Court Opinion

ID: 859243
Source: CourtListenerOpinion
Date Created: 2013-04-26 19:46:00.001899+00
Date Added: 2024-06-11T13:11:23.121991
License: Public Domain

SUPREME COURT OF ARIZONA
                               En Banc

JOHN F. HOGAN,                      )   Arizona Supreme Court
                                    )   No. CV-11-0115-PR
            Plaintiff/Appellant,    )
                                    )   Court of Appeals
                 v.                 )   Division One
                                    )   No. 1 CA-CV-10-0385
WASHINGTON MUTUAL BANK, N.A.;       )
CALIFORNIA RECONVEYANCE COMPANY;    )   Yavapai County
JPMORGAN CHASE BANK, N.A.;          )   Superior Court
DEUTSCHE BANK NATIONAL TRUST        )   No. CV 820090505
COMPANY,                            )
                                    )
            Defendants/Appellees.   )   CONSOLIDATED WITH
_________________________________   )
                                    )
JOHN F. HOGAN,                      )   Arizona Supreme Court
                                    )   No. CV-11-0132-PR
            Plaintiff/Appellant,    )
                                    )   Court of Appeals
                 v.                 )   Division One
                                    )   No.   CA-CV 10-0383
WASHINGTON MUTUAL BANK, N.A.;       )
CALIFORNIA RECONVEYANCE COMPANY;    )   Yavapai County
JPMORGAN CHASE BANK, N.A.,          )   Superior Court
                                    )   No. CV 820090504
           Defendants/Appellees.    )
                                    )   AMENDED OPINION
_________________________________   )

                           CV-11-0115-PR

        Appeal from the Superior Court in Yavapai County
              The Honorable Michael R. Bluff, Judge
                             AFFIRMED
________________________________________________________________

    Memorandum Decision of the Court of Appeals, Division One
                       Filed Mar. 29, 2011
                         RESULT AFFIRMED
________________________________________________________________
                          CV-11-0132-PR

        Appeal from the Superior Court in Yavapai County
              The Honorable Michael R. Bluff, Judge
                             AFFIRMED
________________________________________________________________

          Opinion of the Court of Appeals, Division One
             227 Ariz. 561, 261 P.3d 445 (App. 2011)
                 RESULT AFFIRMED; OPINION VACATED
________________________________________________________________

                   ATTORNEYS FOR CV-11-0115-PR

LAW OFFICE OF DOUGLAS C. FITZPATRICK                     Sedona
     By   Douglas C. Fitzpatrick
Attorneys for John F. Hogan

MAYNARD, CRONIN, ERICKSON, CURRAN, & REITER, P.L.C.     Phoenix
     By   Douglas C. Erickson
          Jennifer A. Reiter
          Michael D. Curran
Attorneys for Washington Mutual Bank, N.A.,
California Reconveyance Company,
JPMorgan Chase Bank, N.A., and
Deutsche Bank National Trust Company

ARIZONA STATE UNIVERSITY CIVIL JUSTICE CLINIC             Tempe
     By   Mary Ellen Natale
          Jean Braucher
          Beverly Parker
          Frank K. Robertson, Rule 38 Law Student
Attorneys for Amici Curiae
Arizona State University Civil Justice Clinic,
Southern Arizona Legal Aid, Inc., and
Jean Braucher

McCAULEY LAW OFFICES, P.C.                            Cave Creek
     By   Daniel J. McCauley, III

And

CAMPANA, VIEH, & LOEB, P.L.C.                         Scottsdale
     By   Donald O. Loeb

And

                                - 2 -
BETH K. FINDSEN, P.L.L.C.                             Scottsdale
     By   Beth K. Findsen
Attorneys for Amicus Curiae
Foreclosure Strategists Group
________________________________________________________________

                   ATTORNEYS FOR CV-11-0132-PR

LAW OFFICE OF DOUGLAS C. FITZPATRICK                      Sedona
     By   Douglas C. Fitzpatrick
Attorneys for John F. Hogan

MAYNARD, CRONIN, ERICKSON, CURRAN, & REITER, P.L.C.      Phoenix
     By   Douglas C. Erickson
          Jennifer A. Reiter
          Michael D. Curran
Attorneys for Washington Mutual Bank, N.A.,
California Reconveyance Company, and
JPMorgan Chase Bank, N.A.

