Fernandez v. Houseopoly

NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE

THERESA L. FERNANDEZ, Plaintiff/Appellee,

v.

HOUSEOPOLY, LLC, an Arizona Limited Liability Company; MARK
KOEPPEN, Defendants/Appellants.

No. 1 CA-CV 23-0461
FILED 08-15-2024

Appeal from the Superior Court in Mohave County
No. S8015CV202200004
The Honorable Lee Frank Jantzen, Judge

AFFIRMED IN PART;
REVERSED AND REMANDED IN PART

COUNSEL

Spiess & Bell, PC, Phoenix
By James O. Bell
Counsel for Defendants/Appellants

Theresa L. Fernandez, Bullhead City
Plaintiff/Appellee
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MEMORANDUM DECISION

Judge Jennifer B. Campbell delivered the decision of the Court, in which
Presiding Judge Samuel A. Thumma and Judge Michael J. Brown joined.

C A M P B E L L, Judge:

¶1 This is a quiet title action regarding a parcel of real property
following the sale of a sewer assessment lien, the issuance of a
Superintendent of Streets Deed (SOS deed), a transfer of ownership, a
transfer of beneficial interest, and a subsequent trustee’s sale. Houseopoly,
LLC, and Mark Koeppen appeal from the grant of summary judgment
quieting title to the property in favor of Theresa Fernandez and the denial
of their motion for summary judgment. We find that Fernandez’s failure to
comply with the notice statute precluded the grant of summary judgment
in her favor, and reverse that ruling. We affirm the denial of summary
judgment on behalf of Houseopoly and Koeppen. We remand for further
proceedings consistent with this decision.

BACKGROUND

¶2 In April 2016, Lewis Lowry conveyed real property in
Bullhead City, Arizona (the Property) to Melissa Ortega by warranty deed.
Contemporaneously with this conveyance, Ortega signed a promissory
note for $67,500, secured by a recorded deed of trust naming Lowry
beneficiary.

¶3 On March 19, 2018, the Bullhead City Acting Superintendent
of Streets held an auction, selling a portion of the Property to satisfy an
unpaid sewer assessment. Fernandez purchased the lien. She paid the
delinquent sewer assessment of $3,708.18 to Bullhead City and received a
Certificate of Sale. That certificate explained that Fernandez took a 39%
interest in the Property, subject to the statutory right of redemption held by
those with underlying interests in the Property. Should there be no
redemption, Fernandez would be entitled to a deed to the portion of the
Property she purchased on or after April 19, 2019.

¶4 On March 22, 2019, a year after buying the sewer assessment,
Fernandez mailed two notices of sale to Ortega, the owner of the Property,
by certified mail: one to Ortega’s California address, and the other to the

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Property’s address. Fernandez also posted a copy of the notice on the
Property itself.

¶5 On April 24, 2019, Fernandez submitted her deed application
to the City. With that application she included the required notice affidavit
avowing she had served the interested parties but did not mention sending
notice to Lowry, the beneficiary under the deed of trust. The next day, the
City issued an SOS deed conveying 39% of the Property to Fernandez. To
reflect the change in ownership, the Property’s legal description was altered
to show the division of the parcel into two parts. The County Assessor also
assigned new Parcel numbers: 214-20-085A (Parcel A) to Ortega’s portion
and 214-20-085B (Parcel B) to Fernandez’s portion of the Property.
Fernandez recorded her SOS deed on April 29, 2019.

¶6 After the SOS deed was recorded, in May 2019, Fernandez
mailed notice of the sale to Lowry. The envelope was returned later that
month and labeled “RETURN TO SENDER – DECEASED.” Fernandez then
submitted an amendment to her notice affidavit, asking the City to add this
information.

¶7 In July of 2019, Ortega quitclaimed her separate interest in the
Property to her marital community, giving a community interest in the
Property to her husband John Lara. In December of that year, she
transferred her remaining interest in the Property to her husband.

¶8 Over a year after Fernandez recorded her SOS deed, the
Lowry family transferred the note and deed of trust to Lara. Lara, now the
beneficiary under the deed of trust and owner of the parcel, recorded a
substitution of trustee listing T’shura-Ann Elias as successor trustee.

