JUDGMENTS: The Court answered two questions certified to it by the 9th Circuit Court of Appeals: 1) Do collection activities (such as filing for a writ of garnishment or applying for orders from the court to inspect a safety deposit box or require a debtor’s exam) taken within Arizona, renew a judgment previously registered in Arizona? Answer: NO, 2) Does the filing of a related lawsuit in a state other than Arizona renew a judgment previously registered in Arizona? Answer: NO.

The Court explained that there are two ways to renew a judgment in Arizona: 1) File an affidavit of renewal at any time within 90 days before the 5-year expiration of the judgment or 2) Bring an action on the judgment within 5 years of entry of the judgment. Neither Fidelity's collection activities, nor a separate action it filed asserting a violation of federal racketeering laws by reason of defendants' efforts to evade collection efforts, constituted an action on the judgment. (Fidelity filed a renewal affidavit more than 90 days before expiration of the judgment, but that issue was not certified to the Court.)

INSURANCE: An insurer may meet its duty to equally consider settlement offers when presented with multiple claims in excess of policy limits, by promptly and in good faith interpleading its policy limits and continuing to provide a defense to its insured.

EASEMENTS: The grantor of three parcels included an road easement in favor of each parcel that ran along each parcel and between two public roads. Owners of neighboring parcels of land, but not part of the original property, asserted a right to travel over the road, claiming that dedication to the public is presumed when a road easement is granted. The court held that mere creation of a roadway easement does not raise a presumption that the road has been dedicated for public use.

TAX SALES: This case pertains to awards of attorney's fees and does not have much relevance to title insurance. What is more interesting is the description of a previous holding by the court that became the law of the case. In the previous case the court held that a treasurer's deed that was recorded with a default judgment attached to it imparted constructive notice that the default judgment was subject to being set aside for one year under A.R.S. Section 12-1560(A) and Ariz. R. Civ. P. 59(j)(1).

TRUSTEE'S SALES: Senior deeds of trust were recorded without legal descriptions, but contained proper street addresses and parcel numbers. A.R.S. Section 33-802(A) requires a deed of trust to contain a legal description, but the court held that the deeds of trust were valid when executed because the legal descriptions were attached when the deeds of trust were executed and were subsequently lost prior to recordation. Also, plaintiff (holder of a 3rd deed of trust) was actually aware of the existence of the two senior deeds of trust, so plaintiff was not in a position to attack them on account of informalities or irregularities.

NAVIGABLE WATERS: In order to determine navigability of the Salt River, the Arizona Navigable Stream Adjudication Commission is required to determine what the river would have looked like on February 14, 1912, in its ordinary (i.e., usual, absent major flooding or drought) and natural (i.e., without man-made dams, canals, or other diversions) condition. If it was navigable, title to the bedlands passed to the State from the federal government at statehood on February 14, 1912, and the State retains title to those bedlands. If the River was not navigable, the neighboring riparian owners hold title.

CC&R's: Deed restrictions for a community without common areas, containing only restrictive covenants pertaining to each lot owner's personal residence, cannot be amended by majority vote of lot owners to require membership in an association and the imposition of assessments. The Court further explained that homeowner’s associations cannot use CC&R’s amendment provision as a vehicle for imposing a new and different set of covenants, thereby substituting a new obligation for the original bargain of the covenanting parties.

RECORDING: Plaintiff was unable to obtain financing to purchase property pursuant to an Agreement of Purchase and Sale. Plaintiff recorded the agreement in order to prevent defendant from re-selling the property until defendant returned plaintiff’s $10,000 deposit. Plaintiff also sued defendant for return of the deposit. The court held that recording the agreement did not constitute a violation of A.R.S. 33-420 and did not constitute slander of title because the agreement itself was not groundless, even though there is no statute that authorizes the recordation of such an agreement. The court also held that defendant breached the contract by failing to return the deposit.

DECEDENTS / AFFIDAVIT OF SUCCESSION: A.R.S. Sections 14-3972 and 14-3910 protect purchasers or encumbrancers of property who rely on an Affidavit of Succession to Real Property, even when portions of the affidavit were false. This protection also applies to subsequent purchasers or encumbrancers even where there is evidence that the original purchaser or encumbrancer engaged in fraudulent activity.

EASEMENTS: The grantor of three parcels granted an easement to each of the parcels for an access easement to a road that ran along each parcel and between two public roads. Owners of neighboring parcels of land, but not part of the original property, asserted a right to travel over the road. The court held that when land is sold subject to a roadway easement it is presumed that the grantor intended to dedicate the roadway to public use. [Ed. comment: Read the dissent. It makes a lot more sense.]

