Date: February 18, 2016
To All SLG Clients and Affiliates.
From: Spencer Scheer
Subject: Red Alert! This is not a Drill. Foreclosing Lenders beware! The Yvanova case brings ill Tidings.
Does a Borrower have standing to challenge assignments of deeds of Trust in Wrongful Foreclosure Cases? Yes, per the holding by the California Supreme Court in the case of Yvanova v. New Century Mortgage Corp, et al., Docket No. S218973 (CA Supreme Court February 18, 2016). The Supreme Court resolved conflicting opinions between the 5th District Court of Appeal (Yvanova v. New Century Mortgage Corp,(2014) 226 Cal. App.4th 495. [now depublished) , and the 4th District Court of Appeal in the case of Glaski v. Bank of America, 218 Cal. App. 4th 1079 (Cal. App. 5th Dist. 2013).
Effect of Supreme Court Ruling in Yvanova: While the court sought to narrow its holding, its decision will likely have far ranging effects. The primary holding is that only a lawful beneficiary of a deed of trust or its lawful assignee can direct a trustee to hold a foreclosure sale. Accordingly, a borrower alleging that a foreclosure is wrongful due to alleged void assignments of the deed of trust has the right (standing) to make such a claim even though the borrower was not a party to the challenged wrongful agreements, and is in default on his or her loan. Viewed from another prospective by the Court, a voidable transaction, unlike a void one is subject to ratification by the parties. If the transaction is void (foreclosure sale), it cannot be ratified (Id.at pages 10-11)
The Court tried to limit the scope of its ruling by holding that:
“We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party‘s right to proceed”(Id at page 2).
However, it appears that that will in fact be the result in many cases. There was great uncertainty re transfers and assignments of loans during the years immediately preceding and following the mortgage meltdown in late 2007. While many borrowers will not be able to demonstrate legitimate claims, many lenders may not be able to explain or substantiate transfers of the loan and assignments of the deed of trust. While a judge may find that a borrower does not have sufficient evidence prior to a foreclosure to demonstrate a defective/void assignment, if a borrower can do so after the sale, he or she may be able to assert the right to statutory damages under the California HOBR or general and punitive damages under general tort claims i.e. wrongful foreclosure. This may “chill” the willingness of some lenders to proceed with foreclosure sales, subject to such claims
The Court in Yvanova also sought to limit the holding that was appealed to assignments of the deed of trust and not to whether a defective transfer of a loan to a securitized pool is void or voidable (Yvanova at pages 11-12), because the issue was not before the Supreme Court on the appeal. However, it does not take much foresight to see that the issue will come up and may be decided in a similar fashion, causing even greater ripples in the ocean of securitized lending.
The holding also opens up the specter of borrowers’ counsel seeking to revisit foreclosures long thought resolved to seek damages. This will certainly put the title company industry “on edge”. It is uncertain whether it could be a “lever” to challenge the post-foreclosure transfer of title by lenders which foreclosed and transferred title to the foreclosed property to third party purchasers. Stay tuned!
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