Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-00567/USCOURTS-azd-2_11-cv-00567-1/pdf.json

Nature of Suit Code: 140
Nature of Suit: Negotiable Instruments
Cause of Action: 28:1441 Petition for Removal- Petition to Quiet Title

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

David T. Schrock; Jodi M. Esch, 

Plaintiffs, 

vs.

Federal National Mortgage Association;

CitiMortgage, Inc., 

Defendants. 

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No. CV 11-0567-PHX-JAT

ORDER

Pending before the Court is a Rule 12(b)(6) Motion to Dismiss (Doc. 11) filed by

Defendants Federal National Mortgage Association (“Fannie Mae”) and CitiMortgage, Inc.

(“CitiMortgage”). The Court has reviewed the parties’ filings and considered the arguments

and now rules on the motion.

I. BACKGROUND

Near or on July 15, 2003, Plaintiffs David T. Schrock and Jodi M. Esch entered into

a loan agreement with HomeAmerican Mortgage Corportation (“HomeAmerican”) for the

amount of $227,000. The loan was secured by a deed of trust on the real property located

at 3510 W. Riordan Ranch Rd., Phoenix, AZ 85085 (the “Property”).

During February 2009, Plaintiffs fell behind on their mortgage payments and began

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1

 It appears undisputed on this record that CitiMortgage is the current lender.

2

 The original sale was scheduled for November 4, 2009.

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attempts to modify their loan agreement with CitiMortgage.1

 While Plaintiffs were

attempting to negotiate the terms of their loan, CR Title Services, Inc. (“CR Title”) was

substituted in as trustee on the deed of trust and recorded a Notice of Trustee’s Sale on July

30, 2009.2

 Plaintiffs continued to work with CitiMortgage to modify their loan, and, in

August 2009, Plaintiffs allege that CitiMortgage agreed to a loan modification with reduced

monthly payments. According to Plaintiffs, CitiMortgage assured them that documentation

of the modified agreement would come to them “at some point” (Doc. 1-2 at 5).

Representatives of CitiMortgage allegedly contacted Plaintiffs in September 2009,

informing them that there would be a three-month trial period for the loan modification. If

Plaintiffs made each of the modified payments in a timely fashion, CitiMortgage would

extend the modification for the duration of the loan. Once again, Plaintiffs claim to have

requested documentation of the modification, and claim CitiMortgage promised to provide

the documentation, but none was provided (Doc. 1-2 at 5).

Even though Plaintiffs received no documentation of the loan modification, they

continued to make the reduced payments according to the terms of the alleged oral

agreement. Plaintiffs claim to have made repeated requests for documentation of the

agreement, but were never provided with it; however, CitiMortgage employees allegedly

encouraged Plaintiffs to continue making the reduced monthly payments. From September

2009 to May 2010, Plaintiffs claim they made timely monthly payments according to the

terms of the oral agreement, all of which were received by CitiMortgage.

When Plaintiffs made their June 2010 modified payment, CitiMortgage rejected it.

Plaintiffs were informed by CitiMortgage that they were “not in the program anymore” (Doc.

1-2 at 6). At this time, CitiMortgage advised Plaintiffs that a trustee’s sale of the residence

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3

 This sale date was the result of several postponements of the original Notice of Sale

date. In all, the trustee postponed the sale 15 times before the property was finally sold.

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was scheduled for June 12, 2010.3

On August 11, 2010, Plaintiffs filed for bankruptcy. On December 15, 2010, the

Bankruptcy Judge granted CitiMortgage’s Motion for Relief from the Automatic Stay. On

January 24, 2011, CR Title, as trustee, sold the home to Defendant Fannie Mae. On February

23, 2011, Fannie Mae filed a forcible detainer action against Plaintiffs, seeking to evict them

from the residence. On February 24, 2011, Plaintiffs filed for a temporary restraining order

(“TRO”) in the Maricopa County Superior Court. Defendants removed the TRO action to

this Court on March 25, 2011. Defendants now seek to have Plaintiffs’ entire Complaint

dismissed for failure to state a claim, pursuant to the Federal Rules of Civil Procedure Rule

12(b)(6). Specifically, Plaintiffs have made claims for injunction against eviction, unlawful

trustee’s sale, breach of contract, promissory estoppel, wrongful foreclosure, tortious

interference with use and enjoyment of property, and quiet title.

II. LEGAL STANDARD

Defendants have moved to dismiss the Complaint (Doc. 1-2) for failure to state a

claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of

Civil Procedure. The Court may dismiss a complaint for failure to state a claim under

12(b)(6) for two reasons: 1) lack of a cognizable legal theory and 2) insufficient facts alleged

under a cognizable legal theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th

Cir. 1990).

 To survive a Rule 12(b)(6) motion for failure to state a claim, a complaint must meet

the requirements of Rule 8. Rule 8(a)(2) requires a “short and plain statement of the claim

showing that the pleader is entitled to relief,” so that the defendant has “fair notice of what

the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S.

