TSVETANA YVANOVA, Plaintiff and Appellant, v. NEW CENTURY MORTGAGE CORPORATION et al., Defendants and Respondents.
No. S218973
Supreme Court of California
Feb. 18, 2016
919
TSVETANA YVANOVA, Plaintiff and Appellant, v. NEW CENTURY MORTGAGE CORPORATION et al., Defendants and Respondents.
Tsvetana Yvanova, in pro. per.; Law Offices of Richard L. Antognini and Richard L. Antognini for Plaintiff and Appellant.
Law Office of Mark F. Didak and Mark F. Didak as Amici Curiae on behalf of Plaintiff and Appellant.
Kamala D. Harris, Attorney General, Nicklas A. Akers, Assistant Attorney General, Michele Van Gelderen and Sanna R. Singer, Deputy Attorneys General, for Attorney General of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Lisa R. Jaskol; Kent Qian; and Hunter Landerholm for Public Counsel, National Housing Law Project and Neighborhood Legal Services of Los Angeles County as Amici Curiae on behalf of Plaintiff and Appellant.
The Sturdevant Law Firm and James C. Sturdevant for National Association of Consumer Advocates and National Consumer Law Center as Amici Curiae on behalf of Plaintiff and Appellant.
Houser & Allison, Eric D. Houser, Robert W. Norman, Jr., Patrick S. Ludeman; Bryan Cave, Kenneth Lee Marshall, Nafiz Cekirge, Andrea N. Winternitz and Sarah Samuelson for Defendants and Respondents.
Pfeifer & De La Mora and Michael R. Pfeifer for California Mortgage Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.
Denton US and Sonia Martin for Structured Finance Industry Group, Inc., as Amicus Curiae on behalf of Defendants and Respondents.
Goodwin Proctor, Steven A. Ellis and Nicole S. Tate-Naghi for California Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.
Wright, Finlay & Zak and Jonathan D. Fink for American Legal & Financial Network and United Trustees Association as Amici Curiae on behalf of Defendants and Respondents.
OPINION
WERDEGAR, J.—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.
FACTUAL AND PROCEDURAL BACKGROUND
This case comes to us on appeal from the trial court‘s sustaining of a demurrer. For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6 [40 Cal.Rptr.3d 205, 129 P.3d 394].)1 To determine whether the trial court should, in sustaining the demurrer, have granted plaintiff leave to amend, we consider whether on the pleaded and noticeable facts there is a reasonable possibility of an amendment that would cure the complaint‘s legal defect or defects. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081 [6 Cal.Rptr.3d 457, 79 P.3d 569].)
In 2006, plaintiff executed a deed of trust securing a note for $483,000 on a residential property in Woodland Hills, Los Angeles County. The lender, and beneficiary of the trust deed, was defendant New Century Mortgage Corporation (New Century). New Century filed for bankruptcy on April 2, 2007, and on August 1, 2008, it was liquidated and its assets were transferred to a liquidation trust.
On December 19, 2011, according to the operative complaint, New Century (despite its earlier dissolution) executed a purported assignment of the deed
According to the complaint, the Morgan Stanley investment trust to which the deed of trust on plaintiff‘s property was purportedly assigned on December 19, 2011, had a closing date (the date by which all loans and mortgages or trust deeds must be transferred to the investment pool) of January 27, 2007.
On August 20, 2012, according to the complaint, Western Progressive, LLC, recorded two documents: one substituting itself for Deutsche Bank as trustee, the other giving notice of a trustee‘s sale. We take notice of a substitution of trustee, dated February 28, 2012, and recorded August 20, 2012, replacing Deutsche Bank with Western Progressive, LLC, as trustee on the deed of trust, and of a notice of trustee‘s sale dated August 16, 2012, and recorded August 20, 2012.
A recorded trustee‘s deed upon sale dated December 24, 2012, states that plaintiff‘s Woodland Hills property was sold at public auction on September 14, 2012. The deed conveys the property from Western Progressive, LLC, as trustee, to the purchaser at auction, THR California LLC, a Delaware limited liability company.
