Recent Arizona Case Law

Steinberger v. McVey (AZ Court of Appeals 2014).  Perkins obtained a loan from IndyMac Bank to buy a house.  After Perkins died, his daughter inherited the home and tried to negotiate a loan modification.  She supposedly stopped paying because IndyMac advised her she needed to be in default for it to consider a note modification.  Following about a year’s worth of confusing communications with various servicers of the loan, IndyMac noticed a trustee’s sale while it considered the modification request, and the daughter filed suit against IndyMac and others to enjoin the trustee’s sale.

The Court of Appeals held that the borrowers may challenge the authority of their lenders to foreclose by making an affirmative good faith allegation that the trustee or beneficiary is not the “true” trustee or beneficiary (akin to the so-called “show me the note” defense).  This case appears to contradict the Arizona Supreme Court’s Hogan v. Washington Mutual Bank decision, which held that Arizona’s trustee’s sales statutes do not require the beneficiary to prove its authority or show the note to the trustee before commencing a trustee’s sale.  The Court of Appeals distinguished the Hogan decision in that Hogan did not affirmatively allege that the defendants lacked authority to conduct a trustee’s sale.

The Court of Appeals suggested the foreclosure was improper absent an unbroken chain of assignments from the originator of the loan to the present beneficiary (which is inconsistent with the common law rule and Arizona statute that the mortgage follows the note).  The Court of Appeals also found that loan servicers can be liable to borrowers for negligent performance of an assumed duty (negligent administration of a loan modification).  Borrowers may cite this decision in the future to slow down a foreclosure, particularly in the case of loans sold into a trust pool or loans that have come through an FDIC receivership, where the trail of endorsements and assignments is often incomplete.



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