Delo v. Gmac Mortgage, LLC, U.S. Bank, N.A.

FILED BY CLERK
IN THE COURT OF APPEALS
STATE OF ARIZONA MAY -8 2013
DIVISION TWO COURT OF APPEALS
DIVISION TWO
WILLIAM DELO, an individual, )
)
Plaintiff/Appellee, )
)
v. ) 2 CA-CV 2012-0085
) 2 CA-CV 2012-0086
GMAC MORTGAGE, L.L.C., fka GMAC ) (Consolidated)
MORTGAGE CORPORATION, a Virginia ) DEPARTMENT B
corporation; U.S. BANK, N.A., as trustee )
for RAMP 2005EFC7, ) OPINION
)
Defendants/Appellants, )
)
MORTGAGE ELECTRONIC )
REGISTRATION SYSTEMS, INC., )
)
Intervenor/Appellant. )
)
APPEAL FROM THE SUPERIOR COURT OF PINAL COUNTY
Cause No. CV201004836
Honorable Bradley M. Soos, Judge Pro Tempore
REVERSED AND REMANDED
The Frutkin Law Firm, PLC
By C. Adam Buck Phoenix
Attorneys for Plaintiff/Appellee
Ryley Carlock & Applewhite
By Kara A. Ricupero and Kevin R. Heaphy Phoenix
Attorneys for Defendants/Appellants
Snell & Wilmer L.L.P.
By Andrew M. Jacobs Tucson
Attorneys for Intervenor/Appellant
V Á S Q U E Z, Presiding Judge.
¶1 In this quiet title action, GMAC Mortgage, L.L.C. and U.S. Bank, N.A. (the
GMAC Parties), and Mortgage Electronic Registration Systems, Inc. (MERS), appeal
from the trial court’s grant of summary judgment quieting title in favor of appellee
William Delo to real property located in Queen Creek.1 The GMAC Parties and MERS
argue the court erred by concluding their interests in the property had been foreclosed in
a prior tax-lien foreclosure lawsuit. For the reasons that follow, we reverse and remand
for entry of summary judgment in favor of the GMAC Parties.
Factual Background and Procedural History
¶2 On appeal from the entry of summary judgment, we view the facts and all
reasonable inferences drawn from them in the light most favorable to the party opposing
1
MERS, who was not a party to the quiet title action, filed a notice of appeal “as a
non-party aggrieved by the judgment.” See Ariz. R. Civ. App. P. 1. The same day,
MERS also filed a motion to intervene with the trial court. The trial court, however,
denied the motion because jurisdiction had already vested with this court as a result of the
GMAC Parties’ filing a notice of appeal. See Sw. Gas Corp. v. Irwin, 229 Ariz. 198, ¶ 8,
273 P.3d 650, 653 (App. 2012) (filing notice of appeal generally divests trial court of
jurisdiction). In its unopposed motion to intervene subsequently filed with this court
pursuant to Rule 24(a), Ariz. R. Civ. P., MERS argued that it had an interest in this case
based on its unique business model and its contractual obligations with its member-
lenders, like the GMAC Parties. See Dowling v. Stapley, 221 Ariz. 251, ¶ 58, 211 P.3d
1235, 1254 (App. 2009) (intervenor must have interest such that judgment would have
direct legal effect upon rights). We granted the motion to intervene and to consolidate
the appeals. As intervenor, MERS maintains that it seeks to protect the GMAC Parties’
interests by requesting that the trial court’s entry of summary judgment in favor of Delo
be vacated and that summary judgment be entered in favor of the GMAC Parties.
2
the motion. Robinson v. Kay, 225 Ariz. 191, ¶ 2, 236 P.3d 418, 419 (App. 2010). Here,
the underlying material facts are undisputed. In September 2005, Robert and Carri
Anderson obtained a $200,000 loan from EquiFirst Corporation to purchase a residence
in Queen Creek (the Property). The Andersons signed an Adjustable Rate Note (the
Note) and executed a Deed of Trust on the property as security for the loan. The Deed of
Trust designated EquiFirst as lender and MERS “as a nominee for Lender and Lender’s
successors and assigns,” as “the beneficiary under the Security Instrument,” and as legal
title holder.