ARIZONA STATE UNIVERSITY CIVIL JUSTICE CLINIC              Tempe
     By   Mary Ellen Natale
          Jean Braucher
          Beverly Parker
          Frank K. Robertson, Rule 38 Law Student
Attorneys for Amici Curiae
Arizona State University Civil Justice Clinic,
Southern Arizona Legal Aid, Inc., and
Jean Braucher

McCAULEY LAW OFFICES, P.C.                            Cave Creek
     By   Daniel J. McCauley, III

And

CAMPANA, VIEH, & LOEB, P.L.C.                         Scottsdale
     By   Donald O. Loeb

And

BETH K. FINDSEN, P.L.L.C.                             Scottsdale
     By   Beth K. Findsen
Attorneys for Amicus Curiae
Foreclosure Strategists Group
________________________________________________________________

                                - 3 -
B E R C H, Chief Justice

¶1             We   granted     review    to    decide    whether       a   trustee   may

foreclose      on   a    deed   of   trust      without    the     beneficiary    first

having to show ownership of the note that the deed secures.                           We

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.

                    I.    FACTUAL AND PROCEDURAL BACKGROUND

¶2             These     consolidated     cases       involve    two    properties     in

Yavapai County purchased by John F. Hogan in the late 1990s.

Each parcel became subject to a deed of trust in 2004 when Hogan

took out loans from Long Beach Mortgage Company (“Long Beach”).

By 2008, Hogan was delinquent on both loans, which triggered

foreclosure proceedings.             The trustee recorded a notice of sale

for the first parcel, naming Washington Mutual Bank (“WaMu”) as

the beneficiary.1          A notice of trustee’s sale recorded for the

second parcel identified Deutsche Bank as the beneficiary.2

1
     In 1999, Washington Mutual, Inc., the parent of WaMu,
purchased Long Beach.   In 2007, WaMu absorbed Long Beach and
became its successor in interest. In 2008, WaMu failed and was
seized by the Federal Deposit Insurance Corporation and sold to
JPMorgan Chase.
2
     In 2008, JPMorgan Chase, “successor in interest to
Washington Mutual Bank, Successor in Interest to Long Beach
Mortgage Company,” recorded an Assignment of Deed of Trust that
conveyed to Deutsche Bank the note and all beneficial interest
                             - 4 -
¶3             Hogan filed lawsuits seeking to enjoin the trustees’

sales unless the beneficiaries, WaMu and Deutsche Bank, proved

that they were entitled to collect on the respective notes.                          The

superior court granted the defendants’ motions to dismiss and

the court of appeals affirmed.               Hogan v. Wash. Mut. Bank, N.A.,

227 Ariz. 561, 261 P.3d 445 (App. 2011) (“OP”); Hogan v. Wash.

Mut. Bank, N.A., 1 CA-CV 10-0385, 2011 WL 1158944 (Ariz. App.

Mar. 29, 2011) (mem. decision) (“MD”).                  In each case, the court

of appeals held that “Arizona’s non-judicial foreclosure statute

does    not     require      presentation    of   the    original       note       before

commencing          foreclosure   proceedings.”         OP    at    ¶   13    (quoting

Diessner v. Mortg. Elec. Registration Sys.,                        618 F. Supp. 2d
1184, 1187 (D. Ariz. 2009), aff’d mem., 384 Fed. Appx. 609 (9th

Cir. 2010)); MD at ¶ 19.

¶4             Hogan petitioned for review.         We consolidated the cases

and granted review because the cases present a recurring issue

of     first    impression        and   statewide    importance.              We     have

jurisdiction         under   Article    6,   Section     5(3)      of   the    Arizona

Constitution and A.R.S. § 12-120.24 (2003).

                                  II.   DISCUSSION

¶5             In     Arizona,     non-judicial      foreclosure         sales,        or

trustees’ sales, are governed by statute.                    A.R.S. §§ 33-801 to

-821 (2007 & Supp. 2011); see In re Vasquez, 228 Ariz. 357, 359

under the deed of trust.
                                        - 5 -
¶ 4, 266 P.3d 1053, 1055 (2011).                 When parties execute a deed of

trust    and        the    debtor     thereafter      defaults,   A.R.S.      § 33-807

empowers the trustee to sell the real property securing the

underlying note through a non-judicial sale.                           Hogan contends

that    before       a    trustee    may   exercise     that   power    of   sale,   the

beneficiary must show possession of, or otherwise document its

right to enforce, the underlying note.                   Nothing in our statutes,

however, requires this showing.                 Section 33-809(C) requires only

that, after recording notice of the trustee’s sale under § 33-

808, the trustee must send the trustor notice of the default,

signed by the beneficiary or his agent, setting forth the unpaid

principal balance.            See also Transamerica Fin. Servs., Inc. v.