¶9 In March 2021, Elias recorded a notice of trustee’s sale. This
notice listed both new parcel numbers and property descriptions. The
trustee notified Fernandez of the date and time for the sale and Fernandez
attended. At the sale, Houseopoly was the purchaser of Lara’s interest,
paying $92,500.

¶10 The trustee’s deed conveying the Property to Houseopoly
purported to convey two parcels: Parcel 1, “[t]he North 42.7 feet” of the lot,
and Parcel 2, the entire lot “EXCEPT the North 42.7 feet thereof.” In other
words, the deed conveyed not only Lara’s parcel, Parcel A, but also
purported to convey Parcel B, the property owned by Fernandez. The
trustee’s deed was recorded on July 23, 2021, over two years after
Fernandez recorded her SOS deed, and three years after the issuance of the
certificate of sale.

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¶11 In January 2022, Fernandez filed a quiet title action against
Houseopoly. She asked the court to quiet title to Parcel B in her favor,
extinguishing Houseopoly’s adverse claim. Houseopoly filed an answer,
asserting various affirmative defenses.

¶12 In April 2022, Houseopoly granted a lien on the Property to
Koeppen. Strangely, this lien attached to Parcel B only. Accordingly,
Koeppen joined as party to the lawsuit upon motion.

¶13 Houseopoly and Koeppen (now collectively “Houseopoly”)
moved for summary judgment, arguing Fernandez had no valid claim to
the Property because she did not comply with the notice requirements
before applying for her SOS deed rendering that deed void. Houseopoly
argued that the trustee’s sale and resulting trustee’s deed extinguished any
interest she may have had in the Property because Houseopoly acquired
title without notice of any defects, and Fernandez did not seek an injunction
to stop the sale.

¶14 Fernandez filed a cross-motion for summary judgment, and
the court held oral argument on both motions. At the conclusion of oral
argument, the court granted Fernandez’s cross-motion and denied
Houseopoly’s motion. The court entered a final judgment quieting title to
to Parcel B in Fernandez, noting her “good faith efforts to comply with the
process . . . under A.R.S. § 48-606.” The court “forever barred [Houseopoly]
from asserting any claims to the property listed in the Superintendent of
Streets Deed issued April 25, 2019.” Houseopoly timely appealed.

DISCUSSION

¶15 This Court reviews de novo whether summary judgment is
appropriate. Glazer v. State, 237 Ariz. 160, 167, ¶ 29 (2015). “The court shall
grant summary judgment if the moving party shows that 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). We view the facts in a
light most favorable to the non-moving parties. Acosta v. Phoenix Indem. Ins.
Co., 214 Ariz. 380, 381, ¶ 2 (App. 2007).

I. Grant of Summary Judgment in Favor of Fernandez

¶16 Bullhead City needed to upgrade the sewer connection in the
portion of the city where the Property is located. Because the nature of the
improvement was not of general benefit to the citizens of the city, but only
provided a benefit to those who would be utilizing the improved system, it
was deemed a “local improvement.” See City of Globe v. Willis, 16 Ariz. 378,

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391 (1915). As such, the superintendent of streets created a special
assessment district. See A.R.S. §§ 48-571(A)(18), -572(A)(4). Each parcel
owner in the assessment district was required to contribute to the cost of
the improvement, and each received the benefit of that improvement. See
A.R.S. §§ 48-575(E), -595(A); see also Moore v. City of Chandler, 148 Ariz. 124,
126–28 (App. 1985) (outlining improvement district process per earlier
versions of relevant statutes).

¶17 To secure payment of delinquent assessments, a
municipality’s superintendent of streets is authorized to sell portions of
parcels with delinquent assessments. See A.R.S. §§ 48-601, -603. Unlike a tax
lien, the assessment lien holder only buys a lien on the portion of the parcel
equal to the value of the assessment. Hinz v. City of Phoenix, 118 Ariz. 161,
163 (App. 1978) (explaining that earlier statute contemplated “that, in the
auction-bid process, only that portion of the land which is equal in value to
the amount of the lien is sold”). The superintendent of streets must then
issue and record a certificate of sale. See A.R.S. § 48-604. Once the
superintendent sells the assessment, it becomes an interest-bearing
investment for the purchaser. See A.R.S. § 48-605(A).

