Illegal Subdivision • These houses have been built in Greer Ranch, even though the area is considered an illegal subdivision.

Teresa Stonich apologizes for the bird poop splattered on the front patio and across the doorframe surrounding the front door of her house. Cobwebs stretching across the windows and in the corners of the patio prompt another uneasy apology.
“Sorry about that, but it’s hard to clean since we don’t have running water,” she says.
The house, which sits surrounded by mountains and stunning desert vistas on a six-acre chunk of unincorporated land a few miles east of Anthem, actually does have a fully-functioning well and access to plenty of water.
But it doesn’t have the electricity needed to run the well’s pump that would provide the house with water.
Four years after construction was finished on the four-bedroom, 2,400-square-foot dream home, it sits empty, its tile floors, marble countertops and modern kitchen appliances covered in dust, and its sinks littered with dead bugs.
Teresa and her husband, Phil, haven’t moved into the house because they can’t — Maricopa County won’t issue the certificate of occupancy needed to get the electricity connected and legally live there.
The Stonich property, along with several others nearby, is tied up in a legal battle with the Arizona Department of Real Estate that has resulted in their land being labeled an illegal subdivision and rendered unusable. The fight has destroyed Teresa Stonich’s desire to ever move into her new house, even if the legal issues were resolved.
“Now I don’t even want to live there anymore, with all that’s gone on,” she told the Arizona Capitol Times.
The landowners blame the quagmire on what they say were overly aggressive and possibly illegal actions taken by the Department of Real Estate.
“Wrong place, wrong time — that’s (the department’s) interpretation,” said Bob Esposito, one of the other landowners involved in the dispute. “My interpretation is it is a regulatory taking.”
The Real Estate Department ruled in early 2004 that nearly 350 acres of land — including parcels owned by Esposito and the Stoniches — was illegally subdivided and couldn’t be developed or sold until it met certain infrastructure standards for subdivisions. That’s because the original owners of the land made mistakes on the paperwork they filed two years earlier when they were trying to sell the land.
But Esposito, Stonich and others who bought the land said they were never notified of the department’s action. None bought their properties from the original landowner, and all the land was bought with clear titles and title insurance.
Yet the land is still subject to the department’s 2004 order, meaning building permits can’t be issued and the property can’t be sold.
And insult has been added to injury: Another home under construction sits about a stone’s throw from the back porch of the Stonich house. A few hundred feet away is another house, completed a couple years ago and occupied by the owners.
In fact, five lots for sale can be seen while standing in the bare front yard of the vacant Stonich house. Three of them share borders with the couple’s lot.
“This is the kind of stuff you expect to happen in the People’s Republic of California, not the state of Arizona,” Esposito said.
Belying the frustration
Esposito, a bald-pated retired Marine captain in his 40s, tries to contain his energy, his outrage, his volume. But it’s not easy.
Nervously shifting back and forth, his voice begins to rise, belying the frustration he feels at having even less control over the legislative process than he does over his property in Greer Ranch.
The bald-pated retired Marine captain explained his situation to the House’s Homeland Security and Property Rights Committee at a late March hearing, testifying in support of a bill he and others hoped would put an end to their wrangling with the Department of Real Estate.
A few days later, he was the same nervous ball of energy as he rattled off the reasons he can’t build a house on his 9 1/2 acres and fretted about the $450,000 he has lost in the last four years.
Esposito, a married father of three, repeatedly apologized for speaking too quickly and veering off onto tangents as he explained how he and other landowners got mired in such a legal mess.
“Nobody believes me when I first tell them what happened,” he said. “But it’s true. And when they realize that, they’re shocked.”
What has happened is something that has prompted disbelief, and even outrage, from legislators.
“I think it’s like getting hit by a bus,” said Sen. Pamela Gorman, the Anthem Republican who sponsored S1491, the bill Esposito was supporting in the House committee. “To me, it is so opposite of all we hold dear as Americans (about) our property rights.”
The fight over the land began in January 2002 when RTD Holdings filed an expedited application for an unsubdivided-lands report with the Real Estate Department so it could break the 346 acres of Greer Ranch into parcels of least 36 acres and sell them off. The department then issued the public report needed for RTD to sell the land.
But two years later, in January 2004, the department examined the public report and determined it contained inaccuracies that actually made Greer Ranch a subdivision, not an unsubdivided-lands project.
A subdivision is defined in statute as land that is divided into six or more parcels for the purpose of sale or lease. Subdivisions also must meet different standards under the law and must provide infrastructure — such as water, roads and sewers — required by the city or county where the land is located.
The Arizona Department of Real Estate began legal proceedings against RTD for illegally subdividing the land, accusing RTD of splitting the land into parcels smaller than 36 acres and making materially false or misleading statements on its application.
Elaine Richardson, who at the time was state Real Estate commissioner, issued a summary suspension order, preventing RTD from developing or selling land in Greer Ranch. The order was filed with Maricopa County, which in turn placed a moratorium on issuing building permits on land in Greer Ranch.
RTD appealed the suspension order, citing a provision in statute that requires the Real Estate commissioner to vacate the order if the landowner “immediately corrects the deficiency and comes into full compliance with state law.”
