Opinion ID: 2678190
Heading Depth: 4
Heading Rank: 2

Heading: Count II: Wrongful Foreclosure

Text: Appellants contend that defendants have committed, or will commit, the tort of wrongful foreclosure, in violation of Arizona, California, and Nevada law. They argue that the MERS System impermissibly “splits” ownership of the note from ownership of the deed of trust, thereby making the promissory note unsecured and unenforceable in any foreclosure proceeding. The MDL Court concluded that Arizona, California, and Nevada permit “splitting” the note from the deed of trust. The principle that ownership of the note and the deed of trust must be unified has a long common-law pedigree. For example, the Supreme Court wrote in Carpenter v. Longan, 83 U.S. 271 (1872), “The note and mortgage are inseparable; the former as essential, the latter as an incident. An assignment of the note carries the mortgage with it, while an 26 IN RE: MERS assignment of the latter alone is a nullity.” Id. at 274. However, the degree to which this principle has been preserved in the laws of Arizona, California and Nevada, and the extent of its application in particular situations, is not entirely clear. We need not address appellants’ argument about “splitting” the note from the deed of trust in order to decide their claims of tortious wrongful foreclosure. The claims fail for another reason: None of the appellants has alleged lack of default, tender to cure the default, or an excuse from tendering. Arizona, though a nonjudicial foreclosure state, has not expressly recognized the tort of wrongful foreclosure. See Herring v. Countrywide Home Loans, Inc., No. CV-06-2622PHX-PGR, 2007 WL 2051394, at  (D. Ariz. July 13, 2007) (noting that Arizona has neither affirmatively recognized nor denied the existence of a cause of action for wrongful foreclosure). But even if we were to assume that the tort of wrongful foreclosure exists in Arizona, one of its elements would very likely be lack of default or tender to cure the default, as is required under California and Nevada law, or an excuse from the tender requirement, as recognized by California. Cf. Ariz. Rev. Stat. § 33-807(A) (providing for a power of sale only after a breach or default in performance of the contract or contracts). California law requires that, in order to bring a valid claim for tortious wrongful foreclosure, the plaintiff must allege that
fraudulent, or willfully oppressive sale of real property pursuant to a power of sale in a mortgage or deed of trust; (2) the party IN RE: MERS 27 attacking the sale (usually but not always the trustor or mortgagor) was prejudiced or harmed; and (3) in cases where the trustor or mortgagor challenges the sale, the trustor or mortgagor tendered the amount of the secured indebtedness or was excused from tendering. Lona v. Citibank, N.A., 134 Cal. Rptr. 3d 622, 633 (Cal. Ct. App. 2011) (collecting cases) (emphasis added). Excuses from California’s tender requirement are the following: (1) the underlying debt is void, (2) the foreclosure sale or trustee’s deed is void on its face, (3) a counterclaim offsets the amount due, (4) specific circumstances make it inequitable to enforce the debt against the party challenging the sale, or (5) the foreclosure sale has not yet occurred. Chavez v. Indymac Mortg. Servs., 162 Cal. Rptr. 3d 382, 390 (Cal. Ct. App. 2013). Nevada law requires that a trustor or mortgagor show a lack of default in order to proceed with a wrongful foreclosure claim. The Nevada Supreme Court stated in Collins v. Union Federal Savings & Loan Ass’n, 662 P.2d 610 (Nev. 1983): An action for the tort of wrongful foreclosure will lie if the trustor or mortgagor can establish that 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 28 IN RE: MERS which would have authorized the foreclosure or exercise of the power of sale. Therefore, the material issue of fact in a wrongful foreclosure claim is whether the trustor was in default when the power of sale was exercised. Id. at 304 (citations omitted). Because none of the appellants has shown a lack of default, tender, or an excuse from the tender requirement, appellants’ wrongful foreclosure claims cannot succeed. We therefore affirm the MDL Court’s dismissal of Count II.