Arizona Supreme Court Holds Beneficiary Does Not Have to Prove Right to Foreclose

On May 18, the Arizona Supreme Court held that the beneficiary under a deed of trust need not prove the right to foreclose prior to initiating non-judicial foreclosure proceedings. Hogan v. Washington Mutual Bank, N.A., No. CV-11-0115, 2012 WL 1835540 (Ariz. May 18, 2012) (en banc). In Hogan, the borrower argued that the beneficiary could not foreclose without first proving the right to collect under the note. The court rejected this argument and stated that Arizona’s non-judicial foreclosure statute did not require the beneficiary to prove ownership of the note prior to foreclosure. The court also rejected the borrower’s argument that the trustee was required to comply with Arizona’s codification of the UCC because the Arizona UCC does not apply to liens on real property. Finally, the borrower claimed that the proper note-holder could later pursue a second collection for the same debt if the beneficiary was not entitled to prove ownership of the note. The court rejected this reasoning because Arizona law does not permit deficiency judgments against debtors with foreclosed residential property similar to that of the borrower (i.e., 2.5 acres or less). The court concluded by noting that the “[Arizona] legislature balanced the concerns of trustors, trustees, and beneficiaries in arriving at the current statutory process,” and to hold otherwise would upset the legislature’s purpose.