¶18 Before the purchaser may receive a deed to the property,
anyone with a recorded interest may redeem the property by following the
procedure set forth in A.R.S. § 48-605. Basically, the person with an interest
may redeem that interest by paying the amount of the assessment with
interest to the lien purchaser. Id. If no redemption occurs within 12 months
of the sale, the superintendent of streets shall execute a deed to the
purchaser upon his or her application. A.R.S. § 48-606.

¶19 An SOS deed may be issued only if the purchaser gave notice
to everyone with a recorded interest in the property at least 30 days before
applying for the deed. A.R.S. § 48-606(B). If the owner cannot be found with
due diligence, the purchaser must post notice in “a conspicuous place upon
the property” at least 30 days before application. Id. Once the
superintendent of streets issues the SOS deed, it becomes “prima facie
evidence of the truth of all matters recited therein,” including that notice
was properly given. See A.R.S. § 48-606(D). “The deed of the superintendent
shall convey to the purchaser fee title to the lands described therein, free
and clear of all interests, liens, claims and encumbrances whether of record
before or after the assessment lien, except for the lien for general property
taxes and prior special assessments.” Id. So, when Fernandez received and
recorded the SOS deed, she became the prima facia record owner of the
Property–full stop. To divest Fernandez of her ownership interest, judicial
intervention would be necessary.

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¶20 Houseopoly contends that Fernandez did not own any
interest in the Property at the time of the trustee’s sale because her SOS deed
was void for failure to comply with the notice requirements. Houseopoly
cites Nicholas v. Fowler, 89 Ariz. 7 (1960), to support this proposition. In
Nicholas, evidence was presented that those with a recorded interest in the
property did not receive the statutorily required notice. Id. at 11. The court
agreed that an affidavit stating due diligence was used to try to find the
property owner was insufficient, specifically holding: “a deed issued on the
basis of such affidavit is void as against the owner and persons having prior
legal or equitable interests in the property.” Id. at 9–11. But that language
must be read in the context of the procedural posture of that case—namely,
those with “prior legal or equitable interests in the property” brought a
quiet title action against the current SOS deedholder to challenge
compliance with the notice statute. Id. at 8. While the court used the term
“void” to describe a deed issued without proper notice, the court actually
voided the deed based on a challenge to its validity. See Kinney v. Lundy, 11
Ariz. 75, 81 (1907) (noting “[p]robably no words are more inaccurately used
in the books than ‘void’ and ‘voidable’” (citation and quotation marks
omitted)); Auman v. Auman, 134 Ariz. 40, 42 (1982) (noting “the term ‘void’
is often misused”). In this instance Fernandez’s SOS deed was voidable, not
void on its face. See Smith v. Smith, 235 Ariz. 181, 185, ¶ 12 (App. 2014)
(noting a voidable decree “is valid and enforceable until successfully
challenged”); cf. State v. Cramer, 192 Ariz. 150, 153, ¶ 12 (App. 1998) (noting
a void decree is a nullity from its inception).

¶21 Here, neither the property owner (initially Ortega, then
Ortega and Lara as a married couple, and finally Lara alone), nor the deed
of trust holder (Lowry or his heirs), nor the assignee (Lara) sought to quiet
title to the Property. See A.R.S. § 12-1101. By statute, Fernandez was the
record title holder to the Property unless or until someone with a prior
recorded interest in the Property challenged the deed’s validity. See A.R.S.
§ 48-606(D). Once Fernandez filed an action to quiet title to Parcel B in her
favor, the notice infirmity was placed at issue.

