Can a borrower/property owner defeat a non-judicial foreclosure sale (trustee's sale) by demanding that the lender prove that it is the holder of the underlying promissory note? In Hogan v. Washington Mutual Bank the Arizona Supreme Court answered that question with a resounding "No."
In Hogan, the borrower defaulted on the loans for two properties. The lenders, under the respective deeds of trust, proceeded to foreclose upon the two properties.
The borrower, before the trustee's sale, sued to stop the foreclosure process, claiming that the lenders could not foreclose unless they were able to show that they were the holders of the promissory notes and entitled to collect upon the amounts owed on the notes.
The trial court dismissed the lawsuit, and the court of appeals agreed with the trial court's decision. In affirming the trial court's and court of appeals' rulings, the Arizona Supreme Court held the Arizona deed of trust statutes do not require the lender or its trustee to present the promissory note to the borrower, or prove that it is the holder of the note, before foreclosing.
The high court concluded:
"Non-judicial foreclosure sales are meant to operate quickly and efficiently, outside of the judicial process. The legislature balanced the concerns 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."
The high court suggested that a remedy for a borrower, whose property is wrongfully foreclosed upon, is against the trustee who owes a fiduciary duty to the borrower. Otherwise, it appears that lenders in Arizona who foreclose upon defaulted loans via a trustee's sale will be given the benefit of the doubt that they are the holders of the underlying promissory notes.