Lafferty, 175 Ariz. 310, 313-14, 856 P.2d 1188, 1191-92 (App.

1993) (recognizing that a trustee’s obligation is only to mail

notice to address provided).                  Hogan has not alleged that such

notice was not given.3

¶6          Hogan argues that a deed of trust, like a mortgage,

“may be enforced only by, or in behalf of, a person who is

entitled       to     enforce       the    obligation    the   mortgage      secures.”

Restatement (Third) of Prop.:                  Mortgages § 5.4(c) (1997); see

Hill v. Favour, 52 Ariz. 561, 568-69, 84 P.2d 575, 578 (1938).

3
     Hogan asserts that the notice was not “served upon
plaintiff.”   First Am. Compl. ¶ 12.    But § 33-809(C) requires
only that notice be sent by certified or registered mail. Hogan
does not allege that he lacked actual knowledge of the sale or
did not receive the mailed notice.
                              - 6 -
We agree.     But Hogan has not alleged that WaMu and Deutsche Bank

are not entitled to enforce the underlying note; rather, he

alleges that they have the burden of demonstrating their rights

before a non-judicial foreclosure may proceed.                Nothing in the

non-judicial    foreclosure      statutes,     however,   imposes    such    an

obligation.     See Mansour v. Cal-Western Reconveyance Corp., 618
F. Supp. 2d 1178, 1181 (D. Ariz. 2009) (citing A.R.S. § 33-807

and   observing       that     “Arizona’s      [non-]judicial    foreclosure

statutes . . . do not require presentation of the original note

before commencing foreclosure proceedings”); In re Weisband, 427
B.R. 13, 22 (Bankr. D. Ariz. 2010) (stating that non-judicial

foreclosures    may   be     conducted   under    Arizona’s   deed   of   trust

statutes without presentation of the original note).

¶7          Hogan’s   complaints    do   not     affirmatively   allege     that

WaMu and Deutsche Bank are not the holders of the notes in

question or that they otherwise lack authority to enforce the

notes.   Although a plaintiff need only set forth a “short and

plain statement of the claim showing that [he] is entitled to

relief,” Ariz. R. Civ. P. 8(a)(2), the truth of which we assume

when analyzing a complaint for failure to state a claim under

Rule 12(b)(6), Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417,

419 ¶ 7, 189 P.3d 344, 346 (2008), we will affirm a dismissal

when “the plaintiff should be denied relief as a matter of law

                                    - 7 -
given      the    facts      alleged,”      Logan    v.     Forever    Living      Products

Int’l, Inc., 203 Ariz. 191, 193 ¶ 7, 52 P.3d 760, 762 (2002).

¶8           Here,         assuming        the      truth     of      Hogan’s      factual

allegations, Hogan is not entitled to relief because the deed of

trust statutes impose no obligation on the beneficiary to “show

the     note”       before      the        trustee     conducts        a     non-judicial

foreclosure.           The only proof of authority the trustee’s sales

statutes require is a statement indicating the basis for the

trustee’s authority.             See A.R.S. § 33-808(C)(5) (requiring the

notice to set forth “the basis for the trustee’s qualification

pursuant     to    § 33-803,       subsection        A”);    see   also      A.R.S.     § 33-

807(A) (granting the trustee the “power of sale”).                                 Hogan’s

complaints        do   not    contest      that     each    sale   was      noticed     by   a

trustee who had recorded an instrument demonstrating that it was

a successor in interest to the original trustee.

¶9           Hogan further contends that the trustee, as a party

seeking to collect on a note, must demonstrate its authority to

do    so   under       § 47-3301      of   Arizona’s        Uniform    Commercial       Code

(“UCC”).         But the trustees here did not seek to collect on the

underlying notes; instead, they noticed these sales pursuant to

the    trust      deeds.        The    UCC    does    not     govern       liens   on   real

property.        See Rodney v. Ariz. Bank, 172 Ariz. 221, 224-25, 836
P.2d 434, 437-38 (App. 1992).                    The trust deed statutes do not

require compliance with the UCC before a trustee commences a
                                             - 8 -
non-judicial foreclosure.           See In re Krohn, 203 Ariz. 205, 208

¶ 8,   52 P.3d 774,    777    (2002)    (“[D]eed     of    trust    sales    are

conducted on a contract theory under the power of sale authority

of the trustee.”).

