HAROLD STEINFELD and MARGARET DAVIS STEINFELD, His Wife, Appellants,
APPEAL from a judgment of the Superior Court of the County of Pima. Fred W. Fickett, Judge. Judgment reversed and cause remanded, with instructions.
Mr. Charles Blenman and Mr. Samuel L. Pattee, for Appellants.
Mr. K. Berry Peterson, Attorney General, and Mr. Charles L. Strouss, Assistant Attorney General, for the State.
[37 Ariz. 390] LOCKWOOD, C. J.
This is an appeal from a judgment of the superior court of Pima county holding that a mortgage in favor of the state of Arizona was a lien on certain land superior to a tax title to the same property held by Harold Steinfeld and Margaret Steinfeld, his wife, hereinafter called appellants. The facts are not in dispute, and the only question for us to determine is as to the proper application of the law to those facts.
[37 Ariz. 391] For some time prior to 1919 Rudolph Bachman and his wife were the owners of certain land in section 31, Tp. 19 S., R. 13 E., situated in Pima county, and certain other land in section 6, Tp. 20 S., R. 13 E., situated in Santa Cruz county. In August of that year
the Bachmans applied to the state of Arizona for a loan of $5,000 from the permanent school fund, to be secured by a mortgage on all these lands, and on the sixteenth day of December the state made the loan, taking a note signed by the Bachmans therefor, and a mortgage on the lands in question securing the payment of the note. Taxes for the years 1920 to 1924, inclusive, were regularly levied and assessed on section 6, supra, situated in Santa Cruz county. These taxes not being paid, the state brought suit in the superior court of Santa Cruz county, making Bachman and other parties defendants, to enforce the collection of the taxes. This suit, it is admitted, was in all respects conducted according to statute and proceeded regularly to judgment. Execution was issued and the property sold under the tax judgment to appellants herein, and, no redemption being made, in due season a deed was made according to law conveying the property to them.
On May 3d, 1928, nothing having been paid either on the principal or the interest of the Bachman note above referred to, the state commenced this action in the superior court of Pima county to foreclose the mortgage. Steinfeld answered the complaint, denying that the state had any lien on the particular property sold to him under the tax sale aforesaid, and cross-complained, setting forth the nature of his title and praying for judgment quieting it as against the state. Judgment was rendered for the state, and from such judgment this appeal is taken.
There are some five assignments of error which raise one question, and that is the effect of a sale under a judgment for the enforcement of the collection [37 Ariz. 392] of taxes as against a previously executed and recorded mortgage in favor of the state securing a loan from the permanent school fund. It is the position of the state, first, that the tax itself was illegal because the state's property is not subject to taxes; second, that a mortgage in favor of the state confers a lien superior to subsequently accruing taxes; and, third, that the money loaned and the mortgage to be enforced were subject to the trust provided by section 28 of the Enabling Act in regard to lands given by the United States to the state of Arizona at the time the latter was admitted to statehood. We consider these questions in the order stated.
It is the well-settled rule of law in many jurisdictions, among them being Arizona, that a mortgage is not a conveyance, and neither the legal nor equitable title passes to the mortgagee. On the contrary, it is nothing but a lien for the security of money or some other condition, and the title to the property remains in the mortgagor until foreclosure. 19 R.C.L., p. 311; 41 C.J. 279, and notes. The State Land Code in force at the time provided that all proceedings relating to the investment of the permanent school fund in real estate mortgages should be governed by the General Laws of the State of Arizona. Chapter 5, Second Special Session 1915, § 113. Such provision, in our opinion, means that the laws of the state relating to ordinary mortgages are to be followed in all respects with state mortgages, except where otherwise specially provided by law.
In some states only the value of the equity of the mortgagor, over and above the mortgage, is assessed to him for taxation, the value of the mortgage being assessed to the mortgagee, and in such states it is frequently held that, at a sale for the nonpayment of taxes assessed to the mortgagor, the purchaser takes only the equity of the latter, the mortgage remaining [37 Ariz. 393] in full force and effect, and this of course is but logical and proper under such a situation.
In Arizona, on the other hand, the law has always contemplated that property shall be assessed to the legal owner at its full cash value, regardless of whether it is subject to an encumbrance or not. Territory v. Delinquent Tax List, etc., 3 Ariz. 179, 24 P. 182; paragraph 4849, Rev. Stats. Ariz. 1913, Civ. Code. It was the plain duty of the assessor to assess the entire land to Bachman at whatever he thought its full cash value was, regardless of the mortgage. There is no provision for assessing the equity of the owner in the land over and above the encumbrances as separate from the encumbrances themselves. Under such circumstances, if there should be an attempt to tax the mortgagee's interest, the latter tax would not be on the land, but on the debt. Territory v. Delinquent Tax List, etc., supra. Otherwise it would be double taxation which is forbidden by paragraph 4846, Rev. Stats. Ariz. 1913, Civ. Code. We conclude, therefore, that the state had no taxable interest in the land itself, and that the tax was not invalid as being an assessment of state property.
The second objection is that a prior mortgage in favor of the state is a lien superior to that of subsequently accruing taxes. In the absence of a statute, a tax lien ranks according to the order of its attachment to the land, in the same manner as other liens, and, had we no statute governing the matter, the state's contention would be correct. 37 Cyc. 1145; Walker v. Nogales Building & Loan Assn.,28 Ariz. 484, 237 P. 1094. The legislature of Arizona, however, has full power to determine whether or not a tax lien shall be superior to other liens, so long as its determination does not impair previously existing contracts or vested ...