Arizona Supreme Court Holds That a Trustee May Foreclose on a Deed of Trust Without the Beneficiary First Having to Show Ownership of the Note That the Deed Secures.

Plaintiff John Hogan took out loans from Long Beach Mortgage Company secured by deeds of trust on two pieces of property he owned.  When he defaulted on the loans, the trustee recorded notices of sale for the properties, naming Defendant Washington Mutual Bank as the beneficiary of one sale and Defendant Deutsche Bank as the beneficiary of the other.  Both Washington Mutual and Deutsche Bank were successors in interest to Long Beach Mortgage Company.  Hogan brought suits to enjoin the trustees’ sales, arguing that the beneficiaries had to prove that they were entitled to collect on the respective notes secured by the deeds of trust.  The superior court granted the Defendants’ motions to dismiss and the court of appeals affirmed in both suits.  The Supreme Court accepted review.

In a unanimous decision, the Arizona Supreme Court affirmed.  The Court explained that non-judicial foreclosure sales are governed by statute – A.R.S. §§ 33-801 to -821 – empowering a trustee to sell real property securing an underlying note upon a debtor’s default.  Nothing in those statutes requires a showing that the beneficiary of a trustee’s sale show possession of, or otherwise document its right to enforce, the underlying note.  Although the Court agreed that a deed of trust may be enforced only by a person entitled to enforce the obligation the mortgage secures, Hogan did not allege that Washington Mutual or Deutsch Bank are not entitled to enforce the underlying notes.  Thus, dismissal was appropriate.

The Court rejected Hogan’s argument that the trustee was required to demonstrate its authority to collect on a note under A.R.S. § 47-3301 of Arizona’s Uniform Commercial Code, explaining that the UCC does not govern liens on real property.  See Rodney v. Ariz. Bank, 172 Ariz. 221, 224-25, 836 P.2d 434, 437-38 (App. 1992).  The Court also rejected Hogan’s argument that if a beneficiary is not required to “show the note,” the original noteholder could attempt to later pursue collection despite a foreclosure. The Court explained that Arizona’s anti-deficiency statutes protect against such occurrences, and in any event, the debtor could hold the trustee liable in such a situation.

Chief Justice Berch authored the unanimous opinion