By: Sridavi Ganesan
Connect: Sridavi Ganesan

On February 26, 2014 the California Supreme Court declined to depublish the controversial decision issued by the Court of Appeal in Glaski v. Bank of America, 218 Cal.App.4th 1079 (2013).  See Glaski v. Bank of America (Supreme Court No. S213814), depublication request denied Feb. 26, 2014.  In Glaski, the plaintiff brought an action against his loan investor and deed of trust beneficiary and trustee, among others, to set aside the foreclose sale of his property.  The plaintiff alleged a number of claims, including fraud, quiet title, and declaratory relief.  The plaintiff also alleged a claim for wrongful foreclosure on the basis that defendants lacked standing to foreclose on his property, because his loan was assigned into a securitized trust after the trust closing date set forth in the pooling and servicing agreement governing the securitized trust, thereby voiding the assignment.  Glaski, 218 Cal.App.4th at 1093.  Prior to Glaski, the vast majority of California appellate and federal courts had held that in such situations, the plaintiff lacked standing to challenge the validly of an assignment to a securitized trust, because he or she was not a party or third party beneficiary to the securitized trust pooling and servicing agreement.  See e.g. Aniel v. GMAC Mortgage, Inc., Case No. C 12-04201 SBA, 2012 WL 5389706 at *4 (N.D. Cal. Nov. 2, 2012) (plaintiff lacks standing to challenge validity of assignment of deed of trust based on non-compliance with PSA). The trial court sustained the demurrers brought by the defendants without leave to amend as to all causes of action and entered judgment against the plaintiff.  On appeal, the Glaski Court, however, found that the assignment at issue was void (rather than voidable) and held that in such a situation, a borrower has standing to challenge the assignment, as the foreclosing entity lacks authority to foreclose on the property in the first place.  Glaski, 218 Cal.App.4th at 1095-97.

The Court based its holding on the allegation that the securitized trust was formed under New York trust law, which did not permit a securitized trust to accept a loan past the trust closing date.  However, the securitized trust was actually formed under Delaware, not New York, law, and under Delaware law, assigning a loan into a securitized trust beyond the trust closing date would not automatically void the assignment.  In addition, the Court never addressed whether the plaintiff was prejudiced by the assignment, such that he was unable to make his mortgage payments or cure his default due to the “void” assignment.  A number of courts have held that irregularities in the foreclosure process, including errors in assignments of deeds of trusts, are irrelevant where the plaintiff cannot demonstrate that he or she suffered prejudice.  See e.g. Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal.App.4th 497, 514-15 (2013).

Since the Glaski decision was issued seven months ago, federal and California decisions have generally continued to follow the majority view.  Other than a single exception, no federal court decision or published California Court of Appeal decision has adopted the Glaski holding. See Kling v. Bank of America, N.A., Case No. CV-13-2648 DSF (CWx), 2013 WL 7141259 at *2 (C.D. Cal. Sept. 4, 2013).  In fact, Glaski has been referred to as “an outlier,” and some California federal courts have outright held that they will decline to follow Glaski unless and until the California Supreme Court or the Ninth Circuit explicitly endorses its holding.  See Sandri v. Capital One, N.A., 501 B.R. 369, 374 (Bankr. N.D. Cal. 2013); Snell v. Deutsche Bank Nat. Trust Co., Case No. 2:13-cv-02178-MCE-DAD, 2014 WL 325147 at *5 (E.D. Cal. Jan. 29, 2014); Newman v. Bank of New York Mellon, Case No. 1:12-CV-1629 AWI GSA, 2013 WL 5603316 at *3, n. 2 (E.D. Cal. Oct. 11, 2013).

It will be interesting to see whether the California Supreme Court’s decision to not disturb Glaski‘s publication status will be viewed as a signal of the Supreme Court’s position on the holding or whether the courts will continue to reject Glaski so that it will remain an “outlier.”  Only time will tell.