544, 555 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).

Although a complaint attacked for failure to state a claim does not need detailed

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factual allegations, the pleader’s obligation to provide the grounds for relief requires “more

than labels and conclusions, and a formulaic recitation of the elements of a cause of action

will not do.” Id. (citing Papasan v. Allain, 478 U.S. 265, 286 (1986)). The factual

allegations of the complaint must be sufficient to raise a right to relief above a speculative

level. Id.

Rule 8’s pleading standard demands more than “an unadorned, the-defendantunlawfully-harmed-me accusation.” Ashcroft v. Iqbal, __ U.S. __, 129 S. Ct. 1937, 1949

(2009) (citing Twombly, 550 U.S. at 555). A complaint that offers nothing more than blanket

assertions will not suffice. To survive a motion to dismiss, a complaint must contain

sufficient factual matter, which, if accepted as true, states a claim to relief that is “plausible

on its face.” Iqbal, 129 S. Ct. at 1949. Facial plausibility exists if the pleader pleads factual

content that allows the court to draw the reasonable inference that the defendant is liable for

the misconduct alleged. Id. Plausibility does not equal “probability,” but plausibility

requires more than a sheer possibility that a defendant has acted unlawfully. Id. “Where a

complaint pleads facts that are ‘merely consistent’ with a defendant’s liability, it ‘stops short

of the line between possibility and plausibility of entitlement to relief.’” Id. (quoting

Twombly, 550 U.S. at 557).

In deciding a motion to dismiss under Rule 12(b)(6), the Court must construe the facts

alleged in a complaint in the light most favorable to the drafter of the complaint, and the

Court must accept all well-pleaded factual allegations as true. Shwarz v. United States, 234

F.3d 428, 435 (9th Cir. 2000). Nonetheless, the Court does not have to accept as true a legal

conclusion couched as a factual allegation, Papasan, 478 U.S. at 286, or an allegation that

contradicts facts that may be judicially noticed by the Court, Shwarz, 234 F.3d at 435.

/ / /

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4

 While Plaintiffs’ have styled their causes of action as “claims for relief,” the Court

will address each of the seven claims for relief as independent “counts.”

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III. ANALYSIS

1. Count I - Injunction Against Eviction4

Plaintiffs’ first count is not a cause of action, but rather a remedy that is dependent

upon the success of their other causes of action. Therefore, the Court will not analyze this

count under Rule 12(b)(6).

2. Count II - Unlawful Trustee’s Sale

A. Reinstatement of Loan and Notice

As an initial matter, Defendants argue that Plaintiffs have statutorily waived all of

their defenses and objections to the non-judicial foreclosure of the residence. A.R.S. § 33-

811(C) reads in pertinent part as follows:

all persons to whom the trustee mails a notice of a sale under a trust deed

pursuant to § 33-809 shall waive all defenses and objections to the sale not

raised in an action that results in the issuance of a court order granting relief

pursuant to rule 65, Arizona rules of civil procedure, entered before 5:00 p.m.

Mountain standard time on the last business day before the scheduled date of

the sale.

A.R.S. § 33-811(C) (emphasis added).

Thus, § 33-811(C) requires Plaintiffs to assert any objections to and obtain injunctive

relief from the trustee’s sale prior to such sale or risk losing their rights to object. See

Spielman v. Katz, No. CV 10-0184, 2010 WL 4038838, at *3 (D. Ariz. Oct. 14, 2010); De

Leon v. Recontrust Co., No. 10-8132, 2010 WL 4739954, at *3 (D. Ariz. Nov. 16, 2010).

However, even if a trustee’s sale of the property has already taken place, a foreclosed party

does not forfeit certain notice objections. See Martenson v. RG Financing, 2010 WL

334648, *8 (D. Ariz. 2010) (citing Schaeffer v. Chapman, 861 P.2d 611, 614 (Ariz. 1993)).

While § 33-811(C) plainly states that a party shall waive all defenses and objections to the

sale if they do not timely file for a TRO, it requires as a prerequisite that the foreclosed party

receive a proper notice of sale pursuant to A.R.S. § 33-809. Nevertheless, the “trustee’s deed

shall raise the presumption of compliance with the requirements of the deed of trust . . .

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relating to the exercise of the power of sale and the sale of the trust property,” including

notice requirements. A.R.S. § 33-811(B).

In this case, Plaintiffs did not timely file for a TRO prior to the trustee’s sale. Indeed,

they did not move for a TRO until February 24, 2011, one month after the property was sold

to Fannie Mae. Defendants believe that this fact alone should foreclose the possibility of any

objections to the trustee’s sale. However, as noted above, the Plaintiffs maintain certain

challenges related to deficiencies in notice.

