The lender is absolutely right with respect to non-judicial foreclosure under a deed of trust. The "produce-the-note" defense is not available in CA in this situation.
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I agree with Mr. Daymude. California is a non-judicial foreclosure state. The lender does not have to show the note or prove it has the right to foreclose. The courts in California are not buying the "show me the note" defense. So, if you are getting close to foreclosure you might want to consider a loan modification or a short sale. Under the new Homeowners Bill of Rights, lenders are barred from dual tracking -- considering a modification and continuing on the foreclosure path at the same time. Are there problems with the new law?? Yes, there are. But at least you can try to save your home or exit more gracefully than foreclosure. Good luck.
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I agree with my colleagues, in CA the lender does not have to produce the note to foreclose. If you wish to stop the foreclosure, contact a lawyer and explore your other possible claims.