Here is a brief of a case that deals with Arizona wrongful foreclosure law. This is not intended to serve as legal advice, or a substitute for legal advice.
Contreras v. US Bank, No. CV09-0137-PHX-NVW. (Dist. Ariz. 2009).
Facts: Mr. and Mrs. Contreras purchased a home located at 8220 West Georgia Avenue, Phoenix, AZ in January 2006. To purchase the property they obtained a mortgage through Act Lending Corporation doing business as “Act Mortgage Capital”(ACT). The loan amount was $488,000. The mortgage Deed of Trust identified ACT as the Lender and the Trustee. It also names MERS as the beneficiary under the Deed of Trust and states, “MERS is a separate corporation that s acting solely as a nominee for Lender and Lender’s successors and assigns.
Almost two years later, Mr. and Mrs. Contreras became unable to make timely payments on the property. On the 2nd of September MERS assigned all beneficial interest under the Deed of Trust to U.S. Bank, as Trustee for CSMC Mortgage Backed Pass Through Certificates, Series 2006-5 (U.S. Bank). Also on the same day the Trustee issued a Notice of Trustee’s Sale of the Property for December 3rd, 2008. The Notice of the Trustee Sale identified U.S. Bank as the current beneficiary and ASC for Wells Fargo Home Improvement as the loan servicer.
When the Contreras’ received the Notice of Trustee’s Sale they made a written demand on U.S. Bank and Wells Fargo Bank, N.A. (“Defendants”)to suspend the sale of the Property or to provide proof of the their right to foreclose. The Contreras’ did not believe that U.S. Bank or Wells Fargo had the right to initiate foreclosure or possession of the original Note. Despite several requests for proof of the right to foreclose and documentation of the chain of Deed of Trust the Contreras’ were removed from their property through a forcible detainer action in Maricopa County Superior Court.
The Contreras’ filed a complaint seeking declaratory judgment that the Defendants were not entitled to enforce the Note of Deed of Trust, the Trustee’s Sale was invalid and void, U.S. Bank is not a bona fide purchaser for value of the Property. Contreras’ also sought monetary damages for wrongful foreclosure based on the Defendants’ breach of their duty to act fairly and in good faith specifically 1) failing to search for proof of the original Note 2) failing to indentify the current beneficiary under the Note and/or Deed of Trust and 3) failing to provide Plaintiff’s requested detailed accounting.
The Defendant’s filed a motion to dismiss the Contreras’ complaint.
Issues: Should the complaint be dismissed as not stating a claim upon which relief can be granted?
Relevant Questions of Law Decided by the Court: Do the Defendants have to possess the original Note in order to exercise their rights under the Deed of Trust to sell the Property upon default? Is the Deed of Trust a ‘negotiable instrument” under Arizona law or an “instrument” under the UCC? What are the Arizona elements of “Wrongful Foreclosure”?
Holding: The court dismissed the complaint holding that the Deed of Trust is NOT a negotiable instrument under Arizona law and that it is not an “instrument” as defined by the UCC. Additionally, the court held that Arizona has adopted the same standard of several other states for “Wrongful Foreclosure” and that the Contreras’ did NOT meet that standard.
Rationale: 1) Deed of Trust is Not a Negotiable Instrument or an Instrument under the UCC.
The court reasoned that because a Deed of Trust is not an unconditional promise to pay a fixed amount of money, is not payable to bearer or to order, is not payable on demand or at a definite time, and states numerous acts that the borrower promised to do in addition to paying money it is therefore not a negotiable instrument. See ARS §47-3104(A)&(B). The court also stated that there is no existing authority that a Deed of Trust requires compliance with the Arizona Uniform Commercial Code.
2) Wrongful Foreclosure Elements Not Met By the Contreras.
The Court reasoned that Arizona has adopted the same standard for wrongful foreclosure as other states including Georgia & Missouri, Texas and California. The elements are: 1) a legal duty owed to the Plaintiff by the foreclosing party 2) a breach of that duty 3) a causal connection between the breach of that duty and the injury the plaintiff sustained, and 4) damages.
In this case, the Court held that there was no duty on the Defendants to make any type of accounting to the Contreras or produce any documentation because the Deed of Trust is not subject to UCC rules. Second, the Plaintiffs were in default and the Plaintiffs do not allege that Defendants’ actions caused their default.
Conclusion: UCC rules do not apply to Deeds of Trust in Arizona. A “Wrongful Foreclosure” suit must meet all the elements to succeed.
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