Victory For Borrowers! – CA Supreme Court Allows Chain of Title Challenges (Yvanova)
Posted On: February 24th 2016
On February 18, 2016, the California Supreme Court issued a decision on a hotly contested issue between mortgage loan borrowers and foreclosing banks. In Yvanova v. New Century, the California Supreme Court overturned a trial court’s dismissal of the plaintiff’s case finding Yvanova had “standing” to challenge the foreclosure of her home when she claimed that the foreclosing party lacked an ownership interest in her loan. The specific question the court addressed in Yvanova v. New Century was whether a mortgage loan borrower who alleges that the foreclosing party lacks an ownership interest in the mortgage loan because that party obtained the loan through a void assignment has standing to challenge the foreclosure in court. While the California Supreme Court refused to state what constitutes a void assigment, it held that Yvanova did have standing to claim that the wrong party was foreclosing on her home. The case was remanded back to the trial court to assess whether the allegations in the complaint were sufficient to allege that the assignment was void.
The issue in Yvanova concerning whether a homeowner has “standing” to challenge a foreclosure was appealed to California Supreme Court after several lower appellate courts issued contradictory decisions. The split in appellate authority began with Glaski v. Bank of America, in which a California appeals court held– for the first time– that an attempt to transfer a mortgage loan to a securitized trust after the trust’s official closing date rendered the assignment void. The Glaski ruling was notable as it was the first California appellate court to evaluate the legal effect a post-closing date assignment had in the context of a foreclosure in California. In Glaski, the court held that the terms of the trust agreement together with New York trust law rendered the post-closing date assignment void. Because California foreclosure statutes state that only the party with an ownership interest in a mortgage loan or its agent can exercise of the power of sale, the Glaski court concluded that the void assignment could provide the basis to establish a claim for wrongful foreclosure. Other California appellate courts in cases such as Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th 497 (2013) and Kan v. Guild Mortgage Co., 230 Cal.App.4th 736 (2014) rejected the holding in Glaski and held that a borrower lacked the requisite standing to challenge a foreclosure, since the borrower was in default and allegedly suffered no prejudice related to the improprieties in the mortgage loan assignment. According to the court in Jenkins, any alleged assignment did not harm borrowers because their obligations under the deed of trust remained unchanged; the true victims under these circumstances weren’t borrowers, but the entities who may have an interest in the mortgage loan.
This decision in Yvanova is groundbreaking not only because it finally addressed the issue of “standing”, but because the court rejected many of the arguments made by banks and mortgage loan servicers used to dismiss borrowers’ wrongful foreclosure claims. For example, the court rejected the argument made by the court in Jenkins— that a borrower suffers no harm from if a foreclosure based on a void assignment:
“California borrowers whose loans are secured by a deed of trust with a power of sale may suffer foreclosure without judicial process and thus ‘would be deprived of a means to assert [their] legal protections’ if not permitted to challenge the foreclosing entity’s authority through an action for wrongful foreclosure. (citation omitted.) A borrower therefore ‘has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee.’…As it relates to standing, we disagree with defendants’ analysis of prejudice from an illegal foreclosure. A foreclosed-upon borrower clearly meets the general standard for standing to sue by showing an invasion of his or her legally protected interests (citation omitted)—the borrower has lost ownership to the home in an allegedly illegal trustee’s sale.”
The court also rejected the notion that borrowers are attempting to assert the claims of third parties when contesting the validity of a mortgage loan assignment:
“…[A] plaintiff in Yvanova’s position is not asserting the interests of parties to the assignment; she is asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale. This, then, is not a situation in which standing to sue is lacking because its ‘sole object . . . is to settle rights of third persons who are not parties.’”
Finally, the court disagreed with the often-made assertion that a borrower has no interest in identifying the true owner of her mortgage loan:
“Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to object to an assignment of the promissory note, he or she is obligated to pay the debt, or suffer loss of the security, only to a person or entity that has actually been assigned the debt. (citation omitted) The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.”
The court’s decision can be summed up with a quote cited in its opinion: “It is no mere ‘procedural nicety,’ from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so. (citation omitted).” In other words, in Yvanova the California Supreme Court concluded that California foreclosure laws exist, they must be followed, and their failure to be followed can have legal consequences.