Plaintiff‘s second amended complaint, to which defendants demurred, pleaded a single count for quiet title against numerous defendants including New Century, Ocwen Loan Servicing, LLC, Western Progressive, LLC, Deutsche Bank, Morgan Stanley Mortgage Capital, Inc., and the Morgan Stanley investment trust. Plaintiff alleged the December 19, 2011, assignment of the deed of trust from New Century to the Morgan Stanley investment trust was void for two reasons: New Century‘s assets had previously, in 2008, been transferred to a bankruptcy trustee; and the Morgan Stanley investment trust had closed to new loans in 2007. (The demurrer, of course, does not admit the truth of this legal conclusion; we recite it here only to help explain how the substantive issues in this case were framed.) The superior court
The Court of Appeal affirmed the judgment for defendants on their demurrer. The pleaded cause of action for quiet title failed fatally, the court held, because plaintiff did not allege she had tendered payment of her debt. The court went on to discuss the question, on which it had sought and received briefing, of whether plaintiff could, on the facts alleged, amend her complaint to plead a cause of action for wrongful foreclosure.
On the wrongful foreclosure question, the Court of Appeal concluded leave to amend was not warranted. Relying on Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497 [156 Cal.Rptr.3d 912] (Jenkins), the court held plaintiff‘s allegations of improprieties in the assignment of her deed of trust to Deutsche Bank were of no avail because, as an unrelated third party to that assignment, she was unaffected by such deficiencies and had no standing to enforce the terms of the agreements allegedly violated. The court acknowledged that plaintiff‘s authority, Glaski v. Bank of America, supra, 218 Cal.App.4th 1079 (Glaski), conflicted with Jenkins on the standing issue, but the court agreed with the reasoning of Jenkins and declined to follow Glaski.
We granted plaintiff‘s petition for review, limiting the issue to be briefed and argued to the following: “In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?”
DISCUSSION
I. Deeds of Trust and Nonjudicial Foreclosure
A deed of trust to real property acting as security for a loan typically has three parties: the trustor (borrower), the beneficiary (lender), and the trustee. “The trustee holds a power of sale. If the debtor defaults on the loan, the beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale.” (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813 [156 Cal.Rptr.3d 437, 300 P.3d 518].) The nonjudicial foreclosure system is designed to provide the lender-beneficiary with an inexpensive and efficient remedy against a defaulting borrower, while protecting the borrower from wrongful loss of the property and ensuring that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830 [30 Cal.Rptr.2d 777].)
The trustee of a deed of trust is not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary. (Biancalana v. T.D. Service Co., supra, 56 Cal.4th at p. 819; Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668, 677 [86 Cal.Rptr.2d 490].) While it is the trustee who formally initiates the nonjudicial foreclosure, by recording first a notice of default and then a notice of sale, the trustee may take these steps only at the direction of the person or entity that currently holds the note and the beneficial interest under the deed of trust—the original beneficiary or its assignee—or that entity‘s agent. (
Defendants emphasize, correctly, that a borrower can generally raise no objection to assignment of the note and deed of trust. A promissory note is a negotiable instrument the lender may sell without notice to the borrower. (Creative Ventures, LLC v. Jim Ward & Associates (2011) 195 Cal.App.4th 1430, 1445-1446 [126 Cal.Rptr.3d 564].) The deed of trust, moreover, is inseparable from the note it secures, and follows it even without a separate assignment. (
A deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current
In itself, the principle that only the entity currently entitled to enforce a debt may foreclose on the mortgage or deed of trust securing that debt is not, or at least should not be, controversial. It is a “straightforward application[] of well-established commercial and real-property law: a party cannot foreclose on a mortgage unless it is the mortgagee (or its agent).” (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title (2013) 63 Duke L.J. 637, 640.) Describing the copious litigation arising out of the recent foreclosure crisis, a pair of commentators explained: “While plenty of uncertainty existed, one concept clearly emerged from litigation during the 2008-2012 period: in order to foreclose a mortgage by judicial action, one had to have the right to enforce the debt that the mortgage secured. It is hard to imagine how this notion could be controversial.” (Whitman & Milner, Foreclosing on Nothing: The Curious Problem of the Deed of Trust Foreclosure Without Entitlement to Enforce the Note (2013) 66 Ark. L.Rev. 21, 23, fn. omitted.)
