Schayes Shows the Way: Federal District Court for the District of Arizona Holds That Notice of Trustee's Sales and Substitutions of Trustees are Not Actionable Under A.R.S. § 33-420.

Defaulting homeowners continue to flood Arizona courts (federal and state) with foreclosure-delay lawsuits alleging a variety of legal theories while admitting their default on their promissory note(s). Plaintiffs have shown great versatility and alleged claims running the gamut from ancient claims – such as claims of champerty and barratry – to new claims such as seeking to establish a private-right of action under the Home Affordable Mortgage Program. Plaintiffs have sought to avoid foreclosure by alleging the "vapor money theory" – the claim that financial institutions do not loan "real money" – and the thoroughly debunked "show me the note" claim whereby plaintiffs contend that a trustee's sale may not proceed absent production of the "original, wetink signature" on the promissory note and deed of trust. Financial institutions' well-articulated defenses to these claims have allowed the courts to see such claims as frivolous.

Undeterred, plaintiffs have adapted and recently began filing foreclosure-delay lawsuits alleging that the recordation of the (1) assignment of the beneficial interest in a deed of trust, (2) notice of substitution of trustee, and/or (3) notice of trustee's sale itself violates A.R.S. § 33-420, Arizona's false recording statute. Frequently, plaintiffs attempt to find some typographical error in these documents and use it to claim that it is a "false" document subject to liability under A.R.S. § 33-420.

In a recent opinion dismissing a case from Federal District Court, Judge Neil Wake demonstrates that a strong defense to these claims is that none of the documents "assert" or "create" a "claim" of "interest in, or lien or encumbrance against, real property" as required by A.R.S. § 33-420 and, therefore, the allegations fail to state a claim upon which relief can be granted. See Schayes v. Orion Financial Group, Case No. CV-10-2658-PHX-NVW, 2011 U.S. Dist. LEXIS 82402 (D. Ariz. July 27, 2011).

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