¶3 EquiFirst endorsed the Note “Without Recourse, Pay to the Order of,”
thereby transferring it to Wells Fargo in November 2005. EquiFirst also transferred the
Note’s servicing rights to Homecomings Financial, LLC, a subsidiary of GMAC. GMAC
subsequently became the holder of the Note, placed it in a trust entitled “RAMP
2005EFC7,” and appointed U.S. Bank as trustee.
¶4 In February 2007, the Pinal County Treasurer sold a tax lien on the
Property for delinquent 2005 property taxes. Pinal County purchased the tax lien and
assigned it to Delo when he paid the outstanding taxes. After the statutory three-year
waiting period, see A.R.S. § 42-18201, Delo initiated foreclosure proceedings in June
2010, when the Andersons failed to redeem the tax lien. Delo named as defendants the
Andersons, EquiFirst, and the San Tan Heights Homeowners Association, all of whom
had been identified in a Limited Search Report prepared by Security Title Agency as
having interests in the Property. Delo did not name the GMAC Parties or MERS as
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defendants in the lawsuit. He did, however, record a lis pendens indicating the
foreclosure complaint had been filed.
¶5 After the defendants failed to respond to Delo’s foreclosure complaint, the
trial court entered a default judgment on September 15, 2010. Delo obtained a
Treasurer’s Deed to the Property on October 7, 2010. In the meantime, after the
Andersons had defaulted on the Note, MERS instructed Executive Trustee Services, LLC
(ETS) to institute non-judicial foreclosure proceedings on the Property.2 In May 2010,
ETS recorded a Notice of Trustee’s Sale of the Property, setting August 31, 2010, as the
date of the sale. GMAC, represented by U.S. Bank, was the highest and only bidder at
the trustee’s sale. ETS executed a deed in favor of U.S. Bank, as Trustee for RAMP
2005EFC7 (Trustee’s Deed), and recorded it on September 10, 2010.
¶6 In December 2010, Delo filed this lawsuit against the GMAC Parties,
seeking to quiet title to the Property. The parties filed cross-motions for summary
judgment. After hearing oral argument, the trial court granted Delo’s motion and entered
judgment in his favor. The GMAC Parties and MERS filed separate notices of appeal,
which we have consolidated. We have jurisdiction pursuant to A.R.S. §§ 12-
120.21(A)(1) and 12-2101(A)(1).
Discussion
¶7 The GMAC Parties contend the trial court erred by granting Delo’s motion
for summary judgment because the court “failed to adhere to Arizona law requiring that
2
In December 2008, MERS executed a Substitution of Trustee naming ETS as
trustee. That document was recorded December 5, 2008.
4
Delo name parties in a tax lien foreclosure lawsuit as a prerequisite of due process to
foreclose their interest in the subject property.” MERS similarly contends the court’s
judgment quieting title in Delo is void and “should be reversed because it fails to
recognize MERS’s prior record interest in the property.” We review the court’s summary
judgment ruling de novo, “determin[ing] independently whether there are any genuine
issues of material fact and whether the trial court erred in its application of the law.”
Valder Law Offices v. Keenan Law Firm, 212 Ariz. 244, ¶ 14, 129 P.3d 966, 971 (App.
2006).
¶8 Pursuant to A.R.S. § 42-17153(A), “a tax that is levied on real or personal
property is a lien on the assessed property.” To secure the payment of the unpaid taxes,
the county treasurer is authorized “to sell the tax liens . . . and to foreclose the right to
redeem,” A.R.S. § 42-18101(A), delivering to each purchaser or assignee a certificate of
purchase, A.R.S. § 42-18118(A). A real property tax lien may be redeemed by a property
owner; the owner’s agent, assignee, or attorney; or “[a]ny person who has a legal or
equitable claim in the property.” A.R.S. § 42-18151(A). If the lien is not redeemed
within three years, the purchaser may bring an action to foreclose the right to redeem.
A.R.S. § 42-18201.
