Financial Services Litigation Bulletin – “Show Me The Note” Claims Find New Life in Recent Arizona Decision

In Steinberger v. McVey, the Arizona Court of Appeals breathed life into what most would label standard “show me the note” claims, in which borrowers challenge their lenders’ authority to foreclose, despite admitting their default. It also found that mortgage servicers can assume tort duties when undertaking to consider borrowers’ requests to reduce mortgage payments. In doing so, it presents an analysis that is contrary to trending authority that is likely to spur unfounded and protracted litigation against mortgage lenders and servicers.

While emphasizing the opinion’s limitations to the specifics of Steinberger’s complaint, this action presents familiar fact patterns. The borrower originated his mortgage loan with one lender, but it was later assigned to a mortgaged-backed security. The borrower (in this case, the borrower’s heir, Steinberger) sought a loan modification to reduce her payments, and supposedly stopped paying because the lender advised she would not qualify “unless she was in default.” The lender noticed a trustee’s sale while it considered her request. Steinberger eventually filed suit against her lender and others, and sought an injunction to bar the trustee’s sale.

[Read the full alert.]