No “Show Me The Note” Defense Available In Arizona

By: Valerie L. Marciano
While Arizona has experienced boom and bust real estate cycles in the past, they were less deep and shorter in duration than the current cycle. Residential home values have plunged between 40 and 60 percent or higher – in the 2007 to 2011 values – across the Valley from the height of the market and are one of the reasons that some Arizona homeowners are facing foreclosure.

The saving grace for many Arizona homeowners is Arizona’s anti-deficiency
30 years ago Arizona’s state lawmakers decided to protect most homeowners
who could not, for a variety of reasons, continue to pay on their mortgages. The anti-deficiency
is designed to protect most homeowners from losing their other assets
to the lenders that hold the mortgage used for the purchase of the residence after the
homeowners have lost their homes to foreclosure. In other words, most homeowners can
walk away from their purchase money mortgage, and feel secure that they will not be
facing a lawsuit filed by their lender for the deficiency or difference between the debt left
owing on their home and the home’s current market value. There are some
circumstances, however, when the anti-deficiency statutes will not apply.

Even with the anti-deficiency statute protection, some homeowners are not
locking their doors and walking away from the homes. Instead, they are choosing to
contest the validity of the trustee sales pending against their homes. In other states, one
common challenge is the “original note” theory. This challenge to the validity of the
trustee sale encompasses the homeowners asking the courts to force the lenders, through
the trustee conducting the trustee sale, to produce the “original note” which is the
document that evidences the mortgage debt. The homeowners are arguing that
production of the “original note” is required before a non-judicial foreclosure, known in
Arizona as a trustee sale or foreclosure sale, can be held.

The “Show me the Note” defense, however, has been preliminarily declined by at
least two Arizona trial courts. Multiple opinions issued by the United States District
Court for the District of Arizona echo the rejection of the “Show me the Note” theory.
Those courts have rejected a borrower’s demand to see during the foreclosure
proceedings the “Original” promissory note that he or she signed when the loan was
originated. The courts have permitted the foreclosure actions, or trustee sales, to proceed
without the production of the “Original” promissory note by the party who commenced
the foreclosure action or trustee sale.

In other jurisdictions and states, a court may require a party conducting the
foreclosure action or trustee sale proceeding to produce the “Original” promissory note to
show it to the borrower before the foreclosure action or trustee sale can be completed. In
light of the length of time that may have transpired between the signing of the “Original”
promissory note and the foreclosure proceeding, producing the “Original” promissory
note may be difficult for the party conducting the foreclosure proceeding. In those other
jurisdictions, a borrower facing a judicial foreclosure may be successful in obtaining the
“Original” promissory note because a forum would be in place in which to make the
demand for the production of the document. When the foreclosure is a trustee sale, the
borrower would need to file a court action in an attempt to force the party conducting the
trustee sale to produce the “Original” promissory note.

Before spending money to mount an offense to stave off a pending trustee sale in
Arizona, it would be wise to investigate the challenges that other Arizona homeowners
have made to the validity of trustee sales of Arizona residences to determine whether the
theory for invalidating the trustee sale makes sense either legally or economically.

About the author: Valerie Marciano is a partner at the Phoenix law firm of Jaburg Wilk.
She assists clients with business issues, creditor’s rights issues, guaranty actions and
deficiency issues. Val can be reached at or 602.248.1025.
This article is not intended to provide legal advice and only relates to Arizona law. It
does not consider the scope of laws in states other than Arizona. Always consult an
attorney for legal advice for your particular situation.