¶10         Hogan also claims that “the note and the trust deed go

together” and “must be construed together.”                   See A.R.S. § 33-817

(providing that a transfer of the underlying contract operates

to transfer the security for the contract).                     Although this is

generally true, the note and the deed of trust are nonetheless

distinct instruments that serve different purposes.                     The note is

a contract that evidences the loan and the obligor’s duty to

repay.      See A.R.S. § 33-801(4).           The trust deed transfers an

interest in real property, securing the repayment of the money

owed under the note.        See A.R.S. §§ 33-801(4), -801(8), -801(9),

-805, -807(A).       The dispositive question here is whether the

trustee, acting pursuant to its own power of sale or on behalf

of the beneficiary, had the statutory right to foreclose on the

deeds of trust.       See Cervantes v. Countrywide Home Loans, Inc.,

656 F.3d 1034, 1043-44 (9th Cir. 2011).                 Hogan does not dispute

that he is in default under the deeds of trust and has alleged

no reason to dispute the trustee’s right.

¶11         Hogan    suggests       that     if   we     do    not     require    the

beneficiary    to   “show    the    note,”    the      original      noteholder   may

attempt to later pursue collection despite a foreclosure.                         But
                                      - 9 -
Arizona’s         anti-deficiency       statutes        protect      against        such

occurrences by precluding deficiency judgments against debtors

whose foreclosed residential property consists of 2.5 acres or

less, as is the case here.              See A.R.S. § 33-814(G); Mid Kansas

Fed. Sav. & Loan Ass’n of Wichita v. Dynamic Dev. Corp., 167
Ariz. 122,     126,   804 P.2d 1310,     1314    (1991);     Emily       Gildar,

Arizona’s         Anti-Deficiency       Statutes:              Ensuring          Consumer

Protection in a Foreclosure Crisis, 42 Ariz. St. L.J. 1019, 1020

(2010).     Moreover, the trustee owes the trustor a duty to comply

with the obligations created by the statutes governing trustee

sales and the trust deed.             See Patton v. First Fed. Sav. & Loan

Ass’n of Phx., 118 Ariz. 473, 476, 578 P.2d 152, 155 (1978);

A.R.S. § 33-801(10) (providing that “[t]he trustee’s obligations

. . . are as specified in this chapter [and] in the trust

deed”).

¶12          Non-judicial      foreclosure       sales    are    meant      to   operate

quickly     and    efficiently,       “outside    of     the    judicial     process.”

Vasquez, 228 Ariz. at 359 ¶ 4 n.1, 266 P.3d at 1055 n.1 (citing

Gary E. Lawyer, Note, The Deed of Trust:                   Arizona’s Alternative

to    the   Real    Property    Mortgage,       15 Ariz. L.   Rev.    194,     194

(1973)).        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
                                       - 10 -
foreclosure     proceedings       might     again     make       the   “mortgage

foreclosure    process    . . .   time-consuming       and   expensive,”     id.

(internal quotation marks omitted), and re-inject litigation,

with   its    attendant   cost    and     delay,    into   the    process,   see

Transamerica Fin. Servs., 175 Ariz. at 313-14, 856 P.2d at 1191-

92 (citing I.E. Assocs. v. Safeco Title Ins. Co., 702 P.2d 596

(Cal. 1985)).

                            III.    CONCLUSION

¶13          For the reasons set forth above, the superior court’s

orders dismissing Hogan’s complaints are affirmed and, although

we agree with the result reached by the court of appeals, its

opinion is vacated.

                                    __________________________________
                                    Rebecca White Berch, Chief Justice

CONCURRING:

_____________________________________
W. Scott Bales, Vice Chief Justice

_____________________________________
A. John Pelander, Justice

_____________________________________
Robert M. Brutinel, Justice

_____________________________________
*
                                   - 11 -
*    Before his resignation on June 27, 2012, as a result of his
appointment to the United States Court of Appeals for the Ninth
Circuit, Justice Andrew D. Hurwitz participated in this case,
including oral argument, and concurred in this opinion’s
reasoning and result.

                             - 12 -