LIS PENDENS: Plaintiff filed an action against several people for breach of a real estate purchase contract. An attorney representing five defendants improperly filed a lis pendens against plaintiffs real property prior to filing a cross complaint. The court held that A.R.S. Section 33-420(A) provided for a single sanction of $5,000, not $5,000 for each defendant.

PROPERTY TAXES: When a portion of a parcel is sold, a split occurs, for tax purposes, when the Assessor completes the process of identifying and valuing the resulting parcels -- not at the moment of the sale.

SPECIFIC PERFORMANCE: A real estate agent's inequitable acts may be imputed to the principal whether or not the principal knew of the agent's misconduct. Here the court denied specific performance where the buyer's agent, without the knowledge of the buyer, misrepresented the source of plaintiff's earnest money deposit.

JUDGMENTS:
1. The time for renewing a judgment is not tolled during the debtor's bankruptcy under either state or federal law.
2. A garnishment proceeding is not "an action brought on" a judgment pursuant to A.R.S. 12-1551 and therefore does not renew the judgment.
3. Where a judgment is vacated and an amended judgment is subsequently entered, the time for renewing the judgment is tolled and extended to accommodate the time the judgment had been vacated. 

WATER: Landowners outside of "Active Management Areas" do not have a real property interest in the potential future use of groundwater that may be severed from the overlying land.

[SUMMARY TO FOLLOW]

PUNITIVE DAMAGES: The court held that a punitive damages award was unconstitutionally excessive where its ratio to compensatory damages was 8:1 and the reprehensibility of the defendant's conduct fell "within the low to middle range of the reprehensibility scale". The court reduced the $4,000,000 punitive damages award to $500,000, which was a 1:1 ratio.

COMMUNITY PROPERTY: Property acquired by a spouse prior to marriage is that spouse's separate property and retains this character after the marriage. However, when community funds are later used to make mortgage payments on the property, the community is entitled to some form of compensation and has an equitable lien against the property. The community is entitled not only to reimbursement for the money applied to the principal, but also to a percentage share of any increase in the value of the property from the date of marriage to the date of dissolution. The separate property interest is entitled to appreciation prior to marriage.

TAX SALES: A.R.S. Section 42-18202 requires that notice of intent to file a tax foreclosure action must be mailed by certified mail. This is a directory, rather than a mandatory, provision. Therefore, mailing the notice by regular mail is an insubstantial failure to comply with the statute and does not invalidate the foreclosure.

LIS PENDENS: A lawsuit filed by a homeowners' association to compel a homeowner's compliance with deed restrictions regarding property maintenance does not affect title to real property, so the association is not authorized to record a notice of lis pendens against the homeowner's property.

TITLE INSURANCE: The insureds paid $3,500 at a sheriff’s sale following the foreclosure of a homeowner's association lien. The property had equity of $140,000 to $240,000 (over the value of encumbrances). [NOTE: The policy appears to be a Homeowner's Policy of Title Insurance.] The Supreme Court held:

1. The policy’s exclusion for loss resulting from the insureds' “failure to pay value” for the title means a loss resulting because the insureds had not paid “valuable consideration” and therefore are not protected under the recording statutes. However, here the $3,500 payment was sufficient to secure recording act protection. The “failure to pay value” exclusion, therefore, does not preclude recovery.
2. The policy also excludes coverage for loss resulting from risks “created, allowed, or agreed to by” the insured. The court held that the exclusion is not ambiguous and that it applies whenever the insured intended the act causing the defect, not only when the insured intended the defect or when the insured engaged in misconduct. In this case, by bidding $3,500, the purchasers created the risk that resulted in the loss. Their bid was an intentional, affirmative act that resulted in the sale being set aside. Therefore, the court held that the "created" risk exclusion applies to preclude coverage.
3. The court also provides (pages 15 - 16) a good list of the situations in which an insured's reasonable expectations can override the provisions of a policy, but held that they did not apply in this case.

RULE AGAINST PERPETUITIES: The rule against perpetuities does not render void a real estate sales agreement that fails to include a specific time period for performance if it is reasonable to conclude that the parties intended performance within a reasonable time period.

