Another Successful UTA Appeal: The Arizona Supreme Court Concurred With UTA's Amicus Brief That An Assignment Is Not Required To Be Recorded Prior To Issuing A Notice of Trustee's Sale

Melissa Robbins Coutts, Esq.

By Melissa Robbins Coutts, Esq., McCarthy & Holthus

Borrower Julia Vasquez filed a Chapter 13 petition on October 31, 2008 to stop a trustee’s sale of her house. Vasquez initiated an adversary proceeding as well and all Defendants moved for a judgment on the pleadings. The Honorable Eileen W. Hollowell of the United States Bankruptcy Court for the District of Arizona was uncomfortable granting all of Defendants’ motions until the Arizona Supreme Court answered two certified questions:

Is the recording of an assignment of deed of trust required prior to the filing of a notice of trustee’s sale under A.R.S. §33-808 when the assignee holds a promissory note payable to bearer?

And

Must the beneficiary of a deed of trust being foreclosed pursuant to A.R.S. §33-807 have the right to enforce the secured obligation?

In a unanimous decision, (http://www.azcourts.gov/Portals/23/pdf2011/CV110091CQ.pdf), the Arizona Supreme Court answered the first question negatively and declined to answer the second as the record indicated that the note was assigned prior to the notice of trustee’s sale therefore it was not determinative of the case.

This decision is very favorable to our industry and was opposed by numerous amicus curie including the Attorney General’s Office of the State of Arizona.  Of particular importance was the court’s support of the industry’s positions “that recording statutes are designed to protect interests in property against claims of subsequent purchasers or creditors without notice” and that the statutory scheme governing the trustee sale process should not be judicially amended to include additional requirements.  Decision ¶ 4 & 6.  A.R.S. §33-808 specifically requires recordation of a notice of trustee’s sale but does not require the same of an assignment of the deed of trust.

The Court further stated that unrecorded instruments, as between the parties and their heirs, shall be valid and binding.  “Thus, while the failure to record an assignment of a deed of trust might leave an assignee unprotected against claims by some purchasers or creditors, it does not affect a deed’s validity as to the obligor.”  Decision ¶ 7.  The Court also referenced A.R.S. §33-817, which states that the transfer of a contract secured by a deed of trust shall operate as a transfer of the security for such contract.  Because “A.R.S. §33-817 does not specifically require documentation of an assignment of the deed of trust when the secured note is transferred, it would make no sense to imply a requirement that the assignment be recorded.”  Decision  ¶ 8.

While this case provides authority to the Bankruptcy Court that no requirement exists it is probably a better practice to record an assignment of the deed prior to recording a notice of a trustee’s sale to avoid legal challenges by borrowers and remove the possibility that courts will impose such a requirement in their court due to their believe that failing to do so is unfair to a borrower.

McCarthy Holthus Levine had the privilege of writing the amicus brief on behalf of the UTA and is thankful for the opportunity to assist the UTA.

Melissa Robbins Coutts, Esq. is an associate at McCarthy & Holthus, LLP and heads their appellate division.  Mrs. Coutts’ work can be seen in Ferguson v. Avelo, Mabry v. Aurora, and Vasquez v. Saxon.  She can be reached at mcoutts@mccarthyholthus.com.