More subject to dispute is the question presented here: Under what circumstances, if any, may the borrower challenge a nonjudicial foreclosure on the ground that the foreclosing party is not a valid assignee of the original lender? Put another way, does the borrower have standing to challenge the validity of an assignment to which he or she was not a party?3 We proceed to that issue.
A beneficiary or trustee under a deed of trust who conducts an illegal, fraudulent or willfully oppressive sale of property may be liable to the borrower for wrongful foreclosure. (Chavez v. Indymac Mortgage Services (2013) 219 Cal.App.4th 1052, 1062 [162 Cal.Rptr.3d 382]; Munger v. Moore (1970) 11 Cal.App.3d 1, 7 [89 Cal.Rptr. 323].)4 A foreclosure initiated by one with no authority to do so is wrongful for purposes of such an action. (Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at pp. 973-974; Ohlendorf v. American Home Mortgage Servicing (E.D.Cal. 2010) 279 F.R.D. 575, 582-583.) As explained in part I, ante, only the original beneficiary, its assignee or an agent of one of these has the authority to instruct the trustee to initiate and complete a nonjudicial foreclosure sale. The question is whether and when a wrongful foreclosure plaintiff may challenge the authority of one who claims it by assignment.
In Glaski, supra, 218 Cal.App.4th 1079, 1094–1095, the court held a borrower may base a wrongful foreclosure claim on allegations that the foreclosing party acted without authority because the assignment by which it purportedly became beneficiary under the deed of trust was not merely voidable but void. Before discussing Glaski‘s holdings and rationale, we review the distinction between void and voidable transactions.
A void contract is without legal effect. (Rest.2d Contracts, § 7, com. a, p. 20.) “It binds no one and is a mere nullity.” (Little v. CFS Service Corp. (1987) 188 Cal.App.3d 1354, 1362 [233 Cal.Rptr. 923].) “Such a contract has no existence whatever. It has no legal entity for any purpose and neither action nor inaction of a party to it can validate it....” (Colby v. Title Ins. and Trust Co. (1911) 160 Cal. 632, 644 [117 P. 913].) As we said of a fraudulent real property transfer in First Nat. Bank of L. A. v. Maxwell (1899) 123 Cal. 360, 371 [55 P. 980], ” ‘A void thing is as no thing.” ”
In Glaski, the foreclosing entity purportedly acted for the current beneficiary, the trustee of a securitized mortgage investment trust.5 The plaintiff, seeking relief from the allegedly wrongful foreclosure, claimed his note and deed of trust had never been validly assigned to the securitized trust because the purported assignments were made after the trust‘s closing date. (Glaski, supra, 218 Cal.App.4th at pp. 1082-1087.)
The Glaski court began its analysis of wrongful foreclosure by agreeing with a federal district court that such a cause of action could be made out “‘where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.” (Glaski, supra, 218 Cal.App.4th at p. 1094, quoting Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at p. 973.) But the wrongful foreclosure plaintiff, Glaski cautioned, must do more than assert a lack of authority to foreclose; the plaintiff must allege facts “show[ing] the defendant who invoked the power of sale was not the true beneficiary.” (Glaski, at p. 1094.)
Acknowledging that a borrower‘s assertion that an assignment of the note and deed of trust is invalid raises the question of the borrower‘s standing to challenge an assignment to which the borrower is not a party, the Glaski court cited several federal court decisions for the proposition that a borrower has standing to challenge such an assignment as void, though not as voidable. (Glaski, supra, 218 Cal.App.4th at pp. 1094–1095.) Two of these decisions, Culhane v. Aurora Loan Services of Nebraska (1st Cir. 2013) 708 F.3d 282 (Culhane) and Reinagel v. Deutsche Bank National Trust Co. (5th Cir. 2013)
Glaski adopted from the federal decisions and a California treatise the view that “a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment” not merely render it voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) Cases holding that a borrower may never challenge an assignment because the borrower was neither a party to nor a third party beneficiary of the assignment agreement “‘paint with too broad a brush‘” by failing to distinguish between void and voidable agreements. (Ibid., quoting Culhane, supra, 708 F.3d at p. 290.)
