This is Part 5 of the Beat the Bank AZ Foreclosure Defense Report.

Caution – Please Note: This writing is not legal advice. Please do not treat it as such or rely on it without consulting your own attorney or advising your clients to do so. This material is presented for educational purposes only, to apprise homeowners of the current general state of foreclosure litigation and possible defenses available to a defaulting borrower. Each borrower’s facts and circumstances are different and the foregoing defenses and law may not apply to each situation.


Patton vs. First Federal Savings & Loan Association (see discussion in Part 1) is still the law of Arizona.  Therefore, the firm always looks at the process and documents for “Patton” errors:  violation of the deed of trust contract and statutory violations.  A complaint to enjoin foreclosure, or to set aside a trustee’s sale will allege as many of these deficiencies as may exist in each individual case.

Trust Deed Statute Violations

Arizona’s trust deed statutes are found at A.R.S. § 33-801, et seq.  These statutes set forth the trust deed scheme from definitions of terms, notice requirements, basic deed of trust elements to the foreclosure process (the trustee’s sale) and the right of reinstatement.

A trustee’s sale is set pursuant to the “power of sale” granted to the trustee in the deed of trust, or if not so provided, by the statutes themselves.  For the power of sale to be exercised, there must be a default.  Unlawful exercise of the power of sale occurs, then, when there is no default, or where it is arguable that there was no breach.  Absent a default, the Notice of Trustee’s Sale would be in error.  If incorrect, it must be cancelled and a new notice recorded.  If the sale took place, the sale is void and the trustee’s deed must be invalidated (if the judge agrees, of course).  This defense presents itself when a loan modification agreement has been entered into but the bank forecloses anyway because of a perceived breach by the borrower.  Also, even if the agreement is unsigned, if the bank has accepted payments under it, it may be consider legally binding.

Occasionally, a situation presents itself where the bank failed to properly postpone the sale date.  This is difficult to prove because all the bank has to do is present an affidavit from the auctioneer stating she announced postponement at the existing sale.  However, there have been cases where the sale was postponed repeatedly for a year or more and no new notice was recorded.  In these cases, you can question the auctioneer for each such postponement and make the case that she violated the statute which requires each postponement date to be announced with certainty as to time, date and place, and such new date shall not exceed 90 days from the postponed sale date.

The lender may delay or refuse to provide reinstatement information to the borrower.  The sale can be enjoined solely on this failure since there is no right of redemption after the sale.  The right to reinstatement is a valuable property right established by statute and if ignored by the lender or its trustee, the lender is at the risk of a wrongful foreclosure suit.  Reinstatement is also provided for in the deed of trust, making this failure a breach of contract.

The statutes are detailed and each case presents variations of lender compliance issues.  Each new client’s loan file is perused with the statutory mandates relevant to his file examined.

Breach of Contract

The note and trust deed are contracts which contain bank obligations that cannot be breached with impunity.  The national banks use a deed of trust form approved by the federal government, i.e., Fannie Mae and Freddy Mac.  The most prevalent violation that provides a client the legal basis to enjoin foreclosure is Section 22 of the deed of trust.  Section 22 of the Trust Deed contract requires that prior to acceleration for a monetary breach, the lender must give the borrower written notice of intent to accelerate and provide a date certain not less than thirty days from the date of the notice by which a default may be cured.

The notice “shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to the Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the Security Instrument and sale of the Property.”

Many lenders either fail to provide the notice or send out a sloppy attempt to comply. For instance, the notice may state that the above conditions must be met within 30 days of the date of the letter.  This does not constitute 30 day’s notice.

In effect, the 30 day contract notice is added to the 90 day statutory period to require a 120 day waiting period, as ruled by the Arizona Supreme court on this issue.  See, Schaeffer v. Chapman, 176 Ariz. 326, 861 P.2d 611 (1993)

Further, because of this ruling, our complaints allege that the Notice of Trustee’s Sale cannot be lawfully recorded without Section 22 compliance.  This means the recording was in error and the Notice of Trustee’s Sale must be cancelled, proper 30 day Section 22 notice must be given and a new Notice of Trustee’s Sale issued thereafter.


