Metropolitan News-Enterprise


Monday, May 20, 2013


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No Preemptive Suit to Challenge Lender’s Right to Foreclose—C.A.

Panel Rejects Attempt to Bring Loan-Pooling Arrangement Into Question




A borrower facing foreclosure cannot bring a declaratory action to challenge the lender’s standing to initiate a nonjudicial foreclosure, the Fourth District Court of Appeal ruled Friday.

Div. Three affirmed an Orange Superior Court judge’s dismissal of a suit by a Diane Jenkins against JP Morgan Chase Bank, N.A. and Quality Loan Service Corporation.  The panel said Judge William Monroe properly sustained demurrers to all causes of action, which included claims for bad-faith breach of contract and for violation of the Unfair Competition Law and other statutes, as well as the declaratory relief claim.

Jenkins alleged that she borrowed more than $375,000 from Washington Mutual Bank in 2007 in order to refinance her Laguna Niguel condominium. It was an adjustable rate loan, and in 2008 she saw refinancing, but “got the run around” from the loan officer, she claimed.

In the meantime, WaMu became insolvent, and was placed in receivership by federal regulators. Its loan portfolio was acquired by Chase under a “purchase and assumption” agreement with the Federal Deposit Insurance Corporation, as receiver, which provided that Chase would not assume liability for any lending or loan purchasing activity by WaMu.

Notice of Sale

Jenkins alleged that the loan officer advised her that if she stopped making payments, Chase would modify the loan at a more favorable interest rate. But when she did stop paying, Quality, the loan servicer, recorded a notice of default and—after she fell more than $9,000 in arrears—recorded a notice of sale, alleging a balance due in excess of $392,000.

The sale, however, was subsequently postponed and not rescheduled. Jenkins, who was representing herself at the time, filed her complaint in January 2011.

The primary theory of the complaint was that the pooling of her loan with other loans in a securitized investment trust did not comply with the investment trust’s pooling and servicing agreement, and that the lack of compliance extinguished the security interest created when she executed her deed of trust. She also claimed various statutory violations related to how the loan was serviced and the foreclosure initiated.

In sustaining the demurrers, Monroe ruled that Jenkins, as a non-party to the pooling and servicing agreement, lacked standing to enforce it; that she could not sue for bad-faith breach of contract because she did not allege the existence of a contract, and that even if she did, the court could not imply that the contract included a covenant to refinance the loan; and that neither Chase nor Quality could be held liable for any failings of WaMu.

Presiding Justice Kathleen O’Leary, writing Friday for the Court of Appeal, said the trial judge was correct as to all of the claims.

O’Leary noted that prior cases have rejected efforts to delay or deny foreclosure based on contentions regarding the identity of the party asserting the right to foreclose.

No Authority

Emphasizing that the foreclosure sale had not been rescheduled, O’Leary said there was no statutory or other basis for a preemptive lawsuit. “Moreover, we find the statutory provisions, because they broadly authorize a “trustee, mortgagee, or beneficiary, or any of their authorized agents” to initiate a nonjudicial foreclosure…do not require that the foreclosing party have an actual beneficial interest in both the promissory note and deed of trust to commence and execute a nonjudicial foreclosure sale. “

Jenkins, the presiding justice went on to say, does not deny that she borrowed the money, that she executed the deed of trust, or that she defaulted, so there is no present controversy between the parties and there would be no basis for a declaratory action even if the foreclosure statutes permitted one.

The jurist further concluded that the remaining causes of action were properly dismissed. Jenkins, O’Leary said, has no standing to challenge allegedly illegal business practices as between the various lenders in the securitization pool, nor can she base a bad-faith claim on statutory violations unconnected to a contract.

The case is Jenkins v. JP Morgan Chase Bank, N.A., G046121.


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