May 10, 2016
by Parnaz Parto
The Wolf Firm – USFN Member (California)
As has been widely reported, the California Supreme Court recently ruled in a very limited opinion that it is possible for a borrower to have standing to challenge the validity of an assignment of deed of trust post-foreclosure sale. [Yvanova v. New Century Mortgage Corporation, 62 Cal. 4th 919 (Feb. 18, 2016)]. The California Court of Appeal has confirmed the limited nature of Yvanova in Saterbak v. JPMorgan Chase Bank, N.A., Case No. D066636, (Mar. 16, 2016).
In Saterbak the borrower filed suit prior to a foreclosure sale in order to cancel the assignment and obtain declaratory relief. The California Court of Appeal affirmed a trial court’s decision in holding that a borrower lacks standing to challenge a deed of trust on grounds that it does not comply with the pooling and servicing agreement for the securitized instrument.
At the outset, the appellate court readily rejected the borrower’s allegation that the trust bore the burden of proving that the assignment in question was valid and, instead, held that the borrower bears the burden to establish standing.
The core of the borrower’s argument was that a preemptive action could be filed in order to determine if a trust may initiate a nonjudicial foreclosure sale. In order to prevent the sale, the borrower alleged that the assignment was void under the pooling and servicing agreement because Mortgage Electronic Registration Systems, Inc. (MERS) did not assign the deed of trust until years after the closing date, and the borrower also claimed that a signature on the assignment was “robo-signed.”
The appellate court recognized that California courts do not allow preemptive suits in the context of nonjudicial foreclosures “because they would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature” (internal quotations omitted). The appellate court distinguished the California Supreme Court ruling in Yvanova by holding that that ruling, identifying that a borrower has standing to sue for wrongful foreclosure by challenging an assignment where the defect in the assignment renders the assignment void, related specifically to a post-foreclosure context.
The appellate court additionally noted that the Yvanova ruling did not provide an opinion as to whether under New York law — which governed the subject trust — an untimely assignment to a securitized trust, made after the trust’s closing date, is void or voidable. In further support of the appellate court’s ruling that the borrower lacked standing, the court held that such an assignment is merely voidable by the beneficiary, and not void.
The borrower next claimed that the deed of trust conveyed standing to challenge the alleged defects in MERS’s assignment of the deed of trust because the deed of trust stated that only the “Lender” has the power to declare default and foreclose, and the “Borrower” has the right to sue prior to foreclosure in order to assert defenses. Notably, the appellate court relied upon Siliga v. Mortgage Electronic Registration Systems, Inc., 219 Cal. App. 4th 75, 84 (2013) and Herrera v. Federal National Mortgage Association, 205 Cal. App. 4th 1495, 1504 (2012) in rejecting the borrower’s claim, and held that the language in the deed of trust stating that MERS has the authority to exercise all the rights and interests of the lender includes the right to assign the deed of trust.
In addition, the appellate court pointed out that such provisions in the deed of trust give the borrower the power to assert any defense to avoid foreclosure and do not change the standing obligations under California law. The appellate court likewise rejected the borrower’s other contentions that the deed of trust conferred standing relating to the pre-suit notice provisions in the deed of trust and the necessity of containing restrictive language in the deed of trust having to do with attacks on assignments.
For the first time on appeal, and as the borrower’s last argument related to standing, it was asserted that the California Homeowner Bill of Rights (HBOR), which went into effect on January 1, 2013, provided the borrower with standing to challenge the assignment, particularly based on sections 2924.17(a) and 2924.12. Section 2924.17 states that an “assignment of a deed of trust ... shall be accurate and complete and supported by competent and reliable evidence.” Section 2924.12 permits a borrower to bring an action for damages or injunctive relief for material violations of section 2924.17. Since the subject deed of trust was assigned prior to the effective date of HBOR, the appellate court concluded that HBOR does not apply retroactively and, as a result, did not convey standing and new rights on appeal. In doing so, the appellate court left open the issue of whether there is standing to assert a wrongful assignment pre-foreclosure sale, if that assignment was executed post-HBOR.
Saterbak’s ruling addresses a borrower’s standing to challenge an assignment of deed of trust and is one of the first cases to distinguish and limit the recent Yvanova decision, by holding that a borrower does not have standing to challenge an assignment pre-foreclosure. This opinion is also one of the first to clarify the Yvanova decision by concluding that under New York law, an untimely assignment to a securitized trust made after the trust’s closing date is merely voidable by the beneficiary, and not void.
Of note is that the California Supreme Court issued an opinion on April 27, 2016, reviewing Keshtgar v. U.S. Bank, N.A., 226 Cal. App. 4th 1201 (2014) (opinion filed in Case No. S220012). Keshtgar is a case involving a pre-foreclosure challenge to an assignment of deed of trust. The California Supreme Court merely transferred the case back to the Court of Appeal “with directions to vacate its decision and to reconsider the cause in light of” Yvanova. For now, the Saterbak decision should help curtail the onset of litigation that is sure to result from the Yvanova ruling by narrowing that decision, and will likely have an effect on the Court of Appeal’s review of Keshtgar.
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