Plaintiffs do not dispute that a proper Notice of Trustee’s Sale was recorded by CR

Title on July 30, 2009, pursuant to A.R.S. § 33-809 (Doc. 1-2 at 5). Instead, Plaintiffs’

principal contention is that this original notice of sale was rendered ineffective when their

loan was reinstated. Plaintiffs argue that the loan modification was a reinstatement of their

loan and required a cancellation of the July 30, 2009 Notice of Trustee’s Sale pursuant to the

requirements of A.R.S. § 33-813 (Doc. 1-2 at 18). Thus, according to Plaintiffs, the July 30,

2009 Notice of Trustee’s Sale could not serve as the basis for notice of the actual sale date

on January 24, 2011.

Plaintiffs correctly point out that the deed of trust statutory framework allows for a

loan to be cured and reinstated, thereby erasing any default. Chaparral Dev. v. RMED Int’l,

823 P.2d 1317, 1322 (Ariz. Ct. App. 1991) (pursuant to A.R.S. § 33-813 “reinstatement

cancels the prior default”). Chaparral stands for the principle that a lender must reinstate a

loan if a borrower cures the default prior to the trustee’s sale. Plaintiffs take the argument

further, alleging that A.R.S. § 33-813 does not preclude a borrower and lender from mutually

reinstating the loan. Plaintiffs cite, by analogy, a California state court case that recognizes

the ability to mutually reinstate a loan under a similar statutory framework. Bank of Am. v.

La Jolla Group II, 28 Cal. Rptr. 3d 825, 829 (Cal. Ct. App. 2005). However, La Jolla is

inapplicable in this case inasmuch as the lender in La Jolla did not dispute that the loan had

been mutually reinstated. Id. at 828. 

Plaintiffs also cite to Herring v. Countrywide Home Loans, Inc., 2007 WL 2051394

(D. Ariz. 2007), to support the claim that their loan was reinstated. In Herring, the lender

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and borrower negotiated a loan modification, and then reduced that agreement to writing.

Id. at *1. While this Court agrees that mutual reinstatement of a loan is permissible, the

present case differs from Herring in two respects. First, Plaintiffs’ alleged loan modification

in this case was not in writing. The Arizona Statute of Frauds provides that “[n]o action

should be brought in any court” to enforce a contract “for the sale of real property or an

interest therein,” unless the contract is in writing and signed by the party to be charged.

A.R.S. § 44-101(6). In Arizona, a mortgage is an interest in real property for purposes of the

Statute of Frauds. Freeming Const. Co. v. Security Sav. & Loan Ass'n, 566 P.2d 315, 317

(Ariz. Ct. App. 1977). A mortgage loan agreement must therefore be in writing and signed

to be enforceable. A modification to the material terms of a mortgage loan must also be in

writing and signed by the party to be charged. See, e.g., Best v. Edwards, 176 P.3d 695,

698-99 (Ariz. Ct. App. 2008); Executive Towers v. Leonard, 439 P.2d 303, 305 (Ariz. Ct.

App. 1968). Therefore, because the alleged loan modification was not in writing, this case

differs from Herring.

The Court notes that Plaintiffs’ argue that they are excused from the Statute of Frauds

by promissory estoppel. As discussed below, Plaintiffs’ claim for promissory estoppel has

been waived by Plaintiffs’ failure to obtain an injunction prior to the trustee sale. Thus, the

question is whether Plaintiffs’ claim for promissory estoppel can form the basis for

reinstatement of the loan; thereby making the original notice of trustee sale defective under

Herring’s reasoning.

The Court finds that Kelly v. NationsBanc Mortg. Corp., 17 P.3d 790, 795, ¶ 25 (Ariz.

App. 2000) precludes Plaintiffs from arguing that the original notice of trustee sale was

presumed by them to be defective. Specifically, Kelly holds that once a valid notice of

trustee sale is issued, the burden is on Plaintiffs and Plaintiffs alone to stay informed about

the status of the sale. Here, Plaintiffs attempt to abdicate any responsibility for knowing

whether the sale had in fact been cancelled by arguing that it was effectively cancelled. The

Court finds that this type of argument — i.e. that a properly noticed trustee sale was

effectively (but not actually) cancelled by the bank’s action — is the type of claim that is

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waived if not raised, via obtaining an injunction, prior to the trustee sale. Thus, to the extent

Martenson holds that certain failures in the notice requirements survive the trustee sale, this

Court finds that the surviving notice claims are limited to cases where a foreclosed party did

not receive the required notice of the original trustee sale. In this case, there is no dispute

that Plaintiffs received timely notice of the original trustee sale.

Second, this case is distinguishable from Herring in that Herring was not deciding the

breadth of the waiver provisions of A.R.S. § 33-811(C). Instead, Herring was considering

the plaintiff’s claim for wrongful foreclosure based on a sale in violation of the repayment

plan and concluded that the plaintiff’s wrongful foreclosure claim survived the trustee sale.

Thus, Herring did not address whether many of the types of claims brought in this case

would be waived by not obtaining an injunction before the sale. 

