A new ruling by the Arizona Court of Appeals limits a homeowner’s legal rights if certain steps are not taken prior to a trustee’s sale. There are generally only three ways to stop a trustee’s sale: (1) reinstate the loan by paying the outstanding balance; (2) file for bankruptcy protection; or (2) file a lawsuit and seek a temporary restraining order (TRO). To be clear, reinstating the loan or filing for bankruptcy are the only guaranteed strategies to postpone a trustee’s sale; the filing of a lawsuit, on the other hand, is only successful if the court: (1) grants the request for a TRO; and (2) enters the TRO sometime prior to the date and time of the trustee’s sale.
Based on recent history, it generally takes the court approximately five business days to consider and enter a TRO. (Importantly, any lawsuit and request for TRO must have a good faith basis and is subject to sanctions pursuant to Rule 11, Arizona Rules of Civil Procedure.)
Following the recent Court of Appeals decision Madison v. Groseth, 230 Ariz. 8, 279 P.3d 633 (App. 2012), the failure to obtain a TRO prior to a trustee’s sale waives all claims against the lender (and the new owner), including any allegation that the lender failed to provide the borrower with proper notice of the trustee’s sale.
At first blush, the above holding appears inequitable and even unconstitutional – after all, how can the borrower object to lack of notice if the borrower does not discover the wrongdoing until after the fact? In Madison v. Groseth, the Court of Appeals observed this potential paradox:
…[u]nder other circumstances, [requiring a trustor to obtain a TRO to halt the trustee’s sale] may apply to deprive a trustor of due process if that trustor is not given sufficient notice of the trustee’s sale to obtain an injunction of the sale…
Id. at 637. The court noted that in the present case, however, the borrower admitted that she received notice of the trustee’s sale yet failed to apply for a TRO to halt the trustee’s sale. Indeed, the borrower not only received notice of the trustee’s sale, but the borrower actually filed a lawsuit against the lender prior to the trustee’s sale and did not allege that she received inadequate notice of the sale. Consequently, the court held that this waiver requirement did not deprive her of due process.
In sum, if a borrower’s lender initiates the foreclosure process and the borrower believes that they have claims against the lender concerning the foreclosure process, the borrower must immediately file a lawsuit against the lender and request a TRO to halt the trustee’s sale or else the borrower will waive all claims against the lender regarding the alleged wrongful foreclosure.