INSURANCE: An insurer unequivocally defended its insured for 10 months before attempting to reserve the right to contest coverage. Factors to consider when determining whether an insurer has lost its right to assert coverage defenses because of a delayed reservation of rights include 1) the potential prejudice to the insured and 2) the reasonableness of the delay. But unreasonable delay without prejudice to the insured will not cause loss of the insurer’s coverage defenses. Finally, the question of prejudice to the insured, caused by a delayed reservation of rights, must be measured after issuance of the reservation of rights but prior to any Morris agreement.

SPECIFIC PERFORMANCE: 
1. The buyer cured a breach by depositing the earnest money with escrow prior to the seller's written cancellation, even though it was after verbal cancellation, because the contract required the cancellation to be in writing. The court points out that the general rule is that a party who has materially breached a contract is given a reasonable period of time in which to cure, even if the contract contains no express cure provision and even if the contract contains a time of the essence clause.

2. Specific performance (or any equitable relief) may not be denied a party on the basis of unclean hands or inequitable conduct unless the party himself participated in or had knowledge of the alleged inequitable acts. The rule that an agent's knowledge is imputed to the principal can operate to bind the principal contractually, but does not operate to otherwise preclude equitable relief for "unclean hands".

STATUTE OF FRAUDS: The statute of frauds, A.R.S. Section 44-101(6), applies to an oral agreement to partition real property . Part performance of an oral agreement can be an exception to the Statute of Frauds if 1) the acts of part performance are "unequivocally referable" to the agreement and 2) enforcing the agreement is necessary to avoid an injustice to the party who relied on its existence. However, here the following acts relied upon by appellant were insufficient because they were as consistent with the continued existence of the co-tenancy as they were with an agreement to partition: 1) appellee's withdrawal of appellant's tree removal, 2) appellant's payment of 1/3 of the cost of tree removal and 3) appellee's use of a portion of the property.

ADVERSE POSSESSION/PRESCRIPTIVE EASEMENTS: Once the party claiming adverse possession or a prescriptive easement has shown that his or her use during the statutory period of 10 years was "open, visible, continuous, and unmolested," Arizona law presumes that the use was under a claim of right and not permissive. The burden then shifts to the owner of the property to show that the use was permissive.

DEDICATION: Under Pleak v. Entrada Property Owners Association, the sale of lots referencing a recorded plat containing a dedication constitutes an acceptance of the dedication. However, in this case the plaintiffs' deed merely excluded the north 30 feet, but did not expressly refer to a recorded plat or to the recorded deed of dedication. This is insufficient to meet the Pleak test for acceptance of a common law dedication. If a grantor wants to effectively complete a common law dedication to the public, he needs to expressly refer to the deed of dedication so that buyers will have had notice of the dedication.

However, an alternative way for a dedication to be accepted by the public is through use. Although use is not a necessary prerequisite to acceptance of an offer to dedicate, it can still be sufficient. The court held that questions of fact remain as to whether there has been any general public use of the property described in the deed of dedication. Finally, the court held that based on the facts in this case, the county is not estopped from revoking a previously issued permit to maintain a fence in the disputed area if the trier of fact determines that the dedication has been accepted by use.

INSURANCE/RESERVATION OF RIGHTS: An insurer was estopped from asserting coverage defenses where it delayed for 18 months before informing the insured that it reserved its right to deny indemnity coverage, thereby prejudicing the insured.

CONTRACTS:
1. Time of the essence: The court upheld a seller's cancellation of a sales contract where the buyer funded the day after the agreed closing date where a) the contract contained a "time of the essence" clause and 2) the contract specifically stated that failure to pay funds by the scheduled close of escrow shall be construed as a material breach. (It is not clear that the "time of the essence" provision, alone, would have been enough.)
2. Liquidated damages: A liquidated damages clause whereby the buyer forfeits the deposit is enforceable as long as the sum of damages is not so unreasonably large that it is deemed to be a penalty.
3. Lis pendens: A lis pendens is not improper where there was an arguable basis for plaintiff's claim, even though it turned out to be unsuccessful.

AFFIDAVIT OF SUCCESSION: Under A.R.S. Sections 14-3972(C), 14-3910 and 14-1106, a purchaser of real property relying upon an affidavit of succession is protected from subsequent claims by heirs or devisees who would otherwise have a superior right to the property, even if the affidavit of succession includes false or inaccurate information.

STATUTE OF FRAUDS: Modification of a real estate option contract that extends the life of the option is a material modification that must be in writing under the Statute of Frauds. Promissory estoppel can preclude the statutes' application, but was not present in this case.