¶9 In his motion for summary judgment, Delo first argued he “ha[d] priority
over [the GMAC Parties] by virtue of the lis pendens he recorded.” Second, he
maintained the GMAC Parties did not have legal authority to foreclose because there is
no public record that EquiFirst ever assigned the Note to them. Finally, Delo argued
“MERS [wa]s not a necessary party in [the] foreclosure action” because MERS is merely
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an agent for the lender. In their response and cross-motion, the GMAC Parties argued
that, as the holder of the Note, GMAC was entitled to enforce it. They asserted that the
lack of a recorded assignment of the Note had “no bearing” on this case, because MERS,
as GMAC’s agent, “held a valid legal interest in the Property well before initiation of the
[tax-lien foreclosure l]awsuit and validly commenced a [non-judicial] foreclosure action
prior to filing of the same.” And, they argued Delo’s “lis pendens provide[d] no
authority to foreclose” the interests of the GMAC Parties or MERS because their interests
all had vested prior to the lis pendens and Delo failed to name them in the tax-lien
foreclosure lawsuit.
¶10 The trial court agreed with Delo, concluding that because Delo had filed a
lis pendens on August 12, 2010, before any recorded interest of the GMAC Parties,3 the
GMAC Parties had received sufficient notice and an opportunity to intervene in Delo’s
tax-lien foreclosure action. The court concluded that having failed to intervene, the
GMAC Parties “cannot now claim that their interests are prior in right to [Delo]’s
interests.”
3
The trial court acknowledged that “GMAC purportedly became the holder of the
[N]ote” pursuant to an endorsement on an instrument attached to the Deed of Trust.
However, the court found “the time of the endorsement is unknown, it was not initially
recorded, and there is no evidence to suggest it was done so prior to [Delo] filing and
recording a Notice of Lis Pendens.” But we are aware of no requirement that the
endorsement be recorded to be valid. See In re Vasquez, 228 Ariz. 357, ¶ 3, 266 P.3d
1053, 1055 (2011) (recording assignment of deed of trust not required prior to filing
notice of trustee’s sale). And, although Delo challenges the timing of the endorsement to
GMAC, this does not constitute a material issue of fact precluding summary judgment in
favor of the GMAC Parties. It is undisputed that Delo failed to provide notice of the tax-
lien foreclosure lawsuit to MERS, whose interests were identified in the Deed of Trust,
and MERS’s interests protected the interests of the GMAC Parties.
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¶11 In reaching this conclusion, the trial court relied primarily on Ticktin v.
Western Savings & Loan Ass’n, 8 Ariz. App. 63, 442 P.2d 886 (1968). In that case, this
court was asked to decide “whether the assignees of a realty mortgage may prevail
against a party who ha[d] previously foreclosed a prior realty mortgage on the same
property after having duly recorded a notice of lis pendens.” Ticktin, 8 Ariz. App. at 64,
442 P.2d at 887. In ruling that the assignees of the second mortgage could not prevail,
we noted that the second mortgage had been executed and assigned after the first
mortgage foreclosure action had been filed and lis pendens recorded. Id. at 64-65, 442
P.2d at 887-88. Thus, because the lis pendens was recorded before the second mortgage
came into existence and was assigned, the assignee lost whatever rights to the property he
may have had by failing to intervene in the prior foreclosure action. Id. We explained:
[T]he doctrine of lis pendens does not apply to persons who
acquire their interest in the subject land of the suit [p]rior to
the commencement of the action and recording of lis pendens.
[Rather], it has been held that the lis pendens statute is
prospective in its action and is notice to those who thereafter
acquire an interest in the real property after the filing of lis
pendens.
Id. at 65, 442 P.2d at 888.
¶12 Here, the Deed of Trust designating MERS as nominee for the lender and
its successors and assigns, beneficiary, and legal title holder, was recorded September 21,
2005. The Substitution of Trustee appointing ETS as trustee under the Deed of Trust was
recorded December 5, 2008. Clearly, MERS’s and ETS’s interests in the Property were
acquired long before Delo had acquired his interest. Moreover, ETS recorded the Notice
of Trustee’s Sale on May 27, 2010, setting a date for the sale of the Property on
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August 31. Delo did not file the tax-lien foreclosure lawsuit until June 10, 2010, and did
not record the lis pendens until August 12. Accordingly, the trial court’s reliance on
Ticktin is misplaced. “[I]f the holder of a tax-lien certificate wants to foreclose the
redemption right of an owner or a person who has a legal or equitable interest in the
property, the holder must join those parties in the foreclosure action.” Roberts v. Robert,
215 Ariz. 176, ¶ 16, 158 P.3d 899, 903 (App. 2007). Although the Limited Title Search
obtained by Delo had attached to it the Deed of Trust showing MERS’s interests in the
Property, Delo failed to join MERS as a party in the lawsuit. And, because MERS was
designated the lender’s nominee under the Deed of Trust, the GMAC Parties’ interests in
the Property were protected by MERS’s recorded interests. “Equity favors the right to
redeem and will not deny the right except upon strict compliance with the steps necessary
to divest it.” Harbel Oil Co. v. Steele, 83 Ariz. 181, 185, 318 P.2d 359, 362 (1957).
