August 1, 2014
by Kathy Shakibi
Northwest Trustee Services, Inc. – USFN Member (California)
California courts sound weary of meritless challenges to transfers of notes. Not long ago, in Yvanova v. New Century Mortgage Corp., WL 2149797, an appellate court held that a borrower lacks standing to challenge a transfer of the note and deed of trust; i.e., a transfer pursuant to a pooling and servicing agreement. On June 9, 2014, another division of the appellate court held, additionally, that there is no pre-foreclosure cause of action to challenge the authority of the person initiating foreclosure. Keshtgar v. U.S. Bank, N.A., 2014 WL 2567927.
Challenges Have Morphed
The theory underlying challenges to note transfers has morphed over the years, but the common thread remains: an allegation of lack of authority to foreclose in connection with a transfer of a note or an assignment of a deed of trust. In the 2008 to 2010 years, the rampant theory was lack of authority to foreclose absent possession of the original note. California courts ruled that possession of the note is not a prerequisite to a nonjudicial foreclosure. Then came MERS challenges, alleging that MERS lacks authority to initiate foreclosures. The Gomes ruling in 2011 put that theory to rest by holding that there is no judicial action to determine whether the person initiating the foreclosure process is authorized, and MERS is authorized to initiate a foreclosure pursuant to the deed of trust. Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149 (2011).
Next, there were challenges to transfers pursuant to securitization or pooling and servicing agreements. Plaintiffs alleged the trustee of a securitized trust has no authority to initiate a foreclosure either because the note was not transferred with a complete chain of endorsements or transfer occurred in contravention of the securitized trust documents. The former theory was decided in Jenkins v. JP Morgan Chase Bank, N.A., 216 Cal. App. 4th 497 (2013), holding that a borrower lacks standing to enforce an agreement relating to note transfer. The latter was ruled upon in Glaski v. Bank of America, 218 Cal. App. 4th 1079 (2013), deciding that a borrower may challenge an assignment of a deed of trust, if the defect would void the assignment. In its ruling, the Glaski court relied on New York trust formation laws.
Now, the 2014 decisions signal an unequivocal disagreement with Glaski. Challenges to note transfers in reliance on Glaski have resulted in the two recent rulings referenced in this article — Yvanova and Keshtgar.
The Keshtgar ruling is short and to the point. There is no pre-foreclosure cause of action to challenge the authority of the person initiating foreclosure. And even if there were a pre-foreclosure cause of action, a borrower would lack standing to challenge a transfer and assignment. The court does not enter into an extensive analysis of the note transfer issue. Instead, the court points to its rulings in Gomes, Jenkins, and Yvanova, and seems to say, we have ruled on this issue before, why is it before us again? One can almost hear the court sigh when it ponders: “One would think, indeed hope, that Gomes would put an end to cases like the instant one.” Keshtgar, * 1. One can hope so, indeed.
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