Arizona Supreme Court Ends the Argument – No Note Needed to Foreclose



Does a trustee have to “show the promissory note” in order to foreclose by non-judicial trustee sale.  The Arizona Supreme Court, in a decision on May 18, 2012, said NO.


According to the Supreme Court, deeds of trust and trustee sales are strictly governed by state statute.  (A.R.S. § 33-801 to 821)


“When parties execute a deed of trust and the debtor thereafter defaults, A.R.S. § 33-807 empowers the trustee to sell the real property securing the underlying note through a non-judicial sale. Hogan contends that before a trustee may exercise that power of sale, the beneficiary must show possession of, or otherwise document its  right to enforce, the underlying note. Nothing in our statutes, however, requires this showing. Section 33-809(C) requires only that, after recording notice of the trustee’s sale under § 33-808, the trustee must send the trustor notice of the default, signed by the beneficiary or his agent, setting forth the unpaid principal balance.”


Well, I hate to say it, because I feel badly when anyone loses a home to foreclosure, but I’m glad that argument is over in Arizona, at least.  There was no question how it was going to be decided, in my mind, so leaving it open was only offering false hope.  And frankly, it doesn’t appear to me as if it were a difficult or complicated decision to reach.


The case involved a borrower who had bought two properties with loans provided by Long Beach Mortgage, and when the borrower defaulted on the loans, the trustee under the deeds of trust foreclosed and recorded notices of trustee sales, naming Washington Mutual and Deutsche Bank as the beneficiaries.


The borrower sued to stop the sales, claiming that the banks had no right to foreclose without showing the promissory notes, which would prove they were entitled to collect the amounts owed.


The Superior Court dismissed the borrower’s suit, and the Court of Appeals agreed.  The Arizona Supreme Court, stating that the issue involved a reoccurring question of statewide importance, agreed to take up the case.


The high court reviewed the deed of trust statutes, confirmed that the deed of trust is separate from the promissory note, and found that there is no requirement for the trustee to “show the note” in order to foreclose by non-judicial trustee sale.


However, the Court did agree that only the lender entitled to enforce the note may foreclose, and that the deed of trust and promissory note go together.  But, since there isn’t anything in the statutes that requires a lender to show the note in order to foreclose, the Court rejected the borrower’s claim that only said that the note had to be shown.


It’s worth noting that in this case, the borrower did not allege that the two Banks had right to enforce the notes, only said the notes had to be shown, and the Court simply ruled that no such requirement was found in the state statutes.


The whole idea of a trustee sale is that it allow for a faster and more efficient foreclosure process when compared with a judicial foreclosure.  To require the servicer to prove the right to enforce the note would impose a requirement not found in the deed of trust statutes, and only serve to slow the process down.



The decision by the Arizona Supreme Court does not allow a lender to foreclose without having a right to enforce the note, and the Court noted that the trustee owes the borrower a fiduciary duty, for which it may be held liable should it conduct a trustee’s sale when the borrower is not in default.


Mandelman out. 


Read the decision, Hogan v. Washington Mutual Bank in its entirety below…




AZ Supreme Court Decision

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