B. Improper Postponement of Trustee’s Sale

In addition to arguing that their loan was reinstated, Plaintiffs also allege that the

foreclosure sale was illegally postponed in violation of A.R.S. § 33-810(B), thus rendering

the trustee’s sale unlawful (Doc. 1-2 at 18-19). This claim fails for several reasons. First,

while a plaintiff maintains certain notice objections to a completed trustee’s sale, Martenson,

2010 WL 334648 at *8, failure to properly notice a postponement of a trustee’s sale is not

one of them. The statutory provision which precludes all defenses and objections not raised

prior to a trustee’s sale only requires that the foreclosed party receive notice pursuant to

A.R.S. § 33-809. A.R.S. § 33-811(C). The method for postponement of a trustee’s sale is

found in A.R.S. § 33-810(B). Thus, Plaintiffs’ claim that the trustee’s sale was improperly

postponed is waived.

Second, Plaintiffs’ allegation that the trustee’s sale was procedurally improperly

postponed at each set sale date is a mere conclusory allegation, and, more importantly, is not

sufficient to overcome the statutory presumption of compliance with the requirements of the

deed of trust statutes. A.R.S. § 33-810(B).

Third, inasmuch as Plaintiffs argue that postponement was improper because they

were not personally given notice of the new sale date, such argument fails. There is no

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5

The Court also notes that these waived defenses and objections have been rejected

by courts within the Arizona. See, eg., Nichols v. Bosco, No. CV 10-1872, 2011 WL 814916,

at *4 (D. Ariz. Mar. 4, 2011) (rejecting a similar illegal assignment or broken chain of title

claim); Maxa v. Countrywide Loans, Inc., No. CV 10-8076, 2010 WL 2836958, at **3-4 (D.

Ariz. July 19, 2010) (rejecting a claim predicated upon the theory that a note and deed of

trust cannot be split); Kane v. Bosco, No. CV 10-1787, 2010 WL 4879177, at * 11 (D. Ariz.

Nov. 23, 2010) (“the Court agrees with the unanimous authority within the District of

Arizona, and dismisses Plaintiffs’ claims based upon a ‘show me the note’ argument.”);

Hogan v. Wash. Mut. Bank, 2011 WL 3108343, ¶ 13 (Ariz. App. July 26, 2011) (rejecting

“show me the note” argument).

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statutory requirement that notice of postponement of a trustee’s sale be given to a to-beforeclosed party. See A.R.S. § 33-810(B); see also Kelly, 17 P.3d at 795. 

In conclusion, the Court has reviewed the Plaintiffs’ response to the motion to dismiss

at pages 5 - 7, and does not find any specific facts or citations to the complaint detailing how

Defendants in this case failed to comply with the notice provisions of the deed of trust statute

in their original Notice of Trustee Sale. Instead, Plaintiffs’ entire argument appears to hinge

on the conclusion that their loan was reinstated, rather than any independent failure of notice

claim. Because the Court finds that the reinstatement of the loan argument was waived by

failing to obtain an injunction, the Court will not use that theory as the basis to find the

original notice was invalid.

C. Illegal Assignment, Split Note, and “Show Me the Note” Theories

The Plaintiffs’ second count contains several other grounds on which they argue the

trustee’s sale was unlawful, including that the deed of trust was improperly assigned to

Defendants CitiMortgage and Fannie Mae, that the note and deed of trust separated or split,

and that Defendant CitiMortgage did note own or hold the note or deed of trust (Doc. 1-2 at

19-20). Because Plaintiffs did not raise these defenses and objections prior to the trustee’s

sale, they have been waived. A.R.S. § 33-811(C); see also Spielman, 2010 WL 4038838 at

*3.5

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While the title of Plaintiffs’ third count refers to breach of contract and their fourth

count to promissory estoppel, it seems to the Court that a claim for promissory estoppel is

stated under the third count and a claim for breach of contract stated under the fourth count.

The Court will consider all relevant allegations in considering each cause of action.

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3. Count III - Breach of Contract6

Plaintiffs’ third count alleges that Defendant CitiMortgage breached the modified loan

agreement (Doc. 1-2 at 21-22). The Court finds that this defense or objection to the trustee’s

sale has also been waived. A.R.S. § 33-811(C); see also Spielman, 2010 WL 4038838 at *3.

Even if the claim has not been waived, Plaintiffs’ have failed to state a claim for breach of

contract.

“In an action on a contract plaintiff has the burden of proof to show, 1) a contract, 2)

a breach, and 3) damages.” Thunderbird Metallurgical, Inc. v. Ariz. Testing Lab., 423 P.2d

124, 126 (Ariz. Ct. App. 1967). As discussed above, a modification to a loan agreement

violates the Arizona Statute of Frauds unless it is in writing. See, e.g., Best, 176 P.3d at

698-99; Executive Towers, 439 P.2d at 305. Thus, a contract to modify a loan agreement

must be in writing to be enforceable. In this case, Plaintiffs’ breach of contract claim relies

on the same facts used to allege reinstatement of the loan. The breach of contract claim, like

the reinstatement claim, fails because the alleged oral modification of the loan agreement

violates the Statute of Frauds unless an exception to the Statute of Frauds applies.

