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Arizona: “Show Me the Note” — Again?

Posted By USFN, Tuesday, March 4, 2014
Updated: Monday, October 12, 2015

March 4, 2014


by David W. Cowles
Tiffany & Bosco, P.A. – USFN Member (Arizona, Nevada)

Arizona may be facing a “show me the note” redux. The Arizona Court of Appeals issued its opinion in Steinberger v. McVey ex rel. Cnty. of Maricopa, __ P.3d __, 2014 WL 333575 (Ariz. Ct. App. Jan. 30, 2014), and the opinion seems to rejuvenate the “show me the note” defense to foreclosure. This is especially surprising in light of the fact that the Arizona Supreme Court shut down the “show me the note” defense in its opinion in Hogan v. Washington Mutual Bank, N.A., 230 Ariz. 584, 277 P.3d 781 (2012).

In Hogan, a “show me the note” case, the Supreme Court wrote: “[w]e hold 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.” The court based its holding on a careful review of the relevant statutes and on policy considerations. On the policy side, the court stated: “The legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process. Requiring the beneficiary to prove ownership of the 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.”

Arizona’s state and federal courts had already concluded that the “show me the note” argument was meritless and, with Hogan, Arizona’s highest court seemed to settle the matter once and for all. At least until late January, when the Arizona Court of Appeals issued Steinberger.

Steinberger is a lengthy opinion that deals with a number of different causes of action, but it is its treatment of the “show me the note” argument and of Hogan that stands out. In Steinberger, the court of appeals holds that the plaintiff did state a cause of action based on allegations that the beneficiary lacked authority to foreclose; i.e., based on a “show me the note” argument. The court of appeals attempts to distinguish Hogan on the basis that in that case, the borrower did not “affirmatively allege” that the entity pursuing foreclosure lacked authority to do so, whereas Steinberger did so allege. And although the Steinberger opinion acknowledges that the holding in Hogan was premised partly on the idea that non-judicial foreclosure sales are intended “to operate quickly and efficiently ... and that litigation inevitably slows down the foreclosure process,” Steinberger nevertheless appears to have re-injected litigation into the non-judicial foreclosure process, at least in cases where the borrower alleges that the wrong entity is pursuing foreclosure, which is in nearly all of the “show me the note” cases.

Steinberger is likely to be appealed and, if the Arizona Supreme Court grants review, Arizona may again have clarity on this important issue.

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