LEGACY SUBDIVISIONS AND ADRE CEASE AND DESIST ORDERS

Over the past year, the Arizona Department of Real Estate has commenced to research old sales of unimproved lots in numerous old platted residential subdivisions (sometimes referred to as “legacy subdivisions” which were legally platted several decades ago, but where homes were not built, if at all, until decades later). Over time, as the property taxes were not kept current, county treasurers took the lots and then resold them at public auctions. Purchasers bought the lots for very low sums and thereafter sold them off for, in most cases, small profits. Those purchasers and subsequent third-party purchasers assumed no new permits, zoning, or other government approvals were necessary in doing so (after all, the lots were purchased from the government itself!).

Oops. What about the public report? A “subdivider” includes not only a person or entity who divides land for purpose of sale or lease a certain number of times (six or more in the unincorporated areas, anywhere from two to four in cities and towns), but also anyone who acquires six or more lots within any platted subdivision and then seeks to offer any one of them for sale. This is the case even where the subdivision has already been platted and approved, and no further infrastructure or approvals (other than the new owner’s public report) remain outstanding. Thus, any of these purchasers who ended up acquiring six or more lots in any one platted subdivision were required to either obtain a public report before selling off individual lots, or obtain an exemption order from the Department.

Based upon this, and the large number of old subdivision lot sales the Department now regularly researches in various counties (Apache, Navajo, Cochise, as noteworthy examples) the Department frequently issues cease and desist orders to investors who previously acquired six or more lots in any one platted subdivision and then sold off any of those lots. The cease and desist orders routinely are recorded, and essentially “freeze” any further sales of the remaining lots. In many cases the Department will also assess (or seek to assess) substantial civil penalties (monetary fines) based upon the number of lot sales. In many cases these sales occurred long ago, however, and no complaints were ever received from any of the subsequent buyers or end-users.

Generally, before the Commissioner may suspend sales of property, or suspend or revoke a license, she must present charges and afford the property owner an opportunity to be heard in an administrative hearing, in which the Department bears the burden of proof. A.R.S. § 32-2157(A); Dahnad v. Buttrick, 201 Ariz. 394, 398, 36 P.3d 742, 746 (App. 2001); Schillerstrom v. State, 180 Ariz. 468, 471, 885 P.2d 156, 159 (App. 1994) (before the State can curtail a property right it must afford due process of law). However, the Department may proceed to issue the order in advance of hearing where, pursuant to A.R.S. 32-2157(B), it makes a finding that the public health, safety or welfare imperatively requires emergency action.

Owners who receive such cease and desist orders must file an appeal within approximately 30 days of receipt of the orders, otherwise waive any objections or appeal rights. Owners who do file appeals have the right under statute to an expedited hearing (and no event later than 60 days after the appeal, under A.R.S. § 41-1092.05(A)(1), in which the Department bears the burden of proof of establishing the violations and basis for any relief or penalties sought. Despite the statutory right to a hearing no later than 60 days following the appeal, however, the administrative tribunal that hears such appeals, the Office of Administrative Hearings, is unable to provide hearings within this time frame (citing “budgetary constraints”). Typically an appeal will not receive an evidentiary hearing until anywhere from four to six months after the appeal is filed.

Many of these cases, as noted above, involve old (ancient in some cases) sales that did not generate any complaints from the individuals who ultimately purchased the lots. They do not involve illegal subdivisions or splits themselves. As such, owners who receive such cease and desist orders typically have very compelling grounds to appeal and, ultimately, settle the matter with the Department. Settlements typically involve an agreement to obtain a public report prior to any further lots sales (for any remaining lots), along with monetary fines to be negotiated.