June 5, 2014
by Kathy Shakibi
Northwest Trustee Services, Inc. – USFN Member (California)
Does a borrower have standing to challenge a foreclosure based on the validity of an assignment? Pursuant to Glaski v. Bank of America, 218 Cal. App.4th 1079 (2013), a borrower may challenge a nonjudicial foreclosure based on a void transfer of deed of trust. Glaski, however, remains a solitary ruling, and now a recent appellate court ruling signals the demise of Glaski. [Yvanova v. New Century Mortgage Corp., WL 2149797 (Apr. 25, 2014)].
Glaski: Solitary Precedent
In Glaski, the California Court of Appeal held that under New York trust law, a transfer of a deed of trust in contravention of the trust documents is void, not voidable, and under California law, a “borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment.” Glaski at 1095. The Glaski court held that New York law governed the operation of the trust because the subject securitized trust was formed under New York law. Glaski concluded that the borrower had standing to state a claim for quiet title, unfair business practices, and declaratory relief. Since the Glaski ruling on August 8, 2013, no less than 24 lower courts have declined to follow Glaski. Yvanova is the first published appellate ruling that rejects Glaski.
In 2006, New Century Mortgage Corporation made a mortgage loan to the Yvanova borrower. In 2007, New Century filed for bankruptcy and subsequently the deed of trust was assigned by means of a pooling and servicing agreement to Deutsche Bank National Trust Company as trustee for the Morgan Stanley ABS Capital I Inc. Trust 2007-HE1 Mortgage Pass-Through Certificates, Series 2007-HE1. In January 2012, a notice of default was recorded, followed by a notice of sale, and the property went to sale on September 14, 2012. On May 14, 2012, the borrower filed a civil action naming several defendants. Ocwen Loan Servicing, LLC; Western Progressive, LLC; and Deutsche Bank National Trust Company, as Trustee (defendants) successfully demurred to the pleadings.
The borrower’s second amended complaint contained one cause of action for quiet title, and the borrower made three substantial allegations: “(1) The assignment of the deed of trust to Deutsche Bank was ante-dated, misrepresents material facts and entities, that render the instrument void, (2) the substitution of Western Progressive as trustee is void, due to ante-dating, violating procedural trust rules and using entities which do not have authority to act, and (3) Western Progressive conducted unlawful defective auction sale …” Yvanova *2. The defendants again demurred, on the ground that the borrower had failed to allege tender to cure her default. The trial court granted the defendants’ demurrer without leave to amend, and the borrower appealed. The borrower also filed two bankruptcy cases, and two related adversary actions, which are not the subject of this article.
Yvanova: Appellate Ruling
On appeal, the Yvanova ruling has two prongs. First, the court agreed that the borrower lacks standing to pursue a quiet title claim, absent an allegation of tender of funds. Next, the court held that even assuming the borrower’s allegations regarding transfer of the note and deed of trust are correct, “the relevant parties to such a transaction were the holders (transferors) of the promissory note and the third party acquirers (transferees) of the note. As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, [plaintiff] lacks standing to enforce any agreements, including the investment trust’s pooling and servicing agreement, relating to such transactions.” Yvanova *4.
In its analysis the court cited from a 2013 case, Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497, holding that “An impropriety in the transfer of a promissory note would therefore affect only the parties to the transaction, not the borrower. The borrower thus lacks standing to enforce any agreements relating to such transactions.” The Jenkins ruling predated Glaski by approximately three months. The Yvanova court analyzed that an assignment substitutes one creditor for another. Even if there is an invalid transfer, a borrower would not be a victim of the transfer because the borrower’s obligations under the note remain unchanged. In language signaling the demise of Glaski, the court declined to follow Glaski, stating that no California court has followed Glaski on this point and many have rejected it.
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