Void vs. Voidable Mortgage Assignments: California Foreclosed-Upon Homeowners Score Big Win Over Sloppy Banksters; "[A]n Allegation That The Assignment Was Void, & Not Merely Voidable At The Behest Of The Parties To The Assignment, Will Support An Action For Wrongful Foreclosure," Say State Supremes In Unanimous (7-0) Decision

In Sacramento, California, National Mortgage News reports:

• The California Supreme Court on Thursday ruled that borrowers may challenge a wrongful foreclosure on the grounds that the assignment of the deed of trust was invalid.(1)
  
  The decision in Yvanova v. New Century Mortgage Corp. has the potential to radically increase the number of lawsuits brought by borrowers, particularly on loans that were pooled into securitized trusts, experts on both sides of the issue said.
  
  "There will be a flood of litigation only because the lending industry was not diligent in doing its paperwork during the housing finance boom," said Richard Antognini, who represented the plaintiff, California homeowner Tsvetana Yvanova.
  
  The decision tackles a question that became important after the housing market's collapse in 2008: can a defaulted homeowner contest the validity of the chain of assignments involved in the securitization of loans?
  
  In 2012 Yvanova challenged the foreclosure and public auction of her Woodland Hills, Calif., home, alleging there was a four-year break in the chain of title, essentially making it void.
  
  Yvanova in 2006 took out a loan for $483,000 from Irvine, Calif.-based New Century Mortgage, which went bankrupt the next year. In 2011 the mortgage servicer Ocwen Loan Servicing executed an assignment of the deed of trust on Yvanova's loan to Deutsche Bank, which served as a trustee of a Morgan Stanley investment trust.
  
  But Yvanova alleged that the Morgan Stanley investment trust had a closing date of January 2007 and should never have been assigned the mortgage. But the foreclosure went through, and Yvanova ultimately was evicted in May 2015.
  
  Multiple lower courts in California had ruled in high-profile cases such as Jenkins v. JPMorgan Chase that borrowers have no standing to file a claim of wrongful foreclosure because they are not a party to or holder of the debt.
  
  However, the state Supreme Court disagreed with those rulings and essentially sided with a 2013 state appellate ruling in Glaski v. Bank of America, which held that a borrower has standing to challenge a nonjudicial foreclosure sale based on alleged violations of the terms of a pooling and servicing agreement.
  
  "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 Supreme Court stated in a 33-page ruling. "A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity's hands. No more is required for standing to sue."
  
  The case now will go back to the state Court of Appeals or a trial court, which would decide on the merits of Yvanova's claim.
  
  Frederick Levin, a partner at BuckleySandler, said the decision will breathe new life into the foreclosure defense bar, which believes that a loan assigned into a securitized trust after the trust's closing date makes the assignment void.
  
  "This decision has [the] potential to increase litigation challenging securitized loans," said Levin, who on behalf of banks has long argued that contractual language gives investors and lenders broad latitude to reassign loans.
  
  Others said the court was sending a big message to the lending industry.
  
  "This was the court in California directing lenders and Wall Street securitizers to be very careful in documenting their instruments and assignments," said Kenneth Styles, a litigator at the law firm Miller Starr Regalia. "They've been more than sloppy in the past, and this was a directive to make sure their procedures are clean."
  
  Antognini, the attorney for Yvanova, put it this way: "if you claim you own a debt, you have to prove it. And if you claim to own a debt, the borrower has the ability to allege and later to prove that you don't own it."

Source: Calif. Supreme Court Lets Borrowers Challenge Wrongful Foreclosures.

For the court ruling, see Yvanova v. New Century Mortgage Corp., S218973 (Cal. February 18, 2016).

Editor's Note: Having a clear understanding of how this ruling may lead to a flood of litigation against banksters guilty of using sloppy mortgage assignments in their chains of title, the California Supreme Court took great pains in trying to tamp down the excitement this ruling will create within the foreclosure defense bar.

In that light, the court prefaced its ruling with the following admonition:

• Our ruling in this case is a narrow one. We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.
  
  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.
  
  Nor do we hold or suggest that plaintiff in this case has alleged facts showing the assignment is void or that, to the extent she has, she will be able to prove those facts.
  
  Nor, finally, in rejecting defendants‘ arguments on standing do we address any of the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.

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(1) From the introductory part of the ruling:

• The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. We granted review in this case to decide one aspect of that question: whether the borrower on a home loan secured by a deed of trust may base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void.
  
  The Court of Appeal held plaintiff Tsvetana Yvanova could not state a cause of action for wrongful foreclosure based on an allegedly void assignment because she lacked standing to assert defects in the assignment, to which she was not a party. We conclude, to the contrary, 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.