• Arizona's bifurcated system of allocating water rights differentiates groundwater users from surface water users.
• Surface water (including water in definite underground channels) is subject to the doctrines of prior appropriation and beneficial use. (Appropriation requires application for a permit from the State.)
• Percolating groundwater is not appropriable and may be pumped and transported to other property unless the withdrawal of the water injures the rights of others whose lands overlie the common supply.
• Although percolating groundwater is not subject to appropriation, subsurface water that is surface-stream subflow constitutes surface water and therefore is subject to appropriation.
• A reservation of water rights cannot reserve an ownership interest in a source of water; instead, one may own, and reserve, only a right to use water.
• The right to ground water is a hereditament and must be conveyed by deed.
• A reservation of an interest in the proceeds of the commercial use of percolating groundwater is a grant of an interest in real property.
• A deed that reserved "all commercial water rights" is ambiguous as to whether it reserves only rights to percolating groundwater or whether it also includes appropriable surface water rights.

FORECLOSURE: Under A.R.S. Section 33-813 a trustor must cure both monetary and non-monetary defaults in order to avoid foreclosure. Here the lender could proceed with judicial foreclosure of a deed of trust because the debtor cured the monetary default but did not cure the non-monetary default, which consisted of failing to complete construction by the construction deadline.

ESCROW: An escrow holder's fiduciary duty extends to a person whose signature on a deed of trust was forged and who was unaware that an escrow was opened by an imposter.

TRUSTEE'S SALES: Based on the language of A.R.S. Section 14-3104, secured creditors do not have to use probate proceedings to enforce any security, even after the appointment of a personal representative. A secured creditor can enforce its security and need not file a claim.

LIS PENDENS: An action under the Uniform Fraudulent Transfer Act (A.R.S. Sections 44-1001 to 44-1010) seeking to void an allegedly fraudulent transfer of real property is one "affecting title to real property" under A.R.S. Section 12-1191(A), the lis pendens statute.

TITLE INSURANCE: The exclusion in a title insurance policy for "[f]ailure to pay value" applied to preclude coverage where the price the insured paid for the property at a sheriff's sale shocked the conscience of the court. The court pointed out that a purchaser who acquires property for a grossly inadequate price is not a bona fide purchaser for value. Here, the insured had paid $3,500 for property with equity of $140,000 to $240,000. [NOTE: The policy appears to be a Homeowner's Policy of Title Insurance.]

COMMUNITY PROPERTY: In a dissolution proceeding the court awarded the family home to the wife where the husband had signed a disclaimer deed at the time of acquisition acknowledging the house as the wife's sole and separate property. The court rejected the husband's argument that the contribution of community funds entitled him to a 1/2 interest in the house because 1) there was no evidence that community funds were used for the purchase and 2) the disclaimer deed must be given effect because it was not executed as the result of fraud or mistake. (Ed. Note: It is not clear how the court would have ruled if the husband had proven that community funds were used to purchase the house.) The court was not persuaded by the fact that the only reason the parties took title in the wife's name was because of the husband's bad credit. Finally, the court held that the husband was entitled to reimbursement for community contributions toward mortgage payments and improvements, and remanded the case to the trial court to determine the amount of such reimbursement.

STATUTE OF FRAUDS:
1. An oral partition agreement is a "sale" of an interest in real property for purposes of the statute of frauds, A.R.S. Section 44-101(6). However, the court applied the doctrine of part performance as a defense to the statute. Part performance removes the agreement from the Statute of Frauds if it is "unequivocally referable" to the agreement, which the court held it was in this case.
2. The court supplied reasonable terms for equalizing payments among co-tenants.
3. The court noted that a diagram drawn in the dirt did not satisfy the requirement of a writing.

EASEMENTS: 
1. Follows Pleak v. Entrada Property Owners' Association: A sale of property with reference to a recorded plat containing the dedication is sufficient to accept a dedication.
2. A servient estate owner may erect a gate across an easement if the gate (1) is "necessary" for the use of the servient estate and (2) does not constitute an unreasonable interference with the right of passage. BUT what is "necessary" for use of the servient estate is merely what is "appropriate" to that use. So "necessary" = "appropriate", not "essential".
3. Declaratory relief concerning future liability to third parties for any failure to maintain the easement is non-justiciable because it involves future rights concerning an event that may never happen.
4. Declaratory relief concerning maintenance of the easement, on the other hand, is justiciable.

