Advanced Property Tax Liens, Inc. v. Sherman – 7/26/2011

August 3, 2011

Arizona Court of Appeals Division One Holds That A Purchaser of a Tax Lien Who Sends Notice of the Purchaser’s Intent to Foreclose the Property Owner’s Right to Redeem to an Address at Which the Property Owner No Longer Lives Has Not Complied With A.R.S. § 42-18202(A).

In May 2000, the Shermans acquired three parcels of commercial property.  They subsequently failed, however, to pay property taxes for one of the parcels, resulting in a tax lien on that parcel.  In 2005, Advanced Property Tax Liens (“APT”) paid the delinquent taxes on the parcel in exchange for the tax lien.  Three years later, APT sent the Shermans a notice of intent to foreclose on the lien to an address the Shermans had listed in their affidavit of property value they had recorded in connection with their purchase of the property in 2000 (the “Purchase Address”).  A short time later, APT filed a foreclosure action and attempted to serve the Shermans at the Purchase Address.  Someone at the business occupying the Purchase Address notified the process server that the Shermans had sold the property five years earlier.  APT eventually served the Shermans’ in Chandler, Arizona.  The Shermans did not respond to the complaint and, in December 2008, APT submitted an application for a default judgment on its foreclosure claim.  On January 26, 2009, the court entered a default judgment, foreclosing the Shermans’ right to redeem the parcel and quieting title in favor of APT.  Several months later, the Shermans filed a motion to set aside the default judgment, arguing that APT’s notice of intent to foreclose was deficient because it was sent to the address of a property they had sold five years earlier.  The court denied the Shermans’ motion and the Shermans timely appealed.

On appeal, the Arizona Court of Appeals reversed the trial court’s denial of the motion to set aside the default judgment, concluding that the trial court did not have jurisdiction to proceed with the foreclosure action because APT failed to mail its notice of intent to foreclose to the Shermans as required by Arizona law.  In Arizona, the purchaser of a tax lien who intends to file an action to foreclose the property owner’s right to redeem the property must provide notice of the purchaser’s intent to file the foreclosure action in one of two ways.  First, the lien holder can send the notice, by certified mail “to the property owner of record according to the records of the county recorder.”  A.R.S. § 42-18202(A)(1).  Alternatively, the purchaser can send notice, by certified mail, to the owner of record according to the records of the county assessor and, depending on the circumstances, to the situs address of the property being purchased and to the tax bill address according to the county treasurer.  A.R.S. § 42-18202(A)(1)(a)-(c).  In this case, the Court of Appeals concluded that APT failed to comply with § 42-18202(A)(1) because APT mailed the notice to a property the Shermans had sold five years earlier.  The Court noted that the Shermans’ failure, in this case, was particularly egregious once APT became aware that its notice of intent did not reach the Shermans when APT attempted to serve the summons and complaint on the Shermans at the Purchase Address.  Because APT failed to comply with A.R.S. § 42-18202(A), the Court held that the trial court was not authorized to proceed with APT’s action to foreclose, rendering the default judgment it entered void. 

Judge Gemmill authored the opinion; Judges Norris and Orozco concurred.