LAYING DOWN THE LAW – WORD OF THE DAY: “ENCUMBRANCE”
October 1, 2018
Christopher J. Charles, Esq.
Phillip A. Overcash, Esq.
Break out your dictionaries; or just rely on the word of the Arizona Court of Appeals to define “encumbrance” in the real estate world. In Baumgartner, et al. v. Timmins, 1 CA-CV 17-0484, the Arizona Court of Appeals recently held that certain affidavits recorded against real property did not claim or purport to create “encumbrances,” and therefore did not violate an Arizona statute prohibiting wrongful liens from being recorded against real property.
In Baumgartner, a group of fourteen (14) property-owners in the same subdivision (the “Plaintiffs”) sued two of the neighbors alleging violations of applicable CC&Rs and obtained a default judgment. In response, the neighbors signed and recorded with the County Recorder’s Office affidavits alleging that the property-owner Plaintiffs were themselves in violation of several provisions of the CC&Rs, and therefore those homeowners’ own violations of the CC&Rs prevented them from being able to enforce the CC&Rs against the neighbors. And ‘round and ‘round we go…
The property-owner Plaintiffs went to Court and alleged that the neighbors violated A.R.S. § 33-420, which prohibits the recording of liens or encumbrances against real property which knowingly contain forged, groundless, misstated or false claims. The Superior Court held that the affidavits created “encumbrances” against the Plaintiffs’ properties based on groundless claims not supported by any statute in violation of the statute. The neighbors appealed, arguing that the affidavits were not encumbrances and therefore did not violate to statute.
A.R.S. § 33-420(A) and (C) provide:
(A) A person purporting to claim an interest in, or a lien or encumbrance against, real property, who causes a document asserting such claim to be recorded in the office of the county recorder, knowing or having reason to know that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid is liable to the owner or beneficial title holder of the real property . . . .
(C) A person who is named in a document which purports to create an interest in, or a lien or encumbrance against, real property and who knows that the document is forged, groundless, contains a material misstatement or false claim or is otherwise invalid shall be liable to the owner or title holder. . . if he wilfully refuses to release or correct such document of record within twenty days from the date of a written request from the owner or beneficial title holder of the real property.
A.R.S. § 33-420(A), (C). That statute does not define “encumbrance,” and therefore the question before the Court was whether the affidavits claimed or purported to create “encumbrances” against Plaintiffs’ properties. Plaintiffs urged the Court of Appeals to construe the statute using the MerriamWebster online dictionary meaning of the word “encumbrance” as “something that encumbers,” and “encumber” as “[t]o cause problems or difficulties for (someone or something).”
The Court of Appeals disagreed, and held that when used in a property law context, the word “encumbrance” refers to a non-ownership interest in property. Therefore, the statute did not apply unless the recorded document purported to create or claim a right or liability of some kind attached to the property.
The Court ultimately held that the affidavits did not claim any right to individually enforce the CC&Rs against the properties. Nor did the affidavits assert that the alleged violations gave the neighbors any right, claim, interest, or lien in or on the Plaintiffs’ real property. Furthermore, the affidavits did not claim that the homeowners association had asserted that the alleged violations gave rise to any liability owed by Plaintiffs to the homeowners association; the affidavits simply alleged that the properties were not in compliance with the CC&Rs. Thus, the neighbors did not violate A.R.S. § 33-420 by executing and recording the affidavits.
If you or someone you know has a question regarding real estate, please call our office today to schedule a meeting with Christopher J. Charles or Philip A. Overcash.
Philip A. Overcash is an Attorney with Provident Law® who practices in the areas of complex commercial and real estate litigation. He has successfully represented numerous international, national and Arizona-based corporations and individuals, government entities and insurance companies in a wide array of legal disputes involving real estate, contracts, construction defects, insurance coverage and bad faith, employment law, trademark and trade secrets, and appeals. Philip is admitted to practice in Arizona’s State and Federal Courts, and he is a Member of the Arizona State Bar Association and Maricopa County Bar Association. He can be reached via email at Philip@ProvidentLawyers.com or at 480-388-3343.
Christopher J. Charles is the Founder and Managing Partner of Provident Law®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS® (the “AAR”). He also serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher is a licensed real estate instructor and he teaches continuing education classes at the Arizona School of Real Estate and Business. He can be reached at firstname.lastname@example.org or at 480-388-3343.