As discussed above, Plaintiffs argue that promissory estoppel cures the Statute of

Frauds issue for their claimed oral modification. However, as is discussed in the next

section, promissory estoppel as a defense to foreclosure was also waived by Plaintiffs failure

to obtain an injunction prior to the trustee sale. Thus, Plaintiffs cannot rely on promissory

estoppel after the trustee sale to argue breach of the underlying contract.

4. Count IV - Promissory Estoppel

Plaintiffs’ fourth cause of action alleges a case of promissory estoppel against

Defendant CitiMortgage (Doc. 1-2 at 20-21). Once again, the Court finds that this defense

or objection to the trustee’s sale has been waived by Plaintiffs’ failure to obtain an injunction

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 There are strong policy reasons for the Arizona Court to recognize or reject the tort

of wrongful foreclosure. In favor of recognizing the tort, as this Order highlights, is the strict

Arizona statutory scheme in favor of lenders when a lender is foreclosing a property. As

recounted above, once a lender properly notices a trustee sale, the lender has no duty to tell

the borrow to when the sale has been postponed, and may postpone any given sale by only

a day or two. Further, the lender can tell the borrower that a sale has been postponed

indefinitely, and even if that is not true, it is the borrower’s duty to stay abreast of when the

sale will occur. Finally, even if the lender does not actually comply with the statutory

procedures for postponement, the notice and sale is still presumed valid. The result of all this

being, the borrower waives virtually all claims and defenses to the sale at the time of sale and

must have been very savvy to overcome even the lender’s potential misinformation regarding

the remaining available time to seek an injunction. These draconian results perhaps favor

allowing a borrower the much more favorable tort statute of limitations to bring a claim for

wrongful foreclosure compared to what, hypothetically, could have been 24 hours between

postponements with the lender having previously told the borrow the sale was indefinitely

postponed. Conversely, the Arizona statutes’ waiver provisions clearly evidence a legislative

intent to make a trustee sale of real property final and not subject to challenges. To allow the

tort of wrongful foreclosure, in many cases, would permit borrowers to avoid some of the

strict waiver provisions by raising their otherwise barred claims and defenses in the wrongful

foreclosure action.

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prior to the sale of the property. A.R.S. § 33-811(C); see also Spielman, 2010 WL 4038838

at *3.

5. Count V - Wrongful Foreclosure

Plaintiffs’ fifth count states a cause of action that has yet to be recognized in Arizona.

Herring, 2007 WL 2051394 at * 5. Nevertheless, recognizing that other jurisdictions have

recognized the tort of wrongful foreclosure, Arizona District Court judges have found it

“appropriate to join those jurisdictions.” Id.; Hughes v. Wells Fargo Bank, N.A., 2009 WL

5174987, *1-*2 (D. Ariz. 2009); Contreras v. U.S. Bank, 2009 WL 4827016, *5-*7 (D. Ariz.

2009) (considering the elements of the tort of wrongful foreclosure without, “predict[ing]

whether the Arizona Supreme Court would recognize the tort”). Furthermore, rather being

a lost defense or objection under A.R.S. § 33-811(C), the tort of wrongful foreclosure is only

ripe once a foreclosure sale has occurred. Jones v. Bank of Am., 2010 WL 2228517, at *3

(D. Ariz. 2010). In keeping with those decisions, the Court considers Plaintiffs’ claim for

wrongful foreclosure.7

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Obviously, this Court is bound by and would welcome any guidance from the Arizona

courts on whether this is a viable cause of action. However, in the absence of such guidance

the Court finds that the Arizona courts would recognize the tort of wrongful foreclosure

based on the following hypothetical. If a lender intends to sell house A and gives notice to

the borrowers on house A, but at the trustee sale makes a mistake in the legal description and

actually sells house B, the owners of house B must have some remedy available to them. The

two possible remedies would be: 1) to unwind the trustee sale for lack of notice; and/or 2)

the tort of wrongful foreclosure. As discussed above, one Arizona District Court Judge has

stated that certain defenses to lack of notice survive the trustee sale. Martenson, 2010 WL

334648 at *8. However, in an unpublished decision the Arizona Court of Appeals disagreed

and said even lack of notice is waived. Thus, it is possible that the only remedy to this

hypothetical under Arizona law is the tort of wrongful foreclosure. Under this hypothetical,

recognizing the tort seems sound policy because, as many Plaintiffs have complained, the

lender is not required to “show the note” or prove it is actually the lender to have a trustee

sell the property; and, under the MERS system, someone reviewing the chain of title could

not ascertain the actual lender. See footnote 5 supra; see also Cervantes v. Countrywide

Home Loans, Inc., 2009 WL 3157160, *10-*11 (D. Ariz. 2009) (discussing how the

Mortgage Electronic Registration System (MERS) works). Because the Court is convinced

the “wrongfully foreclosed” owner of house B must have a remedy in this hypothetical, the

Court finds the Arizona courts would recognize the tort of wrongful foreclosure. Further,

this result preserves the spirit of Schaeffer v. Chapman, 861 P.2d 611, 614 (Ariz. 1993),

repeal of which, as Martenson noted, was not likely the intended result of the legislature in

the 2002 changes to the deed of trust statutes that were, “promoted as pro-consumer.”