In March 2004, RTD proposed correcting the misleading statements on the paperwork and reconfiguring the parcels so none were smaller than 36 acres.
But the Department of Real Estate said the changes proposed by RTD were moot, because the company already had created a subdivision with the initial land configuration and had sold some of the property.
The state agency did concede during the appeal that, had parts of the land not been sold, the proposed changes would have brought Greer Ranch into compliance with the unsubdivided-lands laws.
Administrative Law Judge Eric Bryant ruled in favor of RTD, saying it had the statutory authority to make corrections to the unsubdivided-lands report, and that the Department of Real Estate was required to vacate the suspension order.
Bryant’s ruling was intended to protect the public by ensuring future sales in Greer Ranch followed unsubdivided-lands law. But it still all
owed the Department of Real Estate to bring separate actions against RTD for the sales already made that violated the subdivision laws.
The judge also found that the Department of Real Estate did not meet its burden of proof in issuing a summary suspension order, which is an emergency action that restricts property rights without a public hearing. The department, he ruled, acted without receiving any complaints about Greer Ranch and failed to show that the illegal subdivision of the land had caused any harm.
The ruling, though, was not binding, because state statute allows an agency head to reject or modify an administrative law judge’s findings, as long as the department head provides written justification for doing so.
In July 2004, Richardson issued a Final Order on Greer Ranch. In it, she modified or rejected many of the deficiencies Bryant found in the department’s justification for the summary suspension order.
The end result was a $1,000 fine against RTD, the revocation of the unsubdivided-lands public report and the requirement that RTD comply with subdivision laws before selling any more land at Greer Ranch.
RTD appealed the Final Order in Maricopa County Superior Court, which sided with the Real Estate Department. A subsequent appeal to the Arizona Court of Appeals was dismissed because RTD and the Real Estate Department had entered into a consent order. The order required RTD to install water lines on the portions of Greer Ranch it still owned, and it exempted from the subdivision laws 23 parcels that had been sold to other people.
About five weeks later, in late June 2005, the department issued a cease-and-desist order against 86 people who had been involved in Greer Ranch land sales, alleging they conspired to skirt the state’s subdivision laws and were acting to “defraud the public” by continuing to sell the land without complying with subdivision laws.
In response, 19 of the owners filed a trio of federal lawsuits against the Real Estate Department and the state, saying their property rights had been violated when their land was declared an illegal subdivision without proper notification or giving them a chance to appeal the decision.
Ultimately, the federal judge rejected the claims that the constitutional rights of the landowners had been violated and remanded allegations that the Real Estate Department violated state law back to the Arizona courts.
The judge ruled the plaintiffs “purchased their property from RTD at their own risk, and were presumably aware of the disclaimer contained in the Public Report,” which noted the Department of Real Estate can examine a public report at any time and suspend or revoke it if the development is not in compliance with state law.
But that’s the rub: None of the plaintiffs in the lawsuits bought their land from RTD Holdings. Three of the plaintiffs — the Stoniches, Esposito and Carr Huml Investors — purchased their land from people who had bought it from RTD in transactions that were completed prior to the issuance of the summary suspension order on the Greer Ranch property.
All three of those plaintiffs, in fact, bought their land in late 2003, several months after the Department of Real Estate conducted an inspection of Greer Ranch to determine compliance with unsubdivided-land laws. As required by law, the department issued a site-inspection report, which cited no violations.
The plaintiffs’ attorney was responsible for the judge’s erroneous belief that the plaintiffs bought their property from RTD, as he had mistakenly and repeatedly asserted the plaintiffs purchased the land from RTD throughout the lawsuit.
After the judge issued the ruling against the plaintiffs, the attorney petitioned the court to reconsider in light of his mistakes.
“This factual error gave rise to a mistaken legal presumption that plaintiffs had actual notice of the public report in that (the Department of Real Estate) had jurisdiction over plaintiffs and their property,” attorney David Brnilovich wrote.
But Judge Mark Aspey denied the motion for the court to reconsider the ruling, saying the error was “not a substantive mistake of fact, and correcting the mistake does not result in a change in the Court’s conclusions.” The plaintiffs, Aspey wrote, still should have known about the disclaimer in the public report because the department keeps an online database of all public reports for unsubdivided lands.
No help from the Legislature
Gorman, whose legislative district includes Greer Ranch, didn’t mince words when asked about the loopholes in the law that allowed the landowners to be put in their situation.
“It’s crazy and un-American,” she said. “These are the little ways that our rights in this country — that our American freedoms — are chipped away at every day.”
But be that as it may, there isn’t much she and other lawmakers can do to make things right for Esposito, the Stoniches and the others.
A House committee added an amendment to S1491 that would have required current Department of Real Estate Commissioner Sam Wercinski to exempt Esposito and the other Greer Ranch owners from subdivision laws. But the amendment was stripped off during floor debate in the House.
Rep. Nancy Barto, a Republican from northeast Phoenix, worked to craft the amendment. She said it had to be removed because the House’s attorneys had said it violated the state Constitution on the grounds that it was too narrowly written.
