4QTKIDZ, LLC v. HNT Holdings, LLC – 7/27/2022

August 29, 2022

The Arizona Supreme Court holds that a lienholder satisfies the requirement to notify a property owner prior to bringing a foreclosure action by delivering the notice to all three of the addresses specified in the statute, even if the lienholder has reason to believe the owner did not receive the notice.

Three lienholders sought to foreclose on tax liens on parcels belonging to the same property owner.  Each lienholder mailed the required pre-litigation notice to the three addresses listed in A.R.S. § 42-18202(A)(1)—(a) the address of the property owner according to the records of the county assessor,(b) the property’s physical address, and (c) the tax bill mailing address according to the records of the county treasurer.  All notices were returned as undeliverable.  When they sought to foreclose, the lienholders were similarly unsuccessful in serving copies of their complaints to the property owner.  They finally succeeded in serving the owner through the Arizona Corporation Commission.

In three separate proceedings, default judgments were issued against the property holder, who then successfully moved to have all three judgments set aside by trial courts.  The courts held that when the lienholders got the returned notices, they should have taken additional steps to ensure actual delivery.  In a consolidated appeal, the Court of Appeals affirmed, reasoning that the statute required service to the owner, not just delivery to the addresses listed in the statute.

The Supreme Court accepted review and reversed.  The Court explained that the statute’s structure showed the legislature’s intent to provide two alternative methods of service.  A lienholder’s obligation to provide pre-litigation notice is satisfied in one of two ways: (1) by delivery to the property owner’s address according county recorder’s records, or (2) by delivery to the owner’s address according to the county assessor’s records.  If the lienholder opts for the latter method (as the lienholders did in this case), notice must also be delivered to the situs address of the property and to the tax bill mailing address.  In a 2011 decision, the court of appeals held that if a lienholder opts for the first method of service, the lienholder must make reasonably certain that the owner actually received notice, which could include taking steps beyond simply mailing it.  That court noted that the first method of delivery is less certain to result in actual notice, thus necessitating the “reasonably certain” requirement, and that if a lienholder is not confident the address listed by the county recorder is accurate, the lienholder may prefer to use the second, more extensive method of delivery.

The Supreme Court agreed that delivery to the address listed by the county assessor is more likely to result in actual service, especially if delivery is also made to the other required addresses.  This is because the county assessor keeps a current record of properties under its jurisdiction in order to provide regular assessment notices to taxpayers, who are motivated to update their addresses so as to receive the assessment notices.  Because of the higher likelihood of successful service, no further steps are required of a lienholder who opts for the second method.  The Court also explained that reading the statute to require actual notice to the owner regardless of the address to which notice was delivered would render the second method of service superfluous. 

The court explained in closing that allowing a method of service that may not result in actual notice does not deprive an owner of due process at the pre-litigation phase because state action is not involved until the litigation phase, and actual service of process is required to bring a property owner into court.

The court noted in a footnote that the legislature amended the statute in 2022 to clarify that the second method of service requires delivery to the “property owner’s mailing address” rather than “to the property owner.”  Thus, the Court’s interpretation applies only to the 2015 version of the statute.  However, the amendment appears to codify the Court’s interpretation as explained in this opinion.

Justice Brutinel authored this unanimous opinion.

Posted by: Heather Robles