The Glaski court went on to resolve the question of whether the plaintiff had pled a defect in the chain of assignments leading to the foreclosing party that would, if true, render one of the necessary assignments void rather than voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) On this point, Glaski held allegations that the plaintiff‘s note and deed of trust were purportedly transferred into the trust after the trust‘s closing date were sufficient to plead a void assignment and hence to establish standing. (Glaski, at pp. 1096-1098.) This last holding of Glaski is not before us. On granting plaintiff‘s petition for review, we limited the scope of our review to whether “the borrower [has] standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void.” We did not include in our order the question of whether a postclosing date transfer into a New York securitized trust is void or merely voidable, and though the parties’ briefs address it, we express no opinion on the question here.
Returning to the question that is before us, we consider in more detail the authority Glaski relied on for its standing holding. In Culhane, a Massachusetts home loan borrower sought relief from her nonjudicial foreclosure on the ground that the assignment by which Aurora Loan Services of Nebraska (Aurora) claimed authority to foreclose—a transfer of the mortgage from Mortgage Electronic Registration Systems, Inc. (MERS),7 to Aurora—was void because MERS never properly held the mortgage. (Culhane, supra, 708 F.3d at pp. 286-288, 291.)
Culhane next considered whether the prudential principle that a litigant should not be permitted to assert the rights and interest of another dictates that borrowers lack standing to challenge mortgage assignments as to which they are neither parties nor third party beneficiaries. (Culhane, supra, 708 F.3d at p. 290 and the borrower is entitled to relief from foreclosure by an unauthorized party. (Culhane, at p. 290.) Second, in a nonjudicial foreclosure the borrower has no direct opportunity to challenge the foreclosing entity‘s authority in court. Without standing to sue for relief from a wrongful foreclosure, “a Massachusetts mortgagor would be deprived of a means to assert her legal protections.” (Ibid.) These considerations led the Culhane court to conclude “a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity‘s status qua mortgagee.” (Id. at p. 291.)
The court immediately cautioned that its holding was limited to allegations of a void transfer. If, for example, the assignor had no interest to assign or had no authority to make the particular assignment, “a challenge of this sort would be sufficient to refute an assignee‘s status qua mortgagee.” (Culhane, supra, 708 F.3d at p. 291.) But where the alleged defect in an assignment would “render it merely voidable at the election of one party but otherwise effective to pass legal title,” the borrower has no standing to challenge the assignment on that basis. (Ibid.)9
Like Culhane, Reinagel distinguished between defects that render a transaction void and those that merely make it voidable at a party‘s behest. “Though ‘the law is settled’ in Texas that an obligor cannot defend against an assignee‘s efforts to enforce the obligation on a ground that merely renders the assignment voidable at the election of the assignor, Texas courts follow the majority rule that the obligor may defend ‘on any ground which renders the assignment void.‘” (Reinagel, supra, 735 F.3d at p. 225
Jenkins, on which the Court of Appeal below relied, was decided close in time to Glaski (neither decision discusses the other) but reaches the opposite conclusion on standing. In Jenkins, the plaintiff sued to prevent a foreclosure sale that had not yet occurred, alleging the purported beneficiary who sought the sale held no security interest because a purported transfer of the loan into a securitized trust was made in violation of the pooling and servicing agreement that governed the investment trust. (Jenkins, supra, 216 Cal.App.4th at pp. 504-505.)
