John Hogan v. Washington Mutual Bank

• Court: Arizona Supreme Court
• Decided: July 11, 2012
• Status: Published

Opinion

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

- 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

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.

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