Steinberger v. OneWest Bank, No. 1 CA-SA 12-0087 (Special action, Div 1, Az Court of Appeals) 1/30/2014, involves a scenario common in our recent housing market — a homeowner defaults on her home loan, and the lender seeks to foreclose on the property. In this case, the plaintiff challenged the bank’s authority to foreclose, and asked for damages resulting from the bank’s alleged misconduct in the foreclosure proceeding.

Plaintiff’s 87-year-old father took out a loan to purchase a home in 2005. When he died in 2007, plaintiff inherited the property and a continuing saga with the lender and loan servicing company. There were title transfers and assignments, promised loan modifications that did not get processed, trustee’s sales scheduled, numerous conflicting communications from representatives of the lender and loan servicing company, then litigation. Finally, on January 30, 2014, the Court of Appeals filed its opinion, which will result in further proceedings back at the trial court level.

The case presents three basic legal questions. First, are there any circumstances under which a person who is facing foreclosure may challenge the authority of the party seeking foreclosure? Second, if there are such circumstances, what are the requirements for the party seeking foreclosure to establish its authority? Third, if the lender or its agent offers to modify (lower) the payments to assist the homeowner, is the lender/agent required to act reasonably in processing the loan modification?

The Court vacated the dismissal of Plaintiff’s following claims: to vacate/void the notice of trustee’s sale, breach of contract, negligent performance of an undertaking, and negligence per se. The Court affirmed the dismissal of the following claims: injunctive relief, quiet title, fraudulent concealment, common law fraud, and consumer law fraud.

Although defenses to a foreclosure are typically limited, this ruling confims that complex circumstances can create legitimate defenses. Lenders and borrowers need to exercise great caution whenever unusual circumstances lead to a foreclosure.