties: ROOSEVELT SAVINGS BANK OF the CITY OF NEW YORK, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, Appellee. 2983.
• Court: Arizona Court of Appeals

Page 823

556 P.2d 823

27 Ariz.App. 522

ROOSEVELT SAVINGS BANK OF the CITY OF NEW YORK, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, Appellee.

No. 1 CA-CIV 2983.

Court of Appeals of Arizona, Division 1, Department C.

Sept. 21, 1976.

Rehearing Denied Oct. 28, 1976.

Petition for Review Denied Nov. 23, 1976.

Hughes & Hughes, P.C. by Coit I. Hughes, Phoenix, for appellant

Lewis & Roca by Paul G. Ulrich, Phoenix, for appellee.

OPINION

FROEB, Judge.

In this case a major fire loss occurred to a vacant single-family residence after mortgage foreclosure proceedings had been concluded. In an action for declaratory judgment, the Roosevelt Savings Bank of the City of New York (referred to here as 'the bank') sought to establish its right to recover fire insurance proceeds under a policy issued by State Farm Fire & Casualty Co. (referred to here as 'State Farm'). The trial court decided the issues adversely to the bank on cross motions for summary judgment. This appeal followed.

There is no dispute about the facts. Phillip J. Edwards and Margaret Edwards, husband and wife, were the owners of a house which was subject to a mortgage executed by the Edwards to Brokers Mortgage Company and insured by the Federal Housing Administration (F.H.A.). The mortgage, together with the note, was thereafter assigned to the bank. State Farm had issued a fire insurance policy to the Edwards which included a 'Lender's Loss Payable Endorsement' providing fire loss protection to the bank in the event of loss. After the Edwards defaulted in payment of their loan, the bank began mortgage foreclosure proceedings on September 13, 1972. The property at or around this time became vacant and remained vacant until a fire occurred on or about April 29, 1973. In the interim, a representative of the bank inspected the house on several occasions and found that it had been broken into and was in need of being cleaned and secured. This was accomplished and the house was secured by sealing the front door and boarding-up the windows and the rear entrance.

The foreclosure proceedings culminated with a judgment of foreclosure, the issuance of a special execution and a sheriff's sale of the property on March 22, 1973. The bank was the successful bidder at the sale and was issued a certificate of sale by the sheriff on the same date. In accordance with F.H.A. regulations, the bank executed an assignment of the certificate of sale and arranged with the sheriff to have the deed issued in the name of the Secretary of Housing and Urban Development (H.U.D.) once the statutory redemption period had run. As there was no redemption, the deed to the property was issued on April 24, 1973, and thereafter forwarded by attorneys for the bank to American Title Insurance Company. After satisfying various title requirements of H.U.D., the title company, on June 14, 1973, recorded the deed and assignment of certificate of sale in the office of the Maricopa County Recorder. On August 27, 1973, the bank learned for the first time that the house had been partially destroyed by fire on or about April 29, 1973. It then submitted a claim of loss to State Farm which was rejected. This suit followed.

State Farm relies on two basic arguments to sustain the trial court's ruling that the bank is not entitled to recover for the fire loss under the Lender's Loss Payable Endorsement of the policy. On close analysis, we find that neither is correct and therefore reverse the judgment.

State Farm contends that the bank's interest in the property was extinguished when the sheriff's deed was issued in the name of H.U.D., two days before the fire. Its argument here necessarily relates to transfer of title. State Farm argues that as a matter of law title passed upon the execution of the sheriff's deed, relying principally upon First National Bank v. Maxey,34 Ariz. 438, 272 P. 641 (1928). We disagree. The Maxey case stops well short of reaching the fact situation here. When the bank purchased the property at the sheriff's sale, it acquired equitable ownership of the property, subject only to defeasance by redemption (which did not occur). In accordance with F.H.A. regulations and the executed assignment of the sheriff's certificate of sale, the deed was issued in the name of H.U.D. and was forwarded to American Title Insurance Company to be recorded and delivered only after marketable title was established and insured. The deed was thus held by the title company in escrow, together with the assignment of certificate of sale, until it was recorded on June 14, 1973.

Under Arizona law, a deed to real property does not vest legal title in the grantee until it is delivered and accepted. Robinson v. Herring, 75 Ariz. 166, 253 P.2d 347 (1953); Parker v. Gentry, 62 Ariz. 115, 154 P.2d 517 (1944); A.R.S. § 33--401(A). Execution of the deed without delivery is legally insufficient to transfer title. In this case, the delivery and acceptance by H.U.D. did not occur until at least June 14, 1973, when the deed was recorded by the title company. Until then, title to the property remained with the bank. As a consequence, the bank still had an insured interest in the property when the fire occurred on April 29, 1973, and could recover for the fire loss under the policy.

The second question raised by State Farm relates to whether vacancy of the property for an extended period prevents the bank from recovery under the policy. For this, we need to look closer at the provisions of the policy

Terms suspending or restricting coverage state in part:

. . . Unless otherwise provided in writing added hereto this Company shall not be liable for loss occurring

(a) while the hazard is increased by any means within the control or knowledge of the insured; or

(b) While a described building, whether intended for occupancy by owner or tenant, Is vacant or unoccupied beyond a period of sixty consecutive days; . . . (Emphasis supplied.)

However, Paragraphs 1 and 2 of the Lender's Loss Payable Endorsement reads:

1. Loss or damage, if...