The following discussion involves legal defenses which are based in law, but which have not been yet been ruled upon by Arizona appellate courts specifically  to the deed of trust foreclosure area.

Splitting the Note from the Deed of Trust or Invalid Assignment

This defense presents itself frequently due to the industry’s securitization of mortgages and the multiplicity of loan transfers among lenders.

The basic rule of secured instruments is that the note is the primary document in a mortgage transaction, it is the instrument creating the obligation.  The deed of trust is ancillary to the note and merely secures the debt.  Unless the note and debt share a common owner, the two instruments are considered “split” or separated by these transfers and assignments.  The separate ownership results in the note being simply an unsecured obligation which cannot trigger a foreclosure, as it has been separated from its security.

Correspondingly, in this split note/deed of trust scenario, the holder of the deed of trust cannot foreclose because it contains no obligation for payment and thus cannot be in monetary breach.  There are a number of published opinions from America’s state appellate courts citing this principal in setting aside foreclosures by a lender that could not establish an unbroken link of note ownership from the original lender to itself.   Arizona so ruled in a 1938 case unrelated to foreclosure, Hill v. Favour, 52 Ariz. 561, 568, 84 P.2d 575 (1938), but has not yet issued a published opinion based on the facts of securitization and invalid assignment.

When the note is split from the deed of trust, “the note becomes, as a practical matter, unsecured.”  See, RESTATEMENT (THIRD) OF PROPERTY (MORTGAGES) § 5.4 cmt. a (1997) (the “Restatement”).  A person holding only a note lacks the power to foreclose because it lacks the security, and a person holding only a deed of trust suffers no default because only the holder of the note is entitled to payment on it. See Restatement § 5.4 cmt. e. “Where the mortgagee has ‘transferred’ only the mortgage, the transaction is a nullity and his ‘assignee’,  having received no interest in the underlying debt or obligation, has a worthless piece of paper.” 4 RICHARD R. POWELL, POWELL ON REAL PROPERTY, § 37.27[2] (2000); Hill v. FavoursupraBellistri v. Ocwen Loan ServicingLLC, 284 S.W.3d 619 (Mo. App. 2009)

Consequently, “The practical effect of splitting the deed of trust from the promissory note is to make it impossible for the holder of the note to foreclose, unless the holder of the deed of trust is the agent of the holder of the note.” See, Bellistri

Part 6 will delve into the MERS (Mortgage Electronic Registrations System) scandal and how we attack loans naming MERS as nominal “beneficiary”.

“This ends Part 5. In previous installments of foreclosure defense az series of articles (Part 1, Part 2, Part 3 and Part 4) we discussed the basics of AZ Foreclosure Law and Foreclosure Defenses for Arizona homeowners. In this installment, Part 5, we discussed other AZ foreclosure defense issues. The next installment, Part 6, will discuss other foreclosure defenses available to Arizona real estate owners.”

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  6. Darrell Blomberg says:

    Can you point me to the statute that references section (d) of the following sentence that you use in this article?

    The notice “shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to the Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by the Security Instrument and sale of the Property.”

    Thanks for your excellent information.

    • R. Harvey Dye, Esq. says:

      Darrell – good question. The quoted language is from the standard deed of trust, section 22. As I noted in the preceding paragraph of Part 5, we are discussing breach of contract provisions that may provide a defense to foreclosure. Almost all residential trust deeds have such a clause. Because of securitization of the loans, a standard contract acceptable to Fannie Mae and Freddy Mac was devised so that each package sold to them and other investors contained essentially identical terms and provisions. Thus, section 22 of the standard contract contains the pre-acceleration notice you referenced. If your deed of trust is not the standard format, it may still have a notice provision but found in a different section or paragraph of the document.

      I hope this answered your question.

      Harvey Dye


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