1 Cal. App. 5th 1252
Cal. Ct. App.2016Background
- Yhudai borrowed $1,802,500 in 2007; the loan was securitized into the ISA Trust (closing date March 29, 2007) with Deutsche Bank as trustee. The deed of trust named MERS as nominee for the lender.
- Impac sold the promissory note to the ISA Trust on the trust closing date; an Assignment of Deed of Trust to Deutsche Bank was recorded in 2009 (dated August 31, signed October 15, recorded October 22, 2009).
- ReconTrust substituted as trustee in February 2012, recorded a notice of default and later conducted a trustee’s sale on June 15, 2012; Deutsche Bank purchased the property at the sale.
- Yhudai sued, alleging the 2009 assignment was void because it occurred after the trust closing date, and asserted causes of action including negligent misrepresentation, slander of title, fraud, quiet title, declaratory/injunctive relief, and UCL violation; he sought to rescind the foreclosure.
- The trial court sustained defendants’ demurrer to the second amended complaint without leave to amend and dismissed with prejudice; Yhudai appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a post‑closing transfer of a loan/deed into the ISA Trust is void (so borrower may challenge foreclosure) | The 2009 assignment is void under the trust’s PSA (closing date March 29, 2007), so any foreclosure derived from it is wrongful | Under governing trust law (New York), a post‑closing transfer that violates the PSA is at most voidable, not void; borrower lacks standing to invalidate assignments between trust parties | The court held plaintiff’s allegation does not establish the assignment was void; under New York law such a postclosing transfer is voidable, not void, so the complaint fails |
| Choice of law for the assignment‑validity question | Deed of trust choice clause points to federal and California law, making New York law irrelevant | ISA Trust governed by New York law (PSA); New York law controls whether the assignment was void | Court rejected plaintiff’s reliance on California law absent authority showing postclosing assignment would be void under California or federal law; New York authorities show the assignment is voidable |
| Burden of proof on assignment validity | Defendants should prove validity of the 2009 assignment | As the party challenging a nonjudicial foreclosure, plaintiff bears burden to show it was wrongful (i.e., assignment void) | Court held plaintiff must plead and prove wrongful foreclosure; he failed to plead facts establishing the assignment was void |
| Leave to amend to add wrongful foreclosure claim | Plaintiff sought leave to add wrongful foreclosure based on same void‑assignment theory | Defendants opposed; claim would fail for same legal deficiency | Court denied leave because proposed claim depended on the same insufficient allegation that the assignment was void |
Key Cases Cited
- Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919 (California Supreme Court) (borrower may sue for wrongful foreclosure when the controlling assignment is absolutely void)
- Glaski v. Bank of America, 218 Cal.App.4th 1079 (California Court of Appeal) (held postclosing assignment to a New York trust could be void under New York law—viewed cautiously by later authorities)
- Wells Fargo Bank, N.A. v. Erobobo, 127 A.D.3d 1176 (N.Y. App. Div.) (trial court opinion reversed; intermediate appellate court rejected that postclosing transfer is automatically void)
- Rajamin v. Deutsche Bank Nat. Trust Co., 757 F.3d 79 (2d Cir.) (under New York law trustee acts contrary to PSA are voidable, not void)
- Cocroft v. HSBC Bank USA, N.A., 796 F.3d 680 (7th Cir.) (New York law treats PSA violations as rendering transfers voidable rather than void)