• No “Show Me the Note” Defense Available in Arizona
  • July 6, 2011 | Author: Valerie L. Marciano
  • Law Firm: Jaburg & Wilk, P.C. - Phoenix Office
  • No "Show Me the Note" Defense Available in Arizona

    By:  Valerie L. Marciano

                 While Arizona has experienced boom and bust real estate cycles in the past, they were less deep and shorter in duration that the current cycle is.  Residential home values have plunged between 40 and 60 percent or higher - in the 2007 to 2011 values - across the Valley from the height of the market and are one of the reasons that some Arizona homeowners are facing foreclosure.

                 The saving grace for many Arizona homeowners is Arizona's anti-deficiency statute.  30 years ago Arizona's state lawmakers decided to protect most homeowners who could not, for a variety of reasons, continue to pay on their mortgages.  The anti-deficiency statute is designed to protect most homeowners from losing their other assets to the lenders that hold the mortgage used for the purchase of the residence after the homeowners have lost their homes to foreclosure.  In other words, most homeowners can walk away from their purchase money mortgage, and feel secure that they will not be facing a lawsuit filed by their lender for the deficiency or difference between the debt left owing on their home and the home's current market value.  There are some circumstances, however, when the anti-deficiency statutes will not apply.

                Even with the anti-deficiency statute protection, some homeowners are not locking their doors and walking away from the homes.  Instead, they are choosing to contest the validity of the trustee sales pending against their homes.  In other states, one common challenge is the "original note" theory.   This challenge to the validity of the trustee sale encompasses the homeowners asking the courts to force the lenders, through the trustee conducting the trustee sale, to produce the "original note" which is the document that evidences the mortgage debt.  The homeowners are arguing that production of the "original note" is required before a non-judicial foreclosure, known in Arizona as a trustee sale or foreclosure sale, can be held. 

               The "Show me the Note" defense, however, has been preliminarily declined by at least two Arizona trial courts. Multiple opinions issued by the United States District Court for the District of Arizona echo the rejection of the "Show me the Note" theory. Those courts have rejected a borrower's demand to see during the foreclosure proceedings the "Original" promissory note that he or she signed when the loan was originated.  The courts have permitted the foreclosure actions, or trustee sales, to proceed without the production of the "Original" promissory note by the party who commenced the foreclosure action or trustee sale.

                In other jurisdictions and states, a court may require a party conducting the foreclosure action or trustee sale proceeding to produce the "Original" promissory note to show it to the borrower before the foreclosure action or trustee sale can be completed.  In light of the length of time that may have transpired between the signing of the "Original" promissory note and the foreclosure proceeding, producing the "Original" promissory note may be difficult for the party conducting the foreclosure proceeding.  In those other jurisdictions, a borrower facing a judicial foreclosure may be successful in obtaining the "Original" promissory note because a forum would be in place in which to make the demand for the production of the document.  When the foreclosure is a trustee sale, the borrower would need to file a court action in an attempt to force the party conducting the trustee sale to produce the "Original" promissory note.   

               Before spending money to mount an offense to stave off a pending trustee sale in Arizona, it would be wise to investigate the challenges that other Arizona homeowners have made to the validity of trustee sales of Arizona residences to determine whether the theory for invalidating the trustee sale makes sense either legally or economically.     


    About the author:  Valerie Marciano is a partner at the Phoenix law firm of Jaburg Wilk. She assists clients with business issues, creditor's rights issues, guaranty actions and deficiency issues. Val can be reached at [email protected] or 602.248.1025.

    This article is not intended to provide legal advice and only relates to Arizona law.  It does not consider the scope of laws in states other than Arizona.  Always consult an attorney for legal advice for your particular situation.


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