C.A. Eases Wrongful Foreclosure Suit Burden

Thursday, May 19, 2016

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C.A. Eases Wrongful Foreclosure Suit Burden

Panel Says Initiating Process, Absent Right to Do So, Is Enough to Give Plaintiff Standing

By a MetNews Staff Writer

An allegation that the entity that foreclosed on the plaintiff’s residence was neither the original lender nor a lawful assignee was sufficient to confer standing to sue for wrongful foreclosure, the Fourth District Court of Appeal ruled yesterday.

Div. One reinstated Monica Sciarratta’s action against U.S. Bank and others. She claims that the bank had no interest in her mortgage debt or her residence because the assignment of her promissory note and deed of trust was void.

Sciarratta purchased her Riverside County home after securing a $620,000 loan from Washington Mutual Bank in 2005. The note and deed of trust were acquired by JPMorgan Chase Bank after WaMu went belly-up and were assigned to Deutsche Bank National Trust Company, as trustee, according to a document recorded in 2009.

In April of that year, the trustee, California Reconveyance Company, or CRC, recorded a notice of default, stating that Sciarrata owed more than $15,000. Two months later, it recorded a notice of trustee’s sale, estimating the loan balance and charges due as more than $729,000.

In November 2009, Chase recorded a purported assignment of the deed of trust, to Bank of America. The same day, CRC recorded a trustee’s deed on behalf of Bank of America—which acquired the property in in exchange for a credit bid—as “the foreclosing beneficiary.”

The day before the scheduled sale, however, Sciarratta sued Chase, Deutsche Bank, and CRC in federal district court. It alleged the defendants “in reality have no standing whatsoever to exercise any rights under the subject deed of trust.”

Seven weeks later, Chase recorded another assignment, purporting to “correct the assignee reflected on the” April assignment, and naming Bank of America as the assignee as of the previous April 27.

In May 2012, the federal district judge dismissed the lawsuit. In February 2013, Sciarratta filed her Riverside Superior Court action, naming the same defendants and alleging that the sale was void because it was conducted by the wrong trustee, or because the purported credit bidder was not the beneficiary of the deed of trust.

The defendants demurred on the ground of failure to state a cause of action by failing to allege prejudice, and the trial judge sustained the demurrer.

But Justice Gilbert Nares, writing for the Court of Appeal, said the mere fact of foreclosure by a party that has no right to do so is sufficient prejudice.

“[W]e conclude that a homeowner who has been foreclosed on by one with no right to do so—by those facts alone—sustains prejudice or harm sufficient to constitute a cause of action for wrongful foreclosure,” he wrote. “When a non-debtholder forecloses, a homeowner is harmed by losing her home to an entity with no legal right to take it.”

The alternative, he said, “would allow an entity to foreclose with impunity on homes that were worth less than the amount of the debt, even if there were no legal justification whatsoever for the foreclosure,” a result with consequences “too severe to allow.”

The case is Sciarratta v. U.S. Bank National Association, 16 S.O.S. 2459.