John Hogan v. Washington Mutual Bank ( 2012 )

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
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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
________________________________________________________________
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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
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¶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.
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¶ 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.
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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
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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
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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
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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
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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
_____________________________________
*
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* 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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