Martenson, 2010 WL at *8. The next question is determining what elements the Arizona

courts would require a plaintiff to plead to state a claim for this tort.

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Other jurisdictions have put forth varying definitions of the tort of wrongful

foreclosure. Under Georgia law, the tort of wrongful foreclosure consists of: (1) a legal duty

owed to the plaintiff by the foreclosing party, (2) a breach of that duty, (3) a causal

connection between the breach of that duty and the injury the plaintiff sustained, and (4)

damages. Heritage Creek Dev. Corp. v. Colonial Bank, 601 S.E.2d 842, 844 (Ga. Ct. App.

2004). Under Nevada law, a foreclosed party can state a claim for wrongful foreclosure if

it can show “at the time the power of sale was exercised or the foreclosure occurred, no

breach of condition or failure of performance existed on the mortgagor’s or trustor’s part

which would have authorized the foreclosure or exercise of the power of sale.” Collins v.

Union Fed. Sav. & Loan Ass’n, 662 P.2d 610, 623 (Nev. 1983) (citing cases from California,

Missouri, and Texas).

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In Herring, the Arizona District Court Judge used the Georgia standard, first finding

that, “wrongful foreclosure ... exists as a statutory duty.... to exercise fairly and in good faith

the power of sale in a deed to secure a debt.” 2007 WL 2051394 at *5 (internal quotations

omitted). Further, applying the Georgia standard, the legal duty owed by the lender would

be to exercise the power of sale in compliance with the deed of trust statutory framework.

See id. As discussed in Count II, much of Plaintiffs’ argument rests on the contention that

their loan was reinstated, and, therefore, Defendant CitiMortgage violated the statutory

framework by proceeding with the sale. 

Under the Nevada standard, Plaintiffs’ would have to successfully allege that they

were not in default in order to state a claim for wrongful foreclosure. Collins, 662 P.2d at

623. Plaintiffs’ entire claim that they were not in default rests on their arguments of

reinstatement of the loan, breach of contract, and promissory estoppel. Above, this Court

held that the Plaintiffs’ promissory estoppel theory, which is the underlying basis for both

their reinstatement and breach arguments, was waived by their failure to obtain an injunction

prior to the sale. However, to determine whether Plaintiffs can state a claim for wrongful

foreclosure, the Court must determine whether they have a promissory estoppel theory on

which they can rely to argue that they were not in default on their loan.

Specifically, as discussed above, Plaintiffs reinstatement claim is barred by the Statute

of Frauds. However, a party can assert a claim for promissory estoppel when the Statute of

Frauds would otherwise apply, if “the party asserting the Statute of Frauds defense has

misrepresented that the statute’s requirements have been met or promises to put the

agreement in writing.” Mullins v. S. Pac. Transp. Co., 851 P.2d 839, 841 (Ariz. Ct. App.

1992). Thus, the Court will consider whether Plaintiffs state a claim for promissory estoppel.

In order to state a claim for promissory estoppel, Plaintiffs must show that: (1)

Defendant made a promise to Plaintiffs; (2) Defendant should have reasonably foreseen that

Plaintiffs would rely on that promise; (3) Plaintiffs actually relied on that promise to their

detriment; and (4) Plaintiffs reliance on the promise was justified. Higginbottom v. State, 51

P.3d 972, 977, ¶ 18 (Ariz. Ct. App. 2002). Plaintiffs’ allege that a promise to modify their

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8

 Defendants also argue that the language of the parties’ loan also requires any

modifications to be in writing. However, the Court finds that promissory estoppel, if proven,

would also overcome the writing requirement of the note itself, in addition to the writing

requirement of the Statute of Frauds.

9

 The Court notes that in considering a motion to dismiss in a factually similar case,

an Arizona District Court judge found that the plaintiffs’ modified loan payments had been

rejected well in advance of the actual trustee’s sale. Mundinger v. Wells Fargo Bank, 2011

WL 1559423, at * 3 (D. Ariz. Apr. 25, 2011). That Court relied on that fact to find that the

plaintiffs had not relied to their detriment; the Court opined that “[r]ather than being induced

into complacency [in defending against foreclosure], plaintiffs took steps to avoid

foreclosure.” Id. In this case, there is also a significant lapse of time between when

Plaintiffs’ allege that their modified loan payments were first rejected in June of 2010 (Doc.