TAX LIENS / QUIET TITLE: A decedent's heir has the right to redeem a tax lien on decedent's real property, and must be named and served in an action to foreclose the lien. A lienholder who knows the owner is deceased, depending on the circumstances, may need to examine public records or court records, or may need to ask relatives, friends or neighbors of a decedent property owner about the existence of heirs. Therefore, the heir who was not named and served in the action was entitled to set aside the foreclosure judgment. [NOTE: This case demonstrates the danger of relying on default judgments and the need to closely examine the court file and surrounding circumstances before doing so.]

CC&R's: Where a party has actual or constructive notice of a restriction, knows or is informed prior to actually violating the restriction that his structure will violate the restriction, and then completes construction of the structure, the party may not claim the benefit of the Doctrine of Relative Hardships. The court rejected the party's contention that his violation of a height restriction was unintentional at the time he ordered the building material.

CC&R's: After recording a Declaration of Covenants, Conditions and Restrictions affecting a subdivision, a developer may not subsequently record private deed restrictions that impose different restrictions on some of the lots. The court specifically states that it does not address the scenario in which a private property owner, instead of the developer acting on multiple lots, conveys property to a grantee and records private deed restrictions which may be different from those in the applicable uniform covenants and restrictions.

STATUTE OF FRAUDS: The statute of frauds does not apply to 1) the imposition of a constructive trust because the constructive trust doctrine is an equitable doctrine imposed by law and is not based on contract, or 2) agreements between partners relating to real property within the framework of the partnership because the Revised Uniform Partnership Act provides adequate protection from fraudulent or mistaken claims of other partners, leaving little necessity for the protection of the statute of frauds.

TAX LIENS: A holder of a tax lien who redeems an earlier tax lien is not entitled to equitable subrogation because the liens are in parity and, therefore, it is not necessary to redeem the earlier lien in order to protect the subsequent lien. Consequently, the first lien could not be foreclosed after being redeemed. This is a different result than with assessment liens, which are not in parity. In contrast with redeeming, purchasing an assignment of the earlier lien would have given the purchaser all the rights of the original lien holder, including the right to foreclose.

PRESCRIPTIVE EASEMENTS: 
1) The 10-year limitations period for a prescriptive easement cannot run against a lienholder. So where an owner sold property and took back a deed of trust to secure part of the purchase price, the limitations period ceased to run against the seller/lienholder. Upon foreclosure, the lienholder reacquired the property free of any prescriptive easement, and the limitations period began to run anew.
2) The Court upheld the trial court's application of the balancing of hardship test in refusing to grant an injunction requiring the removal of underground footings for a block wall that encroached onto defendant's property. The cost of removal would be high and the burden on defendant's property was de minimus.

MECHANICS' LIENS:  Serving a mechanic's lien release bond prior to recordation does not satisfy the requirement of A.R.S. Section 33-1004 that the bond be served on the lien holder "upon recordation thereof". Consequently, the lien claimant had 6 months from discovery of the bond in order to file an action against the surety. With proper service, the bond would have been discharged within 6 months of recording the mechanic's lien. 

CC&R's: Restrictive covenants should be interpreted to give effect to the intention of the parties as determined from the language of the document in its entirety and the purpose for which the covenants were created. The court rejected the position that restrictions should be strictly construed in favor of the free use of land and against the restriction, although the court may have left the door open for such strict interpretation where the restrictions are ambiguous.

CC&R's: 1) A homeowner's association could amend condominium CC&R's (to prohibit renting units) by a majority vote of owners because the condominium was created prior to 1/1/86. A.R.S. Section 33-1227 provides that condominiums created after that date require a vote of 67% of unit owners, or any larger majority specified in the condominium declaration. 2) The amendment was not invalid because it contained additional language inserted by the association that was not approved by the condominium unit owners, but the additional language is not valid. 3) The Court interpreted an ambiguous portion of the amendment in accordance with the clear intention of the homeowners.

UCC FIXTURE FILINGS: A lender's unrecorded security interest in a tenant's goods installed on the leased premises is superior to the landlord's interest in those goods in two circumstances: (1) the landlord consents to the security interest or disclaims and interest or (2) when the tenant has the right to remove the goods.

JUDGMENTS / BANKRUPTCY: The time for filing an affidavit to renew a judgment is not extended when the debtor's bankruptcy is pending during that time. The automatic stay applies to actions to "create, perfect or enforce" liens or judgments, and not to the ministerial act of filing an affidavit of renewal. The Court then proceeds with the apparently inconsistent conclusion that the renewal deadline was extended for 487 days, which was the amount of time the automatic stay was in effect. This conclusion was based on the fact that the Bankruptcy Court had previously determined as a matter of federal law that the renewal deadline was extended.

