By: Shawnda M. Grady
On February 18, 2016, the California Supreme Court resolved a split in the Courts of Appeal and unanimously held that a mortgage loan borrower has standing to sue for wrongful foreclosure based on an allegedly void assignment. Tsvetana Yvanova v. New Century Mortgage Corp. et al., Case No. S218973 (Cal. Feb. 18, 2016). The Court followed the reasoning in Glaski v. Bank of America, 218 Cal.App.4th 1079 (2013), which held that foreclosure itself is sufficient prejudice for standing purposes. The Yvanova opinion did not extend to pre-foreclosure claims, did not address whether a borrower must allege tender to state a cause of action for wrongful foreclosure, did not address what facts render an assignment void, and explicitly limited its ruling to void – not voidable – mortgage assignments. Three additional cases currently pending before the California Supreme Court, which have not yet been briefed, also address a homeowner’s standing to assert a claim for wrongful foreclosure and have the potential to expand the Yvanova ruling.
Plaintiff-borrower Tsvetana Yvanova sued her mortgage lender, New Century Mortgage Corporation (“New Century”), and others for various foreclosure-related causes of action, with a single cause of action for quiet title remaining in her second amended complaint. Yvanova alleged that in 2006, she obtained a $483,000 loan from New Century, for which she provided a deed of trust as security. In 2007, New Century filed for bankruptcy and was liquidated in August 2008. In December 2011, the servicer, on behalf of New Century, executed an assignment transferring the Deed of Trust to Deutsche Bank National Trust Company (“Deutsche Bank”) as trustee for a securitized trust. The closing date for the securitized trust was in January 2007. In August 2012, Western Progressive LLC recorded (1) a substitution of trustee, substituting itself for Deutsche Bank, and (2) a notice of trustee’s sale. On September 14, 2012, the property was sold at public auction by Western Progressive LLC to a third party.
Yvanova alleged the December 2011 Assignment of the Deed of Trust from New Century to Deutsche Bank was void because: (1) New Century lacked authority to transfer the Deed of Trust in 2011, because its assets were transferred to the bankruptcy trustee in 2008, and (2) the investment trust was closed in 2007, four years before the assignment. The superior court sustained defendants’ demurrer without leave to amend.
The Court of Appeal affirmed the judgment, concluding that Yvanova could not state a claim for quiet title, because Yvanova had not alleged tender of the amount due. The Court of Appeal also determined that Yvanova could not, on the facts alleged, amend her complaint to state a claim for wrongful foreclosure. The Court of Appeal reasoned that, as a third party unrelated to the assignment at issue, Yvanova was not affected by any alleged deficiencies in the assignment and, therefore, lacked standing to enforce the terms of the agreements allegedly violated. In so ruling, the Court of Appeal declined to follow the holding of Glaski. Yvanova petitioned for review before the California Supreme Court, which granted review on August 27, 2014. Yvanova v. New Century Mortg. Corp., 331 P.3d 1275 (Cal. 2014).
California Supreme Court Decision
In Yvanova, California Supreme Court limited its review to the following: “In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?” Yvanova, 331 P.3d at 1275. The Court found in the affirmative, following the reasoning in Glaski, supra, and rejecting the holding in Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th 497 (2013), to the extent that those cases addressed a borrower’s standing to assert a post-foreclosure claim of wrongful foreclosure based on a void assignment. Specifically, the Court found that an entity foreclosing following a void assignment of the deed of trust, as opposed to a merely voidable assignment, acts without legal authority to do so. Under such circumstances, a borrower has standing to state a claim for wrongful foreclosure, because he or she has suffered the loss of ownership of the property.
The Court explicitly noted that its holding was limited to the issue of standing in post-foreclosure cases. The Court did not determine whether the defects alleged by Yvanova would render an assignment void, and declined to address what facts must be alleged to demonstrate a void assignment. The Court further declined to extend its analysis of prejudice beyond the standing context.
Additional Cases Pending Review
Three additional cases remain pending before the California Supreme Court that also address a borrower’s standing to challenge foreclosure based on allegations of a void assignment: Boyce v. TD. Service Company, 352 P.3d 390 (Cal. 2015) (post-foreclosure action); Keshtgar v. U.S. Bank, 334 P.3d 686 (Cal. 2014) (pre-foreclosure action); Mendoza v. JP Morgan Chase Bank, 337 P.3d 493 (Cal. 2014) (post-foreclosure action). In each of these cases, the plaintiff asserted a wrongful foreclosure claim, alleging the assignment of the subject deed of trust was void because it was reportedly transferred into a securitized trust after the trust’s closing date; in Keshtgar and Medoza, the plaintiffs also challenged the authority of the individual who executed the assignment to do so. In each of the three cases, the Court of Appeal declined to follow Glaski v. Bank of America, 218 Cal.App.4th 1079 (2013) and instead followed the reasoning in Jenkins, supra, holding that the borrowers had no standing. The Supreme Court deferred briefing in each of these three cases pending the Court’s disposition of Yvanova, and no further orders have been issued.
Although borrowers may attempt to rely on Yvanova to assert wrongful foreclosure claims based on allegedly void assignments, the limitations of the Court’s holding in Yvanova still permit defendants to challenge the borrower’s failure to tender, whether the underlying facts regarding the assignment render it void and whether the borrower has sufficiently alleged prejudice as an element of wrongful foreclosure. It is not yet clear whether the Court’s anticipated disposition of Boyce, Keshtgar, and Mendoza will extend to these issues or clarify the Yvanova holding.