Advanced Prop. Tax Liens, Inc. v. Othon – 4/19/2023

May 1, 2023

Arizona Supreme Court holds that the buyer of real property may not collaterally attack a judgment entered against the seller in a foreclosure action based on improper service of process on the seller.

The buyer bought a commercial property from the seller, knowing that the property taxes were delinquent. The buyer never paid the property taxes or recorded the deed. A third party subsequently purchased a tax lien on the property and paid the property taxes.

The third party then filed a tax lien foreclosure action against the seller. The third party attempted to serve the seller at the property address but was unsuccessful. Therefore, the third party served the seller by publication. The trial court found that the third party properly served the seller by publication. After the seller failed to answer in the litigation, the trial court entered default judgment against the seller. Accordingly, the third party obtained title to the property.

In a separate quiet title action, the buyer asked the trial court to declare the title of property vested in the buyer because the default judgment in the foreclosure action was void due to invalid service on the seller. The trial court found in favor of the buyer, reasoning that an insurer has a well-recognized right to raise the issue of defective service of process as to its insured, and the buyer’s position as to the seller is similar. The court of appeals agreed.

The Arizona Supreme Court reversed. The Court noted that the general rule is that questions regarding service of process are personal to the person upon whom service was made and cannot be urged by another. The Court further reasoned that the relationship between a seller and buyer is not akin to an insurer-insured relationship because, in part, the buyer and seller relationship is adversarial in nature. It also noted that even if the seller conveyed the property with covenants and warranties, this would have only required the seller to defend against claims from third parties and, therefore, the seller would be equivalent to the insurer, not vice versa. Accordingly, the Court concluded that the buyer may not collaterally attack the default judgment entered in the foreclosure action.

Justice King authored the unanimous opinion.

Posted by: Brandon T. Delgado