EQUITABLE SUBROGATION: Equitable subrogation is allowed, regardless of negligence, as long as the intervening lien holder is not prejudiced, and as long as the mortgagee reasonably expected to get security with a priority equal to the mortgage that was paid. Although the lender did not have actual knowledge of the intervening mechanic's liens in this case, the court indicated that even actual knowledge of the  intervening liens would not have changed the outcome. The subrogated loan had a higher principal amount and interest rate, and the Court allowed equitable subrogation only to the extent of the balance that would have been due if the first loan had not been paid off.

JUDGMENTS: A.R.S. Section 25-215(D) requires the joinder of both spouses before an obligation of one spouse can be enforced against community property. However, a federal judgment from a district outside Arizona, in which only one spouse was named, may nevertheless be enforced against community property in Arizona as long as 1) the judgment is for a community obligation and 2) the non-defendant spouse is given the opportunity to assert that the obligation that would be a separate obligation in Arizona.

TAX SALES: The transfer of property to the state by issuance of a treasurer's tax deed extinguishes any privately held tax liens, even though the private liens were for previous tax years.

PRESCRIPTIVE EASEMENTS: (1) In order to establish a prescriptive easement over property owned by the United States, it is necessary to demonstrate that the necessary elements for a prescriptive easement occurred prior to the United States' ownership. The Court held that plaintiff was entitled to a prescriptive easement. The case contains an excellent discussion of the elements necessary to establish a prescriptive easement under Arizona law. (2) Under the Alaska National Interest Lands Conservation Act ("ANILCA"), the U.S. must provide access to land "within the boundaries" of the National Forest System. This applies only to landlocked property and not to plaintiff's property, which is surrounded on only three sides by National Forest land.

ROADS: Common law dedication of a road for public use occurs where the dedication is made on a recorded record of survey. The sale of property referring to the map constitutes acceptance by the public, and formal acceptance by a public entity is not necessary.

RESTRICTIVE COVENANTS: A restriction prohibiting structures other than single-family dwellings applied to prohibit a 50-foot cell tower. Even though there were numerous violations of the restrictions, the Court held that plaintiffs had not waived the restriction because the restrictions contained a provision stating that failure to enforce violations would not be construed to be a waiver or consent to further violations.

The court pointed out that the non-waiver provision would be ineffective if the restrictions had been completely abandoned. The test for complete abandonment is "Whether the restrictions imposed upon the use of lots in this subdivision have been so thoroughly disregarded as to result in such a change in the area as to destroy the effectiveness of the restrictions, defeat the purposes for which they were imposed and consequently amount to an abandonment thereof."

STREETS: An abandoned street is divided between owners on each side of the street, unless the street is a street marginal to a subdivision or other tract of land, in which case it belongs entirely to the adjacent owner. Here, a street was created from a lot in a subdivision by an owner who also owned the lot on the other side of the newly created street. Because of the common ownership of both lots, the street is not marginal to the original lot from which it was created, and the owner of each lot receives title to 1/2 of the abandoned street.

DEEDS OF TRUST: A deed of trust was invalid because it was executed by only one spouse, contrary to the requirement of A.R.S. Section 25-214(C)(1) that both spouses sign. The Court held that the beneficiary is not liable under A.R.S. Section 33-420(A) for recording an invalid document because he did not actually know or have reason to know that the document is invalid.

INSURANCE: The trial court, when determining whether a Morris settlement agreement is reasonable, may not consider the insureds' risk of personal consequences that are not covered by the policy. Here, the court disallowed consideration of the potential loss of a real estate broker's license. (A Morris agreement allows insureds defended under a reservation of rights to stipulate to a judgment and assign their rights under the policy to a plaintiff in exchange for the plaintiff's covenant not to execute the judgment against the insured.)

CONDEMNATION: when a proposed taking for a redevelopment project will result in private commercial ownership and operation, the Arizona Constitution requires that the anticipated public benefits must substantially outweigh the private character of the end use so that it may truly be said that the taking is for a use that is "really public". The constitutional requirement of "public use" is only satisfied when the public benefits and characteristics of the intended use substantially predominate over the private nature of that use.