1-2 at 5) and when the trustee’s sale occurred — January 24, 2011 (Id. at 7).

The Court in Mundinger concluded that the lapse of time between the

misrepresentations and the sale effectively cured any previous detrimental reliance because

it gave Plaintiffs an opportunity to act. Certainly there is a great deal of logic to that

approach — that the detrimental reliance must end when new facts are presented. However,

for this Court to follow this same approach, this Court must conclude that any previous

misrepresentations to the borrower (or, accepting Plaintiffs version of the facts as true, out

right lies to the borrower), are all overlooked and Plaintiffs cannot state a claim, so long a

there is a lapse of time between the last lie and the sale. For purposes of a 12(b)(6) motion,

this Court disagrees with Mundinger. For example, the Plaintiffs’ reliance in making ten

months of payments is not cured by the lapse of time (in Mundinger, the defendant returned

all but three of the modified payments). The Court cannot, on a 12(b)(6) record, conclude

that Plaintiffs would have continued to make even the modified payment amount had

Defendants told them that they were not eligible for a modification, or that their modification

had been rejected. Further, on a 12(b)(6) record, the Court cannot conclude that there would

not have been other alternative actions that Plaintiffs may have taken had they not been

mislead into thinking they had in fact received a modification. See Waugh v. Lennard, 211

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loan agreement was made (Doc. 1-2 at 20). Although such an oral promise is typically

barred by the Statute of Frauds, Plaintiffs’ allege that Defendant CitiMortgage promised to

put the loan modification into writing (Id. at 5). The alleged promise would defeat the

Statute of Frauds requirement and allow a claim for promissory estoppel to go forward.

Mullins, 851 P.2d at 841.8

 Furthermore, Defendant CitiMortgage could have reasonably

foreseen that Plaintiffs would rely on its promise to modify the loan agreement. Next, it is

undisputed that Plaintiff relied on this promise to their detriment by making the modified

payments for ten months (the tenth payment was rejected).9

 During these months, Plaintiffs

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P.2d 806, 812 (Ariz. 1949) (forbearance from taking alternative actions can be detrimental

reliance). Moreover, if the duty of good faith discussed in Herring means anything, it seems

it must mean that foreclosing party cannot, again accepting Plaintiffs’ version of the facts as

true, lie to borrower repeatedly with no ramifications. Thus, even though there was a lapse

of time here between the rejected modified payment and the sale, the Court finds Plaintiffs

still state a claim of detrimental reliance. 

Finally, the Court finds Plaintiffs’ argument at oral argument on this point compelling.

Specifically, Plaintiffs argued that before the June 2010 payment was rejected, promissory

estoppel had already occurred — i.e. Plaintiffs were entitled to the modified contract.

Therefore, the Court should not consider any of Defendants’ actions after promissory

estoppel arose. For purposes of this 12(b)(6) motion, the Court agrees.

10 The Court notes that on summary judgment, another Court in this district held that

modified payments could not equate to damages because Plaintiffs were permitted to live in

the house. Steel v. JPMorgan Chase Bank, N.A., CV 10-2263-PHX-RCJ, 5-6 (D. Ariz. May

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did not seek alternative financing, an injunction to block the foreclosure, or alternative

housing, relying on Defendants representations that they received a modification. Finally,

Plaintiffs were justified in relying on Defendants’ agents statements that they had received

a modification, particularly considering that Defendants both accepted the modified

payments and in fact postponed the trustee sale.

Now returning to the elements of wrongful foreclosure, the Court finds that because

Plaintiffs have stated a claim for promissory estoppel, Plaintiffs have stated a claim that they

were not in default on their loan because they timely made all modified payments under the

modified agreement. Thus, Plaintiffs state a claim under the Nevada standard.

Applying the Georgia standard, Defendants owed a duty to Plaintiffs to act in good

faith and that duty was breached if Defendant foreclosed even though Plaintiffs were not in

default on their modified loan. There is a causal connection between the breach, i.e. the

foreclosure of the not-in-default loan, and Plaintiffs’ harm of their house being sold and

possible emotional distress. Finally, Plaintiffs are damaged by both losing their home, and

being induced into making payments that they might not have otherwise made (payments

which may have been barred by the anti-deficiency statute had Defendants told Plaintiffs they

would not be eligible for modification).10 Thus, accepting Plaintiffs’ version of the facts as

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12, 2011). Again, because on a 12(b)(6) motion the Court cannot determine whether the fair

market value rent of the house and the modified payment amounts are equal, the Court will

not dismiss on this basis. Moreover, it is possible the tort of wrongful foreclosure includes

additional damages such as emotional damages or injunctive relief. However, in the context

of a 12(b)(b) motion, this Court need not decide Plaintiffs’ possible damages.

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true, the Court finds that Plaintiffs state a claim for wrongful foreclosure.