¶13 We find Roberts to be instructive. There, two real property tax lien holders
brought a lawsuit against the property owner of record, the Mohave County Treasurer,
various fictitious parties, and the “unknown heirs of any of” them, seeking to foreclose
their right to redeem the tax lien. Roberts, 215 Ariz. 176, ¶ 1, 158 P.3d at 900. The tax
lien holders then discovered the property owner was deceased and negotiated a deal with
the decedent’s son, the “person in charge of the defendant’s estate,” whereby the lien
holders would obtain a default judgment but would not pursue fees or costs against the
son or the decedent’s estate. Id. Pursuant to the agreement, the lien holders obtained a
default judgment purporting to bar the decedent “or any person claiming title ‘under’ her”
from asserting any rights in the property. Id. A year later, however, a second son of the
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decedent appeared and claimed the default judgment “was void insofar as it purported to
foreclose his right to redeem.” Id. ¶ 2. The trial court disagreed and denied relief. Id.
¶14 On appeal, we reversed the trial court’s judgment, holding that the second
son held a legal right to redeem the tax lien on his deceased mother’s real property. Id.
¶ 3. We reasoned that, as an heir, the second son was entitled to redeem by reason of his
ownership interest in the property, which he had acquired “by operation of law” after his
mother’s death. Id. ¶ 14. And “because the lienholders failed to join him as a defendant
in their foreclosure action, the foreclosure judgment did not foreclose his right to
redeem.” Id. ¶ 15; see also A.R.S. § 42-18204(A)(1) (if prerequisites met, trial court
“shall enter judgment . . . [f]oreclosing the right of the defendant to redeem”). We noted
that our result was consistent with the legal principle that a person who is not a party to a
lawsuit generally is not bound by the result. Roberts, 215 Ariz. 176, ¶ 17, 158 P.3d at
903.
¶15 The trial court here distinguished Roberts on the basis that the heir in
Roberts had obtained his interest “by operation of law” rather than by an assignment.
The court also reasoned that the lien holders in Roberts “were in contact with another
family heir throughout the litigation and . . . it would not have been burdensome to the
lienholders to inquire about other heirs.” We are not persuaded by these distinctions,
however, because, as we have noted, MERS was identified in the recorded Deed of Trust,
which Delo should have examined in ascertaining what parties had a legal or equitable
interest in the Property. And through MERS, Delo could have identified the GMAC
Parties’ interests. See Roberts, 215 Ariz. 176, ¶ 19, 158 P.3d at 903.
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¶16 As its name suggests, MERS is an electronic registration system that does
not originate, lend, service, or invest in home loans. Jackson v. Mortg. Elec. Registration
Sys., Inc., 770 N.W.2d 487, 490 (Minn. 2009). “Instead, MERS acts as the nominal
mortgagee for the loans owned by its member-lenders.” Id. In Cervantes v. Countrywide
Home Loans, Inc., the Ninth Circuit Court of Appeals explained that MERS was created
in response to the mortgage industry’s perception that the traditional recording process
had become cumbersome as the trading of loans increased. 656 F.3d 1034, 1039 (9th Cir.
2011). “MERS was designed to avoid the need to record multiple transfers of the deed
by serving as the nominal record holder of the deed on behalf of the original lender and
any subsequent lender.” Id. The court explained further:
If the lender sells or assigns the beneficial interest in the loan
to another MERS member, the change is recorded only in the
MERS database, not in county records, because MERS
continues to hold the deed on the new lender’s behalf. If the
beneficial interest in the loan is sold to a non-MERS member,
the transfer of the deed from MERS to the new lender is
recorded in county records and the loan is no longer tracked
in the MERS system.