Had the scope been broadened to ensure constitutionality, she said, other landowners — including many who willfully violated the subdivision laws — would have been exempted from the laws, so there was no choice but to remove the provision entirely.
“It’s a real shame. I wish we could do more,” Barto said. “There’s only so much we can do at the state Legislature.”
Barto said the amendment was problematic and probably would have resulted in the bill being rejected by the House.
“It wouldn’t have even gotten out of here,” she says. “There wouldn’t have been the support.”
In its current form, S1491 would require the Department of Real Estate to file a public notice if land is deemed an illegal subdivision. If the department issues a cease-and-desist order to stop sales of the land, the order must be recorded with the county recorder and notice must be sent to all the affected owners.
Additionally, the bill would increase the fines the Department of Real Estate could levy on illegal subdividers.
“We maybe can’t fix it for these people, but we can fix it going forward so it doesn’t happen again,” Gorman said.
Ending the hostility
Wercinski hands out adhesive bandages instead of business cards. The personalized bandages have the Real Estate commissioner’s name and phone number printed on them, along with the slogan “Always willing to help.”
He says the business card substitute is meant to drive home the point that the Department of Real Estate is there to protect people.
Since becoming commissioner in January 2007, Wercinski has sharpened the department’s focus on stamping out illegal development. The goal, he said, is to better educate the public and the developers on the state’s subdivision laws.
While the Greer Ranch proceedings began under former Commissioner Richardson, Wercinski said he has worked hard to end the litigation. He has reached settlements with most of the landowners, ending their involvement in the appeal.
He also notes that the majority of the property owners in Greer Ranch have been exempted from the subdivision laws, even though the area is still considered an illegal subdivision. Many of those owners were released from the Department of Real Estate’s 2004 order as a part of the settlement with RTD in 2005.
Thos
e exemptions have been a point of contention for Esposito and the other owners still involved in the lawsuit. They question why some owners were exonerated, while they would have to agree to stipulations, such as making costly improvements to the land, before they can get out from under the restrictions.
“The department determined they weren’t engaged in creating the illegal development,” Wercinski said of the owners already exempted from the laws.
He said the determination was made by the Attorney General’s Office after having discussions with the owners’ attorney. Wercinski said he doesn’t know the specifics of the agreements or what led to them because it happened before he arrived at the department.
“All I know is what we’re dealing with today, and I want to bring closure to the people involved in this,” he said.
Wercinski said the owners who are continuing in the lawsuit weren’t merely buying a piece of land on which to build a house.
“I believe that they’re all developers,” he said. “They’re all builders, generally, that want to split, build and sell, and maybe keep some (of their land) and build a dream home.”
Indeed, the remaining plaintiffs in the suit all bought land, only to split it and sell portions of it. The Stoniches purchased 10 acres Nov. 17, 2003, and sold about four of them to another party that same day.
Esposito bought 20 acres of land Oct. 2, 2003, and immediately sold a little more than half of the property to two separate buyers. Kevin Norby bought 10 acres, selling nearly nine to a pair of buyers. Carr Huml Investors sold a little more than two of its five acres, as well.
Gorman is hopeful that her would-be constituents and the department will be able to put aside the emotions that have built up over the last four years and hash out a deal.
“Maybe both sides need to take a deep breath and sit down. I think they can work something out,” Gorman said.
Wercinski said the department is willing to negotiate a settlement with any of the property owners, provided they drop the litigation.
“If we’re being sued, I can’t negotiate with them. My attorney won’t let me,” he said.
Wercinski also withdrew settlement offers made to Esposito and the Stoniches the day after they testified before the House committee in support of the amendment that would have allowed them to be exempted from the subdivision laws.
The pair of landowners sees the move as the department’s way of intimidating them and trying to prevent them from actively pursuing a legislative solution.
“They were mad that I showed up at the (House),” Teresa Stonich said.
But Wercinski said the department didn’t withdraw the offer so much as it rejected a counter-offer from Stonich and Esposito. All of the property owners had the choice of negotiating or pursuing other avenues, he said, and the department has responded accordingly.
“There was an offer made, which the majority (of owners) have accepted,” he says. “Certain individuals chose to go before the Legislature and counter-offer through the legislative process, essentially.”
Even if all of the owners aren’t willing to negotiate, Wercinski said there have been talks among the department, Maricopa County and the owner of RTD to strike a deal that would help all of the owners in Greer Ranch, including those who testified and are appealing the court decision.
“There’s things happening behind the scenes that no one knows about,” he said.
There also are other factors that may determine how the situation shakes out.
Four years of legal fees and loan payments that so far have yielded very little in return, combined with a housing market that has skidded to a stop, has caused financial strain for the Greer Ranch owners.
Teresa Stonich said she doesn’t know how long she and her husband will be able to afford it.
“I can barely make payments on it anymore,” she said. “We have two house payments to make. How long do you continue to do that≠”
Esposito, though, said he is committed to seeing things out until the end.
“Part of this, for me, is I’m thinking of my kids,” he said. “People have to stand for something. How can my wife teach my kids about our country and what it means, while Daddy steps aside and takes a powder on this one≠” ≠