In most states, a common defense to a home foreclosure is the “original note” theory which challenges the validity of a non-judicial trustee sale. In essence, the homeowner demands that the note holder, through the trustee conducting the trustee sale, produce the original promissory note that evidences the mortgage debt. When a promissory note was executed years before the trustee’s sale, and has been bought and sold multiple times, it becomes very difficult to produce the original note. Without showing the legal standing, the foreclosure sale must stop. This “show me the note” defense has also been used effectively around the country in bankruptcy during lien stripping cases, motions to lift stay, and valuation cases.
Unfortunately, the “show me the note” defense is not universally applied. Some states, notably Arizona, Washington, and Nevada, have rejected this defense altogether. In 2012, the Arizona State Supreme Court flatly rejected a challenge to the trustee’s standing during a foreclosure sale. The issue before the court in Hogan v. Washington Mutual Bank, N.A. was whether Arizona law permits a trustee to foreclose on a deed of trust without the beneficiary first having to show ownership of the note that the deed of trust secures.
The Arizona Supreme Court stated that Arizona is not a “show me the note” state and that nothing in Arizona’s non-judicial foreclosure statutes mandates that a beneficiary of the deed of trust must show possession of, or otherwise document its right to enforce, the underlying note prior to the trustee’s exercise of the power of sale. It said that the “only proof of authority the trustee’s sale statutes require is a statement indicating the basis for the trustee’s authority.” The court noted that “[r]equiring the beneficiary to prove ownership of a note to defaulting trustors before instituting non-judicial foreclosure proceedings might again make the mortgage foreclosure process … time-consuming and expensive, and re-inject litigation, with its attendant cost and delay, into the process.”
If you are facing foreclosure, you need experienced assistance. A foreclosure is not only a disruption to your family life, it has lasting impact on your finances. It may be time to consider bankruptcy. Filing bankruptcy before the foreclosure sale will stop the foreclosure cold and allow you time to find a new residence. The bankruptcy will discharge the mortgage debt and the lender’s subsequent foreclosure cannot further harm your credit report. Call today and learn how bankruptcy can help you.