¶22 Here the court found that because Fernandez engaged in a
good-faith effort to comply with the notice requirements she was entitled
to have title to Parcel B quieted in her favor. But a good-faith effort is not
what is required under the statute. See A.R.S. § 48-606(B); Nicholas, 89 Ariz.
at 11 (holding that “[s]tatutes providing for foreclosure by deed of
assessment liens are to be strictly construed”). In Arizona, once a deed has
been issued, any defects or inadequacies in the notice process cannot simply
be cured or corrected retroactively to validate the deed. For example, when
a party entitled to notice of a treasurer’s deed is not given the required

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notice, a subsequent deed issued is invalid with respect to that party. Brandt
v. City of Yuma, 124 Ariz. 29, 31 (App. 1979). It is undisputed that Fernandez
failed to give Lowry notice of her intention to seek an SOS deed. Her
subsequent measures did not cure the notice defect. The court’s finding that
a good-faith effort overcame the statutory notice requirements was in error.

¶23 The foregoing does not, however, entitle Houseopoly to title
quieted on its behalf either. Even if Fernandez’s SOS deed is voided by the
court, her certificate of sale will still be valid. To obtain clear title,
Houseopoly would then need to redeem Fernandez’s interest in the
Property−namely satisfaction of her interest-bearing investment. See A.R.S.
§ 48-605(A). Because the court erred in granting summary judgment in
Fernandez’s favor, we reverse and remand for further proceedings
consistent with this decision.

II. Denial of Houseopoly’s Motion for Summary Judgment

¶24 Houseopoly asserts that by selling the Property at a trustee’s
sale, Fernandez’s interest in the Property was extinguished. To be sure, any
property conveyed pursuant to a valid trustee’s sale “shall be . . . clear of all
liens, claims or interests that have a priority subordinate to the deed of trust
and shall be subject to all liens, claims or interests that have a priority senior
to the deed of trust.” A.R.S. § 33-811(E). Yet, it is also true that you cannot
sell property at a trustee’s sale unless you have either an ownership or a
beneficial interest in that property. Lowry and his assignees had neither.
When the SOS deed was issued by the City, title was conveyed to Fernandez
without any encumbrance, including the deed of trust held by Lowry. See
A.R.S. § 48-606(D).

¶25 Before a trustee may dispose of property at a trustee’s sale,
the property to be sold must have an equitable interest that is being
foreclosed. Here, there is no doubt that the trustee knew about Fernandez’s
ownership in the Property before noticing the trustee’s sale. This is
evidenced by the listing of the two parcels’ legal descriptions, coupled with
Fernandez’s recorded SOS deed which again provides prima facia evidence
of her unencumbered ownership of Parcel B. See A.R.S. § 48-606(D); A.R.S.
§§ 33-807, -801(9) (providing that only trust property capable of being
transferred may be sold).

¶26 When a deed correctly describes the conveyance of title, its
recordation constitutes constructive notice to subsequent purchasers. In re
Bisbee, 157 Ariz. 31, 35 (1988); A.R.S. § 33-818. As a result, the trustee had no
authority to sell the Property as a whole because only Parcel A (the portion

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not owned by Fernandez) was transferrable by the trustee at the time of the
trustee’s sale. See In re Bisbee, 157 Ariz. at 35; A.R.S. § 33-818.

¶27 One cannot divest an owner of their property by simply
listing the legal description in a notice of a trustee’s sale and holding that
sale. Here, Ortega, the property owner; Lowry, the deed of trust holder; and
Lara, an assignee under the deed of trust; all lost whatever interest they had
in Parcel B when they failed to redeem the sewer assessment during the
statutory period. Once the SOS deed was issued, it was prima facie evidence
of Fernandez’s ownership, and after failing to challenge the deed’s validity,
the trustee attempted to sell property his client did not own. At the time of
the sale, the trustee had no recorded interest in Parcel B and therefore
nothing for him to transfer at a trustee’s sale. We affirm the court’s denial
of Houseopoly’s motion for summary judgment.

CONCLUSION

¶28 We reverse the summary judgment granted in favor of
Fernandez and remand for proceedings consistent with this decision. We
affirm the denial of Houseopoly’s motion for summary judgment. We
decline to grant the parties’ requests for attorneys’ fees and costs.

AMY M. WOOD • Clerk of the Court
FILED: AGFV

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