Steinberger v. McVey
234 Ariz. 125
| Ariz. Ct. App. | 2014Background
- In 2005 Charles Perkins borrowed money and executed a promissory note and deed of trust; Perkins died and his daughter Katrina Steinberger inherited the property and struggled with higher payments.
- Steinberger sought a loan modification after communications with various servicers; she alleges she was induced to default because servicers told her modifications required default, then the modification process was mishandled and a trustee’s sale was scheduled repeatedly.
- Multiple recorded instruments transferred the beneficiary/trustee interests: MERS → IndyMac Federal → DBNTC/Pooled Trust; substitution of trustee recorded substituting QLS for Chicago Title.
- Steinberger sued challenging Respondents’ authority to foreclose and asserted claims including: vacate trustee’s sale, injunctive relief, quiet title, breach of contract, negligent performance of undertaking (Good Samaritan), fraud claims, negligence per se, unconscionability, and payment/discharge of debt.
- Trial court granted Respondents’ motion to dismiss; Steinberger sought special action relief. The appellate court accepted jurisdiction, reviewed pleadings de novo, and evaluated legal sufficiency only.
- The court vacated dismissal of several claims (authority to foreclose, breach of contract, negligent performance, negligence per se, parts of discharge), affirmed dismissal of fraud claims, quiet title, and certain unconscionability and discharge theories, and remanded for further proceedings.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a borrower may challenge the foreclosing party's authority | Steinberger alleges defective assignments/substitution and that Respondents lack authority to conduct trustee’s sale | Hogan/Respondents: beneficiaries need not "prove" authority to commence nonjudicial foreclosure absent an affirmative allegation | Allowed: borrower who affirmatively alleges lack of authority may plead to avoid trustee’s sale; dismissal vacated and burden on plaintiff to prove defects; defendants may rebut with chain-of-title evidence |
| Whether lender/servicer may be liable for negligent performance of loan-modification process (Good Samaritan) | Servicers induced default by promising modification and then negligently processed it, increasing foreclosure risk | Respondents: damages resulted from plaintiff's missed payments, not servicer conduct; insufficient reliance/causation pleaded | Allowed: §323 claim plausibly pleaded under increased-risk theory where servicer induced default and negligently handled modification, causing economic harm; dismissal vacated |
| Whether negligence per se (A.R.S. §39-161) applies for recording false instruments | Recording allegedly false/invalid assignments/substitution clouded title and harmed Steinberger | Respondents: complaint lacks factual support and statute not a basis for negligence per se here | Allowed: statute enacted to protect public recordation and those harmed by cloud on title; negligence per se claim plausibly pleaded; dismissal vacated |
| Whether fraud-based claims were pled with required particularity (Rule 9(b)) | Alleged misrepresentations and concealments by multiple defendants over time | Respondents: allegations lump defendants together and lack specific actor-level facts; some claims time-barred | Dismissed/Affirmed: fraud claims failed Rule 9(b) for lack of particularized actor-level allegations; consumer-fraud claims based on 2005 origination also time-barred |
Key Cases Cited
- Hogan v. Wash. Mut. Bank, N.A., 230 Ariz. 584 (2012) (Arizona Supreme Court: deed of trust statutes do not require beneficiary to prove authority or possession of original note before nonjudicial foreclosure absent specific allegation challenging authority)
- Eardley v. Greenberg, 164 Ariz. 261 (1990) (Arizona Supreme Court: trustor has standing to challenge substitution of trustee and defects in the process that may cloud chain of title)
- Patton v. First Fed. Sav. & Loan Ass’n of Phx., 118 Ariz. 473 (1978) (deed of trust statutes strictly construed in favor of borrower; nonjudicial foreclosures require lender compliance)
- Cullen v. Auto-Owners Ins. Co., 218 Ariz. 417 (2008) (motion to dismiss review assumes truth of well-pled factual allegations and indulges reasonable inferences for nonmoving party)
- Madison v. Groseth, 230 Ariz. 8 (2012) (interpretation of A.R.S. §33-811(C): post-sale defenses limited; an injunction/TRO must be obtained before sale to preserve other defenses)