BOUNDARY BY ACQUIESCENCE: To establish the doctrine of boundary by acquiescence, the party asserting the doctrine must prove (1) occupation or possession of property up to a clearly defined line, (2) mutual acquiescence by the adjoining landowners in that line as the dividing line between their properties, and (3) continued acquiescence for a long period of time. Here, the plaintiffs were unsuccessful because they did not present evidence of a clear, certain, identifiable boundary as required by the doctrine.

RESTRICTIONS / HOMEOWNERS ASSOCIATIONS: A homeowners association, which was not originally provided for in a declaration of restrictions, can only be established by following the modification procedure set forth in the declaration. The modification procedure required a majority vote of homeowners and recordation of the modification.

TRUSTEE'S SALES: A.R.S. Section 33-812(A)(3) does not require the trustee of a foreclosed deed of trust to apply excess sale monies to delinquent real property taxes. Note that the version of A.R.S. Section 33-812(A)(3) cited by the court has been amended to make it even clearer that the court is correct. The section now includes the phrase "and actually paid by the beneficiary before the trustee's sale".

TRUSTEE'S SALES: A trustee's sale may be set aside where the price paid at the sale is "grossly inadequate", even though the sale is properly conducted. The Court states that a grossly inadequate price is generally less than 20% of the fair market value, but the parties are free to argue that under the facts of a particular sale a different percentage is or is not grossly inadequate.

The Court provides some comfort for subsequent purchasers and lenders by stating that "the balance of equities would be considerably different if the person who acquired the property for a grossly inadequate price sold it to a bona fide purchaser".

PRESCRIPTIVE EASEMENTS: Possession of property pursuant to an oral grant of an easement (or an insufficient written grant), which is unenforceable because of the Statute of Frauds, establishes the element of hostility because possession takes place contrary to record title. Also, such possession commences the beginning of the 10-year limitation period for establishing a prescriptive easement.

MECHANIC'S LIENS: A labor union's fringe-benefit trust fund may file a mechanic's lien to recover contributions owed by a subcontractor. However, the trust fund's lien was invalid because it failed to file a preliminary twenty-day notice required by A.R.S. Section 33-992.01.

CIRCUITY OF PRIORITY: The Court looked to the majority view in other states since this is a case of first impression in Arizona. The situation is that A, B & C have liens on the subject property, and A then subordinates his lien to C's lien. The problem with this is that on the surface C appears to be senior to A, which is senior to B, which is senior to C, so that each lien is senior and junior to one of the other liens.

The solution is partial subordination. If the third priority lien is larger than the original first priority lien, then the original first priority lien moves completely to the third position. The original third priority lien moves into first position but only to the amount of the original first priority lien. If the third priority lien is smaller than the original first priority lien, then the difference between the two amounts, up to the total of the original first priority lien, is still in a priority position relative to the second priority lienholder.

The holder of the second priority lien is neither advantaged nor disadvantaged by the agreement. The second priority lienholder is not a party to the agreement and should not be affected by it. His status remains the same to the extent of any remaining assets available once the amount of the first priority lien has been satisfied.

ESCROW/BROKERS: A real estate salesperson is not a third party beneficiary of commission instructions in an escrow. An escrow holder was originally instructed to make a salesperson's commission check payable to the salesperson and deliver it to the broker. The broker amended the instructions to make the commission check payable to the broker. The court held that since a salesperson is prohibited by A.R.S. Section 32-2155 from receiving a commission check from anyone other than his broker, he cannot be a third party beneficiary of the escrow instructions. The Court also states that escrow holders do not have a duty to disclose evidence of fraud to non-parties to the escrow.

"AS-IS" CLAUSE: Even where property is sold "as is", latent defects that are known to the seller, and that are basic to the transaction, must be disclosed to the purchaser. Also, a seller may be held liable for negligent nondisclosure of facts basic to the transaction when the purchaser is precluded by the seller from discovering those facts.

INSURANCE / BAD FAITH: The 2-year statute of limitations (A.R.S. Section 12-542) for a bad faith action commences when the judgment in the underlying action becomes final, and not when a declaratory relief action filed by the insurer becomes final. The Court suggests that the insured can avoid the running of the statute of limitations during the declaratory relief action by filing a cross-complaint for bad faith.

JUDGMENTS: A judgment rendered in a foreign country may be domesticated in Arizona if the foreign country's judicial system is compatible with due process, and the foreign judgment is not tainted by fraud or lack of notice.

