In September 2018, in Baumgartner v. Timmins, 245 Ariz. 334, 429 P.3d 567, the Arizona Court of Appeals provided further clarification on what constitutes an “encumbrance” on a property for purposes of Arizona’s statutory scheme prohibiting the recording of “false documents.” The statute, A.R.S. § 33-420, prohibits the recording of documents that a person knows to be forged, are groundless, or that contain material misstatements (or false claims). A person who claims an “interest in, or a lien or encumbrance against” real property who records such documents can be held liable for $5,000 or treble the actual damages caused by the recording (whichever is greater), A.R.S. § 33-420(A), and perhaps even be found guilty of a class 1 misdemeanor, A.R.S. § 33-420(E).
At issue in Baumgartner were neighbors fighting about CC&Rs—a typical neighborhood fight. In 2015, some of the neighbors filed suit against the Timminses for violating the CC&Rs. The Timminses did not contest the lawsuit, resulting in a default judgment. In what the Court of Appeals characterized as a lawsuit filed by the Timminses “in apparent response to the [first] lawsuit and resulting default judgment,” the Timminses created, signed, and recorded affidavits contending that the Plaintiffs in the original lawsuit were themselves “in violation of several provisions of the CC&Rs.” The Plaintiffs then filed suit again against the Timminses, this time contending that the Timminses had violated A.R.S. § 33-420 by recording the affidavits because the affidavits, the Plaintiffs contended, created encumbrances on their properties. The Apache County Superior Court agreed, and issued a final judgment nullifying the recorded documents and awarding the Timminses damages, along with their attorneys’ fees and costs.
The Arizona Court of Appeals disagreed and reversed the trial court. The Court of Appeals held that the affidavits were not wrongful under A.R.S. § 33-420 because the Timminses had not claimed or purported to create an encumbrance on the Plaintiffs’ properties. The Timminses had not claimed any right to individually enforce the CC&Rs against the Plaintiffs (or that any HOA had such a right to enforce the CC&Rs) in the recorded affidavits. The Timminses “had simply alleged that the [Plaintiffs’] properties were not in compliance with the CC&Rs.” Because the affidavits did not claim or purport to create an “encumbrance” on the Plaintiffs’ properties as that term is used in property law—the court cited to A.R.S. § 47-9102, for example, as defining “encumbrance” as a “right, other than an ownership interest, in real property”—A.R.S. § 33-420 simply did not apply.