show me the note

Arizona Supreme Court limits the “show me the note” defense

One of the more common defenses in a foreclosure actions is the “show me the note” defense.  The defendant is effectively saying “I may be guilty of not paying my loan, but you can’t prove that you own it.”  For a while, this defense might have worked, due to poor record keeping or some other reason.  However, as more courts address that defense, it is becoming very limited. 

In Hogan v. Washington Mutual Bank et al, CV 11-0115-PR (Ariz. 2012) the Arizona Supreme Court granted review to determine “if Arizona’s statutes require the beneficiary to prove its authority or ‘show the note’ before the trustee may commence a non-judicial foreclosure.”  It does not.

The defendant failed to make timely payments.  The bank foreclosed on the loans.  The trustee recorded notice of sale, naming the respective banks as beneficiaries for the first and second parcel of land.  Plaintiff contends that the trustee sales must be stopped until the beneficiaries can show that they have a right to collect on the respective notes.   The court disagreed.  The court found that the plaintiff never alleged that the beneficiaries were not entitled to enforce the underlying note.  The court reasoned that the non-judicial foreclosure statutes impose no such obligation to “show the original note.” Thus, without an allegation that they did not have a right to collect, this defense fails.

Impact on Investors: This case further limits the show me the note defense.  It does not say that one cannot use this defense or that this defense is never available.  But it does say that in addition to using this defense, the plaintiff must also allege (at least upon information and belief) that the beneficiary does not have a right to collect on the note.   In the future, homeowners need to be able to allege that the beneficiary did not have a right to foreclose on the property and that it does not own the note.  Screaming “show me the note” is not enough.

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