Arizona Attorney Barbara Forde on Steinberger Decision, Part 1

Arizona Attorney Barbara Forde on Steinberger Decision, Part 1I am so excited to present a guest post series from Arizona attorney Barbara Forde on the Steinberger case. I know there have been a lot of people weighing in on the decision, but I really wanted the inside scoop on the case from Barbara.

Also, she just told me that opposing counsel has filed a Petition for Review in the case. We’re both obviously hoping the Court will reaffirm its findings. I thought it was pretty clear from the language in the case that the Court liked Barbara’s arguments.

And now, here’s Part 1 of of Barbara’s post:

After 4 years of litigating, after being cast off and her arguments ignored by the Maricopa County Superior Court, Katrina Perkins Steinberger finally made her voice heard in Division 1 of the Arizona Court of Appeals.  Their decision, issued January 30, 2014, is groundbreaking for the state of Arizona and hopefully, beyond.

So why is Steinberger so revolutionary?  This decision is really the first time that the Arizona courts have gone on record with a published appellate opinion recognizing that a borrower in default may stand up and cry “foul” when entities that appear to have no legal relation to their loan try to foreclose.  Those familiar with fighting banks/servicers/foreclosure trustees in Arizona know that the deed of trust statutes were put in place over thirty years ago by a very strong lobby.  That lobby and the Legislature made sure the laws provided next to nil in protection for a borrower.  Beyond basic requirements of the notice of the initial sale date, virtually the only requirement a party seeking to take your house must satisfy under the statutes, is that there must be a default under the contracts; that is, the note or deed of trust.

Forced as we are to operate in the current legal framework, my analysis for a way to help borrowers and change Arizona law began with a simple question:  How can a party seeking foreclosure say with authority that there has been a default?  A beautifully simple approach, lost on many judges and courts before the Court of Appeals’ decision, answers the question with ease.  We must read and apply the terms of the note and deed of trust.  Most of the time, those contracts are uniform adhesion contracts drafted by Fannie Mae and Freddie Mac.  Most of the time, those contracts require that the Lender send a notice to the borrower, 30 days before foreclosure is initiated, declaring a default and putting the borrower on notice of various rights on the contracts.  If the default is not cured, the Lender must then tell the trustee, in writing, that the loan is in default and that the Lender elects to foreclose.

The Note, at the same time, gives the right to enforce to the “Note Holder,” defined as anyone who takes the note by transfer and who is entitled to payment.  The Note clearly states that only the Note Holder is secured by the Deed of Trust.

So.  To enforce the Note, an entity must prove it is the Note Holder as defined in the Note.  By definition found right in the Note, that means the entity will have to prove it 1) took the Note by transfer; and 2) is entitled to payment.

To initiate a legal foreclosure, the Lender must take action and send the writings required by the contracts.  And there is the rub.  If the foreclosure documents reveal the position that the loan was sold into a mortgage-backed security, or REMIC, a Pooling and Servicing Agreement (“PSA”) governs.  If the standard form PSA is used, it is quite clear; the Trustee of a Trust is a sort of figurehead with no power and no authority.  The payments, when received, are turned over to the Certificateholders of the Trust; that is, the people or companies who buy certificates evidencing investment in the Trust.  Therefore, my argument has always been, that all of the Certificateholders of the Trust, together, are the “Lender.”  It is my position that unless the trustee of the Deed of Trust gets a written declaration of default and election to foreclose signed by every Certificateholder in the Trust, or as many as are necessary to constitute a majority vote under the Trust documents, then foreclosure can not be initiated, and certainly cannot occur.*

*The same allegations should be made on a Fannie Mae or Freddie Mac loan. Both entities freely admit on their websites that they do not hold loans; they buy loans and place them into “mortgage securities” sold in “global capital markets” and recycle the proceeds.

Christine’s note: stay tuned for Part 2, coming tomorrow!

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