Id. Because MERS is the sole record keeper for transactions between its members, those
who purchase tax liens and seek to foreclose on them must give MERS notice of the
foreclosure proceedings when they are identified in the deed of trust. See Roberts, 215
Ariz. 176, ¶ 16, 158 P.3d at 903.
¶17 Delo nevertheless maintains he was not required to name MERS as a
defendant in the tax-lien foreclosure action “because MERS was the agent of EquiFirst
and EquiFirst was named and served directly.” But due process requires a tax lien holder
10
to engage in a “diligent search and inquiry” for persons or entities holding a legal or
equitable interest in property before those interests can be foreclosed by default. Roberts,
215 Ariz. 176, ¶ 19, 158 P.3d at 903. As we noted above, the Deed of Trust not only
expressly identifies MERS as the nominee for the lender, but also as beneficiary, and the
holder of legal title to the Property. And, even if MERS was merely an agent of
EquiFirst and its successors, a diligent search for the true holder of the Note, for purposes
of giving proper notice of the tax-lien foreclosure lawsuit, would have included providing
notice of the lawsuit to MERS, who then could have forwarded it to the current holder of
the Note. See Citimortgage Inc. v. Barabas, 975 N.E.2d 805, 814 (Ind. 2012) (MERS
member banks appoint MERS as their agent for purposes of service of process in any
foreclosure action). Delo’s recording of the lis pendens was a “‘mere gesture’” that did
not satisfy due process notice requirements. Roberts, 215 Ariz. 176, ¶ 19, 158 P.3d at
903, quoting Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 315 (1950).
And, the trial court erred by placing the burden on the GMAC Parties to intervene in
Delo’s tax-lien foreclosure lawsuit, rather than on Delo to ascertain those with a legal or
equitable interest in the Property.
¶18 We also reject Delo’s argument that the unrecorded interests of the GMAC
Parties were invalid as to him because he was a bona fide purchaser. A bona fide
purchaser is one who purchases property for value and without actual or constructive
notice of a prior unrecorded interest. See First Am. Title Co. v. Action Acquisitions, LLC,
218 Ariz. 394, ¶ 12, 187 P.3d 1107, 1111 (2008); Davis v. Kleindienst, 64 Ariz. 251, 258,
169 P.2d 78, 82 (1946). A purchaser is on constructive notice of recorded documents and
11
“‘of the facts a reasonably diligent inquiry would disclose.’” Hall v. World Sav. & Loan
Ass’n, 189 Ariz. 495, 500, 943 P.2d 855, 860 (App. 1997), quoting Maricopa Utils. Co. v.
Cline, 60 Ariz. 209, 214, 134 P.2d 156, 158 (1943). “Constructive notice and actual
notice have the same effect and when the purchaser of land has notice of a prior claim to
the land, he takes it subject to that claim.” Warren v. Whitehall Income Fund 86, 170
Ariz. 241, 243, 823 P.2d 689, 691 (App. 1991). As we explained above, a reasonably
diligent inquiry would have put Delo on notice of MERS’s interests and, through MERS,
that of the GMAC Parties. See Hall, 189 Ariz. at 500, 943 P.2d at 860. Indeed, the
Limited Search Report obtained by Delo had attached to it the Deed of Trust naming
MERS nominee, beneficiary, and legal title holder of the Property. Delo therefore was
not a bona fide purchaser with priority over the unrecorded interests of the GMAC
Parties.4
Disposition
¶19 For the reasons set forth above, we reverse the trial court’s summary
judgment in favor of Delo and remand with instructions to enter summary judgment in
favor of the GMAC Parties. See PNL Asset Mgmt. Co. v. Brendgen & Taylor P’ship, 193
4
In light of our conclusion, we need not address the GMAC Parties’ argument that
“the trial court erred in failing to hold that [they] were equitably subrogated to MERS’[s]
interest.”
12
Ariz. 126, ¶ 10, 970 P.2d 958, 961 (App. 1998) (where cross-motions for summary
judgment filed, this court may remand with instructions that judgment be entered in favor
of appellant).
/s/ Garye L. Vásquez
GARYE L. VÁSQUEZ, Presiding Judge
CONCURRING:
/s/ Virginia C. Kelly
VIRGINIA C. KELLY, Judge
/s/ Philip G. Espinosa
PHILIP G. ESPINOSA, Judge
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