With lawsuits challenging trustee’s sales continuing to flood Arizona courts, the Arizona Supreme Court accepted a rare request by the Bankruptcy Court to consider whether lenders must record deed of trust assignments prior to noticing a trustee’s sale. After considering several amici curiae, including one filed by the Arizona Attorney General, the Arizona Supreme Court answered unanimously in Vasquez v. Saxon Mortgage Inc., No. CV-11-0091-CQ (Ariz. Nov. 18, 2011), that lenders are not required to record assignments prior to noticing a trustee’s sale.

The Case Below

Vasquez executed a note in September 2005 in favor of Saxon Mortgage secured by a deed of trust naming Saxon as the beneficiary. Thereafter, Saxon assigned the note by endorsing it in blank to Deutsche Bank National Trust Co., as trustee for a securitization, but the assignment was not recorded in the local, public land records. Vasquez subsequently defaulted under the note and Deutsche noticed a trustee’s sale of the property securing it. More than a month later, Saxon executed an assignment of the deed of trust in favor of Deutsche, which purported to be retroactive from before the notice of trustee’s sale notice was signed.

Before the trustee’s sale, Vasquez filed for bankruptcy protection. Deutsche moved for stay relief, so it could proceed with the trustee’s sale. Vasquez opposed stay relief arguing, among other things, that Deutsche was not the named beneficiary under the deed of trust when the trustee’s sale was initiated. The Bankruptcy Court then certified two questions to the Arizona Supreme Court:

(1) Is the recording of a deed of trust assignment required before noticing a trustee’s sale? and

(2) Must the deed of trust beneficiary have the right to enforce the note?