Arizona Supreme Court Rules That “Show Me The Note” Defense Is Not A Valid Defense To A Foreclosure

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In the recent Arizona Supreme Court case of Hogan v. Washington Mutual Bank, the Arizona Supreme Court ruled that Arizona’s non-judicial foreclosure statutes do not require the beneficiary to prove its authority or “show the note” before the trustee may commence a non-judicial foreclosure.

In Hogan, the borrower, John Hogan, borrowed money to purchase two properties. Each of the loans was secured by a deed of trust. Hogan defaulted on both loans, which triggered non-judicial foreclosure proceedings. After receiving a notice of trustee’s sale for each of the properties, Hogan sued to stop the trustee’s sales. Hogan asserted that the lenders could not proceed with the trustees sales until they “showed the promissory notes” signed by Hogan and the lender in connection with the underlying transaction.

The Superior Court dismissed Hogan’s lawsuit and the Court of Appeals affirmed the trial court’s decision. The Arizona Supreme Court decided to hear the issue because it presented a recurring issue of first impression and statewide importance.

The Arizona Supreme Court found that there is nothing in Arizona’s statutes to support Hogan’s contention that a beneficiary must show possession of, or otherwise document its right to enforce the underlying note before the property may be sold by trustee’s sale. Because the borrower did not dispute that he was in default under the deeds of trust, and he did not affirmatively allege that the lenders were not the holders of the notes in question, the Court found no reason to stop the sales.

The Court concluded that:  “Non-judicial foreclosure sales are meant to operate quickly and
efficiently, outside of the judicial process. The legislature balanced the concern of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the mortgage foreclosure process time consuming and expensive, and re-inject litigation, with its attendant cost and delay, into the process.”



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