A.R.S. Section 25-215(D) requires the joinder of both spouses before an obligation of one spouse can be enforced against community property. However, a judgment in a non-community property jurisdiction against one spouse may be enforced against community property as long as 1) the obligation would have been a community obligation if incurred in Arizona and 2) the non-defendant spouse is joined in the Arizona domestication action and has the opportunity to contend that the foreign judgment is based an obligation that would be separate in Arizona.

RESTRICTIONS: The case provides a definition of the term "structures" under a Declaration of Restrictions. While it does not deal with a title insurance policy, the case is instructive as to how a court might interpret that term in the Homeowner's and ALTA Residential policies. The Court held that the term "structure" includes a road, referring to a dictionary which defines the term to mean "something constructed".

Several homeowners in a subdivision acquired one of the lots, which was vacant, and proposed to construct an access road across it. The Court enjoined the construction of a road, holding: 1) The construction of the road was forbidden by the Declaration of Restrictions provision which prohibited the construction of any structure other than a single family dwelling, 2) The plaintiffs became "owners" entitled to enforce the restrictions at the time they acquired title pursuant to a foreclosure action, even though the treasurer's deed did not record until later, and 3) The plaintiffs were entitled to enforce the restrictions even if they took title with knowledge of the neighbors' intent to violate them.

WATER: Under A.R.S. Section 45-173, the holder of appropriative water rights may make beneficial use of an existing natural watercourse over private property for purposes of moving water and for water storage. The Court points out that the legislature disclaimed title to the riverbed pursuant to A.R.S. Section 37.1129.01 and that this section was declared unconstitutional in Defenders of Wildlife v. Hull (2/13/01 - CA Div. 1). However, Section 45-173 alone provides sufficient legal basis for the Court's decision, regardless of the constitutionality of Section 37.1129.01.

NAVIGABLE WATERS: A.R.S. Sections 37-1128(B) - (G) and 37-1101(2), pursuant to which the Arizona Navigable Stream Adjudication Commission determined certain waterways to be non-navigable, are preempted by federal law and therefore invalid. S.B. 1126 (A.R.S. Sections 37-1129 to 1129.03), pursuant to which the state disclaimed an interest in certain waterways, is an unconstitutional violation of the Arizona Constitution's gift clause and the public trust doctrine.

MECHANIC'S LIENS: Under A.R.S. Section 12-1198(A), a mechanic's lien expires unless a lis pendens is recorded within 5 days of filing the action to foreclose the lien.

TAX SALE: This case establishes the concept of "parity of title". All tax liens enjoy equal priority, so that the holder of one tax lien certificate cannot foreclose the rights of a competing tax lien certificate holder.

TRUSTEE'S SALES: No additional notice by a foreclosing lender to the owner is required after the automatic stay in the owner's bankruptcy is lifted.

RAILROAD CROSSING: The Corporation Commission does not have authority to force a railroad to permit crossing over tracks on a non-public road.

LIS PENDENS: A lis pendens describing an out-of-state action is valid. Even though the foreign state court cannot directly affect title to Arizona property, a court with personal jurisdiction over the owner of Arizona property can compel the person to act in relation to the property.

BIG BOX ORDINANCE: The City's referendum ordinances do not conflict with, and are not preempted by, the state referendum statutes.

ESCROW: An escrow company can be liable under a respondeat superior theory for an escrow officer's fraud.

RIGHT OF WAY: A private way of necessity is not permitted where the plaintiff did not pursue an implied easement of necessity against the seller (which was the Federal government). Necessity can be established under the private condemnation statute (A.R.S. Section 12-1202(A)) by showing that any other alternate routes are unreasonable or inadequate.

RIGHT OF WAY: A private way of necessity was not permitted where the plaintiff did not pursue alternate access against the state, based on the fact that the state usually grants requests for such access.

MECHANIC'S LIENS: Using an unconditional release form results in a partial waiver where the materialman modified the form to apply only to specific invoices.

RIGHT OF WAY: A roadway right-of-way along parcel boundaries, reserved in land patents issued pursuant to the federal Small Tract Act, could be enforced for access purposes, even though a roadway had not been publicly built and maintained.

The following pre-2000 case is included due to its significance:

Burkons v. Ticor Title Ins. Co. of California
813 P.2d 710     Arizona Supreme Court - 6/18/91

ESCROW:
1. Although not required to investigate, when the agent is aware of facts and circumstances that a reasonable escrow agent would perceive "as evidence of fraud," then there is a duty to disclose.

2. An escrow agent must be cognizant not only of the escrow instructions but of the provisions contained in the documents that are deposited in escrow.