The appellate court held a demurrer to the plaintiff‘s cause of action for declaratory relief was properly sustained for two reasons. First, Jenkins held California law did not permit a “preemptive judicial action[] to challenge the right, power, and authority of a foreclosing ‘beneficiary’ or beneficiary‘s ‘agent’ to initiate and pursue foreclosure.” (Jenkins, supra, 216 Cal.App.4th at p. 511.) Relying primarily on Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 [121 Cal.Rptr.3d 819], Jenkins reasoned that such preemptive suits are inconsistent with California‘s comprehensive statutory scheme for nonjudicial foreclosure; allowing such a lawsuit “would fundamentally undermine the nonjudicial nature of the process and introduce the
This aspect of Jenkins, disallowing the use of a lawsuit to preempt a nonjudicial foreclosure, is not within the scope of our review, which is limited to a borrower‘s standing to challenge an assignment in an action seeking remedies for wrongful foreclosure. As framed by the proceedings below, the concrete question in the present case is whether plaintiff should be permitted to amend her complaint to seek redress, in a wrongful foreclosure count, for the trustee‘s sale that has already taken place. We do not address the distinct question of whether, or under what circumstances, a borrower may bring an action for injunctive or declaratory relief to prevent a foreclosure sale from going forward.
Second, as an alternative ground, Jenkins held a demurrer to the declaratory relief claim was proper because the plaintiff had failed to allege an actual controversy as required by
For its conclusion on standing, Jenkins cited Correia v. Deutsche Bank National Trust Co. (Bankr. 1st Cir. 2011) 452 B.R. 319. The borrowers in that case challenged a foreclosure on the ground that the assignment of their mortgage into a securitized trust had not been made in accordance with the trust‘s pooling and servicing agreement (PSA). (Id. at pp. 321-322.) The appellate court held the borrowers “lacked standing to challenge the mortgage‘s chain of title under the PSA.” (Id. at p. 324.) Being neither parties nor third party beneficiaries of the pooling agreement, they could not complain of a failure to abide by its terms. (Ibid.)
Jenkins also cited Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495 [141 Cal.Rptr.3d 326], which primarily addressed the
On the narrow question before us—whether a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void—we conclude Glaski provides a more logical answer than Jenkins. As explained in part I, ante, only the entity holding the beneficial interest under the deed of trust—the original lender, its assignee, or an agent of one of these—may instruct the trustee to commence and complete a nonjudicial foreclosure. (
Like the Massachusetts borrowers considered in Culhane, whose mortgages contained a power of sale allowing for nonjudicial foreclosure, California borrowers whose loans are secured by a deed of trust with a power of sale may suffer foreclosure without judicial process and thus “would be deprived of a means to assert [their] legal protections” if not permitted to challenge the foreclosing entity‘s authority through an action for wrongful foreclosure. (Culhane, supra, 708 F.3d at p. 290id. at p. 291)—that is, as the current holder of the beneficial interest under the deed of trust. (Accord, Wilson v. HSBC Mortgage Services, Inc. (1st Cir. 2014) 744 F.3d 1, 9 [“A homeowner in Massachusetts—even when not a party to or third party beneficiary of a mortgage assignment—has standing to challenge that assignment as void because success on the merits
Jenkins and other courts denying standing have done so partly out of concern with allowing a borrower to enforce terms of a transfer agreement to which the borrower was not a party. In general, California law does not give a party personal standing to assert rights or interests belonging solely to others.12 (See
When the plaintiff alleges a void assignment, however, the Jenkins court‘s concern with enforcement of a third party‘s interests is misplaced. Borrowers who challenge the foreclosing party‘s authority on the grounds of a void assignment “are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio.” (Reinagel, supra, 735 F.3d at p. 225; accord, Mruk v. Mortgage Electronic Registration Systems, Inc. (R.I. 2013) 82 A.3d 527, 536 [borrowers challenging an assignment as void “are not attempting to assert the rights of one of the contracting parties; instead, the homeowners are asserting their own rights not to have their homes unlawfully foreclosed upon“].)
