Friday, February 19, 2016
S.C.: Foreclosed-on Borrower Can Attack Loan Assignment
By KENNETH OFGANG, Staff Writer
A borrower who lost her home may bring a wrongful foreclosure action attacking an allegedly void assignment of her note and deed to the foreclosing party, the California Supreme Court unanimously ruled yesterday.
The justices reinstated a suit by Tsvetana Yvanova, who lost her Woodland Hills home at public auction in 2012. Yvanova executed a deed of trust securing a note for more than $480,000 when she bought the home in 2006.
The lender, New Century Mortgage Corporation, filed for bankruptcy in 2007 and its assets were transferred to a liquidation trust.
Yvanova, after the trustee’s sale occurred, sued New Century, the trust, and other defendants for quiet title, restitution, damages, and declaratory relief. She alleged, among other things, that her deed of trust had been assigned by New Century—despite its earlier dissolution—to an investment trust for which Deutsche National Bank was trustee.
That investment trust, she alleged, assigned the deed of trust to another investment trust, for which Morgan Stanley was trustee, though the latter trust had a closing date of Jan. 27, 2007 and the purported assignment wasn’t made until December 2011.
Yvanova claimed that assignment was void because New Century could not assign assets that it no longer owned after dissolution in bankruptcy, and because of the closure of the Morgan Stanley trust.
Los Angeles Superior Court Judge Russell Kussman sustained a demurrer, holding, among other things, that the plaintiff failed to state a cause of action because she failed to allege tender as an element of her quiet title cause of action.
The Court of Appeal affirmed, holding that the borrower did not have standing to challenge the assignment of the note and deed of trust because she was not a party to the assignment.
Justice Kathryn M. Werdegar, however, writing for the high court, that Yvanova had standing.
“We conclude,” she wrote, “…that because in a nonjudicial foreclosure only the original beneficiary of a deed of trust or its assignee or agent may direct the trustee to sell the property, an allegation that the assignment was void, and not merely voidable at the behest of the parties to the assignment, will support an action for wrongful foreclosure.”
The jurist cautioned that the holding was “a narrow one,” in that the court was not suggesting that claims such as Yvanova’s could be used to block a foreclosure from going forward or that Yvanova had alleged or could prove sufficient facts to prevail on her claims, and was not ruling as to “the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.”
Werdegar cited Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079, which held that a homeowner, who alleged that the foreclosure and sale of his home were invalid because the attempted transfer of the loan into a securitized trust was void and thus the foreclosing entity was not the true owner of the loan, stated a cause of action.
That case, Werdegar said, was—with respect to the question of standing to challenge an assignment—was better reasoned than Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, which the Court of Appeal panel relied on in affirming the dismissal of Yvanova’s case. The justice emphasized that she was not questioning the Jenkins court’s conclusion that the homeowner could not sue to block a foreclosure sale, an issue “not within the scope of our review.”
“On the narrow question before us—whether a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void—we conclude Glaski provides a more logical answer than Jenkins….[O]nly the entity holding the beneficial interest under the deed of trust—the original lender, its assignee, or an agent of one of these—may instruct the trustee to commence and complete a nonjudicial foreclosure....If a purported assignment necessary to the chain by which the foreclosing entity claims that power is absolutely void, meaning of no legal force or effect whatsoever…the foreclosing entity has acted without legal authority by pursuing a trustee’s sale, and such an unauthorized sale constitutes a wrongful foreclosure.”
The case is Yvanova v. New Century Mortgage Corporation, 16 S.O.S. 924.
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