Not long after the
business phenomenon known as the “foreclosure crisis” began, I started hearing
about a possible defense to a mortgage foreclosure under Arizona law: that the
mortgagee had to demonstrate physical possession of the underlying promissory
note to commence foreclosure.
In the beginning, I
figured this was mostly coming from the tinfoil hat crowd, but the idea has
started to gain traction in Arizona and other states. A recent ruling in a New
Jersey case upheld this theory, and, while the underlying law in New Jersey is
undoubtedly different than it is in Arizona, the ruling is – or should be – an
issue of concern to foreclosing lenders (should I say, yet another issue
of concern?).
The vast
majority of home mortgage loans made in the past 20 or so years were sold or
assigned, either in a particular one-off transaction, or as part of a package
that eventually found its way into a collateralized mortgage security. Little
actual paperwork accompanied those transactions, and it is very unlikely that
the holder, or servicer, of the collateralized mortgage security loan has in its
file the original promissory note evidencing the loan. It is possible that this
fact could be used as a tool in Arizona to delay or defeat mortgage
foreclosures.
Unlike New Jersey,
Arizona is, of course, a deed of trust state, and most mortgage “foreclosures”
here are actually conducted via a non-judicial trustee’s sale, where there is no
court involved to listen to or act upon this argument. Having said that, it is
not too hard to anticipate circumstances in which the borrower finds a way to
have a court deal with this argument, perhaps by filing for a temporary
restraining order.
I am not aware of any
reported Arizona cases so far on this issue.
These materials
are designed to provide general information prepared by professionals in regard
to the subject matter covered. It is provided with the understanding that the
author is not engaged in rendering legal, accounting, or other professional
service. Although prepared by professionals, these materials should not be
utilized as a substitute for professional service in specific situations. If
legal advice or other expert assistance is required, the service of a
professional should be sought. ■
These materials
are designed to provide general information prepared by professionals in regard
to the subject matter covered. It is provided with the understanding that the
author is not engaged in rendering legal, accounting, or other professional
service. Although prepared by professionals, these materials should not be
utilized as a substitute for professional service in specific situations. If
legal advice or other expert assistance is required, the service of a
professional should be sought.