Unlike a voidable transaction, a void one cannot be ratified or validated by the parties to it even if they so desire. (Colby v. Title Ins. and Trust Co., supra, 160 Cal. at p. 644; Aronoff v. Albanese, supra, 446 N.Y.S.2d at p. 370.) Parties to a securitization or other transfer agreement may well wish to ratify the transfer agreement despite any defects, but no ratification is possible if the assignment is void ab initio. In seeking a finding that an assignment agreement was void, therefore, a plaintiff in Yvanova‘s position is not
Defendants argue a borrower who is in default on his or her loan suffers no prejudice from foreclosure by an unauthorized party, since the actual holder of the beneficial interest on the deed of trust could equally well have foreclosed on the property. As the Jenkins court put it, when an invalid transfer of a note and deed of trust leads to foreclosure by an unauthorized party, the “victim” is not the borrower, whose obligations under the note are unaffected by the transfer, but “an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.” (Jenkins, supra, 216 Cal.App.4th at p. 515; see also Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 85 [161 Cal.Rptr.3d 500] [borrowers had no standing to challenge assignment by MERS where they do not dispute they are in default and “there is no reason to believe . . . the original lender would have refrained from foreclosure in these circumstances“]; Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 272 [wrongful foreclosure plaintiff could not show prejudice from allegedly invalid assignment by MERS as the assignment “merely substituted one creditor for another, without changing her obligations under the note“].)
In deciding the limited question on review, we are concerned only with prejudice in the sense of an injury sufficiently concrete and personal to provide standing, not with prejudice as a possible element of the wrongful foreclosure tort. (See fn. 4, ante.) As it relates to standing, we disagree with defendants’ analysis of prejudice from an illegal foreclosure. A foreclosed-upon borrower clearly meets the general standard for standing to sue by showing an invasion of his or her legally protected interests (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 175 [59 Cal.Rptr.3d 142, 158 P.3d 718])—the borrower has lost ownership to the home in an allegedly illegal trustee‘s sale. (See Culhane, supra, 708 F.3d at p. 289 [foreclosed-upon borrower has sufficient personal stake in action against foreclosing entity to meet federal standing requirement].) Moreover, the bank or other entity that ordered the foreclosure would not have done so absent the allegedly void assignment. Thus “[t]he identified harm—the foreclosure—can be traced directly to [the foreclosing entity‘s] exercise of the authority purportedly delegated by the assignment.” (Id. at p. 290.)
Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to
It is no mere “procedural nicety,” from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so. (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 650.) “Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee may sell the property pursuant to the requisite legal procedure.” (Ibid., italics added & omitted.)
The logic of defendants’ no-prejudice argument implies that anyone, even a stranger to the debt, could declare a default and order a trustee‘s sale—and the borrower would be left with no recourse because, after all, he or she owed the debt to someone, though not to the foreclosing entity. This would be an “odd result” indeed. (Reinagel, supra, 735 F.3d at p. 225.) As a district court observed in rejecting the no-prejudice argument, “[b]anks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank‘s deed of trust.” (Miller v. Homecomings Financial, LLC (S.D.Tex. 2012) 881 F.Supp.2d 825, 832.)
Defendants note correctly that a plaintiff in Yvanova‘s position, having suffered an allegedly unauthorized nonjudicial foreclosure of her home, need not now fear another creditor coming forward to collect the debt. The home can only be foreclosed once, and the trustee‘s sale extinguishes the debt. (
Defendants suggest that to establish prejudice the plaintiff must allege and prove that the true beneficiary under the deed of trust would have refrained from foreclosing on the plaintiff‘s property. Whatever merit this rule would
Neither Caulfield v. Sanders (1861) 17 Cal. 569 nor Seidell v. Tuxedo Land Co. (1932) 216 Cal. 165 [13 P.2d 686], upon which defendants rely, holds or implies a home loan borrower may not challenge a foreclosure by alleging a void assignment. In the first of these cases, we held a debtor on a contract for printing and advertising could not defend against collection of the debt on the ground it had been assigned without proper consultation among the assigning partners and for nominal consideration: “It is of no consequence to the defendant, as it in no respect affects his liability, whether the transfer was made at one time or another, or with or without consideration, or by one or by all the members of the firm.” (Caulfield v. Sanders, at p. 572.) In the second, we held landowners seeking to enjoin a foreclosure on a deed of trust to their land could not do so by challenging the validity of an assignment of the promissory note the deed of trust secured. (Seidell v. Tuxedo Land Co., at pp. 166, 169-170.) We explained that the assignment was made by an agent of the beneficiary, and that despite the landowner‘s claim the agent lacked authority for the assignment, the beneficiary “is not now complaining.” (Id. at p. 170.) Neither decision discusses the distinction between allegedly void and merely voidable, and neither negates a borrower‘s ability to challenge an assignment of his or her debt as void.
