FIXING TITLE TO REAL ESTATE
By:
Dan Kloberdanz
Defects
in title, often referred to as “clouds” on title, can occur for numerous
reasons. Of course, a purchaser of property can minimize his or her risks by
purchasing appropriate title insurance, and by paying particular attention to
the scope of coverage, which necessarily includes analyzing any exceptions to
coverage. Most problems with title
occur for one of three basic reasons: (1) because somebody inadvertently erred
in recording a defective instrument (2) somebody erred in failing to record an
appropriate instrument; or (3) certain parties dispute an issue relating to
their rights to an interest in the subject property which is not necessarily
controlled by whatever documents have been recorded.
Title problems also occur where the parties actively
dispute their interests in the property.
For example, a common title dispute involves a buyer and seller who have
a disagreement over their rights under a purchase contract. In this situation, the issue of title may be
determined by the court when it decides the underlying merits of the respective
contract claims. Other common disputes involve mechanic lien rights, claims of
adverse possession or various easement rights, priority of liens, and boundary
disputes. If the title issues cannot
be resolved volunarily, the present owner may then have to resort to the courts
and file a lawsuit to clear title, using the process explained below.
Quiet Title Lawsuit. Here’s a
good non-lawyer-like rule of thumb: The first step to bringing a quiet title
lawsuit is to avoid the lawsuit altogether.
It is always prudent to make efforts to contact the potential adverse
claimants to convince them to execute documents to avoid litigation. Only after
it is determined that the parties will not cooperate, or cannot be located,
should the owner file a lawsuit to clear the title. Of course, one should also
immediately determine whether or not he or she has title insurance which might
cover the existing problem.
A lawsuit to clear title to real property is often
called a "quiet title" action, and is authorized under A.R.S. §
12-1101. The action may be filed in
superior court by any one claiming an interest in the property, regardless
whether that person is in actual possession of the property. A quiet title action may be used to remove
any type of cloud against the title, including recorded instruments such as
judgments, lis pendens, and mechanic’s liens, as well as unrecorded claims such
as those for adverse possession, prescriptive easements, and constructive
trusts.
A quiet title action is not the proper
procedure to use to regain possession of the property, but rather, possession
is determined in an action for forcible entry and detainer. It is possible to combine the two actions
into one lawsuit, and usually the title issue must be resolved before the issue
of possession can be determined.
The plaintiff should be very careful that the quiet
title complaint requests all of the relief necessary to clear the title, and
that all of the necessary parties are named in the lawsuit. Often, a plaintiff
will need to obtain a litigation guarantee from a title insurer before filing
the lawsuit.
Service by Publication. A quiet
title lawsuit may be served by publication if the defendants cannot be
located. The unknown heirs of a
deceased person may also be served by publication. The plaintiff must obtain prior court approval to serve the
lawsuit by publication and demonstrate to the court the circumstances
warranting the utilization of service by publication.
The Twenty-Day Letter. Pursuant to
A.R.S. § 12-1103(B), a party who files a quiet title lawsuit is generally
entitled to an award of his or her attorney’s only if that party sends a
twenty-day demand letter prior to the filing of the quiet title lawsuit. The
twenty-day letter must be accompanied by a quit claim deed and five dollars
(for each person expected to sign the quit claim deed). This procedure is the exclusive basis for an
award of attorney’s fees in a quiet title action (although the plaintiff may be
entitled to attorney’s fees pursuant to A.R.S. § 33-420 for the wrongful filing
of a lien, as explained below).
Although an award of fees is not mandatory (the statute states that “the
court may allow" attorney’s fees), judges will award fees in almost
all cases when the defendants were actually given the opportunity to prevent
the lawsuit, but declined to execute the quit claim deed. Although the statute refers only to “quit
claim deeds”, a quit claim deed is not always the best instrument to release a
lien, and thus the plaintiff-to-be may want to include a release of lien or
some similar instrument (just in case the other party actually signs and
returns the documents).
When Is a Lis Pendens Necessary? In some cases, a party who files a quiet
title action should also record a lis pendens with the county recorder’s
office. A lis pendens should be
recorded if the defendants have an interest which could be transferred to an
innocent third-party purchaser, who might gain some type of priority over the
claims of the plaintiff. A lis pendens
essentially “freezes” the title, and puts the whole world on notice that the
plaintiff disputes a claim, and if a person receives a transfer of that claim after
the lis pendens is recorded, that person takes title subject to the outcome of
the lawsuit. In some cases, it may be
so important to immediately record a lis pendens that the plaintiff may choose
to forego sending the twenty-day demand letter, or the plaintiff could send the
demand letter after filing the lawsuit (and recording the lis pendens) and hope
that the judge can be convinced to award fees despite the failure to
technically follow the statutory procedure.
Statutory Claims Under A.R.S. § 33-420. Some types
of quiet title actions can be combined with an action for damages due to the
wrongful filing of a document which clouds the title. Under common law, a person can sue another for "slander of
title", which is a difficult action in which to prevail because it
requires proof of malice (bad motive) and special damages.
But under A.R.S. §33-420, the legislature has given
the owner a powerful tool to combat persons who wrongfully cloud somebody's
title. Under A.R.S. §33-420(A), a
person who purports to claim an interest in real property, or who causes a
document to be recorded "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
for (i) the greater of the sum of $5,000 or triple the actual damages caused by
the wrongful recording, and (ii) reasonable attorney's fees and costs of the
action. The claims under A.R.S. §33-420
are often very useful in providing the plaintiff leverage to force the
defendants to settle the case.
Additionally, under A.R.S. §33-420(C), a person who is
named in a document who knows that such document is forged, groundless, or
otherwise invalid is liable for the greater of the sum of $1,000 or triple the
actual damages, plus attorney's fees, if that person wilfully refuses to
release or correct such document within twenty days after the owner's written
request.
Working with the Title Insurer. It is very
important that the plaintiff work with a title insurer in connection with the
quiet title action. Indeed, it is
ultimately a title insurer who will decide whether the plaintiff possesses
marketable and insurable title. Many
title problems are discovered during the process of a sale, so there is usually
a title insurer involved from the very beginning of the process. In many cases, the plaintiff should obtain a
litigation guarantee from the insurer, in which the insurer will show exactly who
are to be the necessary defendants in any quiet title action. Also, the plaintiff should investigate
whether there is any recourse for the particular defect against any previous
transferor of title or any title insurer, whether that is the current owner’s
insurer or an insurer of a person who transferred the property to the owner.