6. Count VI - Tortious Interference with Use and Enjoyment of Property

Plaintiffs’ sixth count attempts to state a claim for tortious interference with the use

and enjoyment of property (Doc. 1-2 at 23-24). However, neither in the Complaint nor in

Plaintiffs’ Response to Defendants’ Motion to Dismiss do Plaintiffs set forth what the

elements of such a tort would be; likewise this Court is unable to find an analogous case

which recognizes such a tort. The Arizona cases Plaintiffs cite all focus on the issue of

whether loss of property can support damages for emotional distress. Farr v. Transamerica

Occidental Life Ins. Co., 699 P.2d 376, 382 (Ariz. Ct. App. 1984) (recognizing ability to

collect damages for emotional distress where insurance company refused to pay benefits);

Jeter v. Mayo Clinic Ariz., 121 P.3d 1256, 1272-73 (Ariz. Ct. App. 2005) (recognizing ability

to collect damages for emotional distress where plaintiffs’ pre-embryos were negligently

destroyed); Reed v. Mitchell & Timbanard, P.C., 903 P.2d 621, 627 (Ariz. Ct. App. 1995)

(declining to allow emotional distress damages in the context of legal malpractice); Thomas

v. Goudreault, 786 P.2d 1010, 1018 (Ariz. Ct. App. 1989) (holding that emotional distress

damages are allowed under the Uniform Residential Landlord and Tenant Act).

Significantly, none of the cited cases recognizes a claim for tortious interference with the use

and enjoyment of property in the context of a lender exercising the power of sale in a nonjudicial foreclosure under the deed of trust statutory framework. On this record, the Court

will not recognize such a tort in the current case. Thus, the Court finds that Plaintiffs have

failed to state a claim for tortious interference with the use and enjoyment of property.

7. Count VII - Quiet Title

Plaintiffs’ seventh count is, like Count I, predicated upon the success of their other

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causes of action. An action to quiet title is a claim for equitable relief whereby plaintiff seeks

to bar defendant from claiming any right or title adverse to the plaintiff. A.R.S. § 12-1102;

Kennedy v. Morrow, 268 P.2d 326, 328 (Ariz. 1954). Because the Court did not dismiss the

wrongful foreclosure claim, the Court will not dismiss the quiet title claim. However, if

Plaintiffs amend their complaint, or at summary judgment, the parties should address whether

Chapman v. Deutsche Bank National Trust Co., No. 10-15215 (9th Cir. June 23, 2011) has

any bearing on this Court’s ability to adjudicate a quite title action.

8. Leave to Amend the Complaint

In this case, Plaintiffs have not amended the Complaint as a matter of right pursuant

to Rule 15 of the Federal Rules of Civil Procedure. Defendants CitiMortgage and Fannie

Mae filed the Motion to Dismiss on April 8, 2011 (Doc. 11). Because the 21-day time frame

to file an amendment following a motion to dismiss has expired, Plaintiffs have lost the right

to amend the Complaint once as a matter of course. Fed.R.Civ.P. 15(a)(1). Defendants have

requested the Court to grant their Motion to Dismiss with prejudice. However, the Ninth

Circuit has instructed district courts to grant leave to amend, sua sponte, when dismissing a

case for failure to state a claim, “unless the court determines that the pleading could not

possibly be cured by the allegations of other facts.” Lopez v. Smith, 203 F.3d 1122, 1127

(9th Cir. 2000) (quoting Doe v. United States, 58 F.3d 494, 497 (9th Cir. 1995)). There is

a “longstanding rule that ‘[l]eave to amend should be granted if it appears at all possible that

the plaintiff can correct the defect.’” Id. at 1129 (quoting Balistreri v. Pac. Police Dep’t, 901

F.2d 696, 701 (9th Cir. 1990)).

Although the Court has denied the motion to dismiss as to two claims, the Court finds

the reasoning of the Court of Appeals still applies as to the dismissed claims. Thus, Plaintiffs

will be given a reasonable opportunity, if they so choose, to amend the Complaint to cure the

deficiencies identified in this Order.

IV. CONCLUSION

For the reasons set forth above, the Court will grant in part and deny in part the

pending Motion to Dismiss, and will permit Plaintiffs to file an amended complaint.

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Accordingly,

IT IS HEREBY ORDERED that the Defendants’ Motion to Dismiss (Doc. 11) is

GRANTED in part and DENIED in part; the motion is granted as to all claims except the

wrongful foreclosure claim and the quiet title claim.

IT IS FURTHER ORDERED that Defendants’ request for attorney’s fees is

DENIED.

IT IS FURTHER ORDERED that Plaintiffs may file an amended complaint no later

than 21 days from the date of this Order. If Plaintiffs do not file an amended complaint

within 21 days, then this case will proceed on only the wrongful foreclosure claim and the

quite title claim. If no amended complaint is filed, Defendants shall answer within 30 days

of the date of this Order.

DATED this 2nd day of August, 2011.

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