For these reasons, we conclude Glaski, supra, 218 Cal.App.4th 1079, was correct to hold a wrongful foreclosure plaintiff has standing to claim the foreclosing entity‘s purported authority to order a trustee‘s sale was based on a void assignment of the note and deed of trust. Jenkins, supra, 216 Cal.App.4th 497, spoke too broadly in holding a borrower lacks standing to challenge an assignment of the note and deed of trust to which the borrower was neither a party nor a third party beneficiary. Jenkins‘s rule may hold as to claimed defects that would make the assignment merely voidable, but not as to alleged defects rendering the assignment absolutely void.13
In embracing Glaski‘s rule that borrowers have standing to challenge assignments as void, but not as voidable, we join several courts around the
That several federal courts applying California law have, largely in unreported decisions, agreed with Jenkins and declined to follow Glaski does not alter our conclusion. Neither Khan v. Recontrust Co. (N.D.Cal. 2015) 81 F.Supp.3d 867 nor Flores v. EMC Mortgage Co. (E.D.Cal. 2014) 997 F.Supp.2d 1088 adds much to the discussion. In Khan, the district court found the borrower, as a nonparty to the PSA, lacked standing to challenge a foreclosure on the basis of an unspecified flaw in the loan‘s securitization; the court‘s opinion does not discuss the distinction between a void assignment and a merely voidable one. (Khan v. Recontrust Co., supra, 81 F.Supp.3d at pp. 872-873.) In Flores, the district court, considering a wrongful foreclosure complaint that lacked sufficient clarity in its allegations including identification of the assignment or assignments challenged, the district court quoted and followed Jenkins‘s reasoning on the borrower‘s lack of standing to enforce an agreement to which he or she is not a party, without addressing the application of this reasoning to allegedly void assignments. (Flores v. EMC Mortgage Co., supra, at pp. 1103-1105.)
Similarly, the unreported federal decisions applying California law largely fail to grapple with Glaski‘s distinction between void and voidable assignments and tend merely to repeat Jenkins‘s arguments that a borrower, as a nonparty to an assignment, may not enforce its terms and cannot show prejudice when in default on the loan, arguments we have found insufficient with regard to allegations of void assignments. While unreported federal court decisions may be cited in California as persuasive authority (Kan v. Guild Mortgage Co. (2014) 230 Cal.App.4th 736, 744, fn. 3 [178 Cal.Rptr.3d 745]), in this instance they lack persuasive value.
Defendants cite the decision in Rajamin v. Deutsche Bank National Trust Co. (2nd Cir. 2014) 757 F.3d 79 (Rajamin), as a “rebuke” of Glaski. Rajamin‘s expressed disagreement with Glaski, however, was on the question
The Rajamin court did, in an earlier discussion, state generally that borrowers lack standing to challenge an assignment as violative of the securitized trust‘s PSA (Rajamin, supra, 757 F.3d at pp. 85–86), but the court in that portion of its analysis did not distinguish between void and voidable assignments. In a later portion of its analysis, the court “assum[ed] that ‘standing exists for challenges that contend that the assigning party never possessed legal title,” a defect the plaintiffs claimed made the assignments void (id. at p. 90), but concluded the plaintiffs had not properly alleged facts to support their voidness theory (id. at pp. 90–91).
Nor do Kan v. Guild Mortgage Co., supra, 230 Cal.App.4th 736, and Siliga v. Mortgage Electronic Registration Systems, Inc., supra, 219 Cal.App.4th 75 (Siliga), which defendants also cite, persuade us Glaski erred in finding borrower standing to challenge an assignment as void. The Kan court distinguished Glaski as involving a postsale wrongful foreclosure claim, as opposed to the preemptive suits involved in Jenkins and Kan itself. (Kan, at pp. 743-744Kan court noted the federal criticism of Glaski and our grant of review in the present case, but found “no reason to wade into the issue of whether Glaski was correctly decided, because the opinion has no direct applicability to this preforeclosure action.” (Kan, at p. 745.)