California Court of Appeal Rules on “Standing to Challenge Foreclosure” Issues Left Unaddressed by Yvanova

 

A recent post, California Supreme Court: Borrowers Have Standing to Allege Wrongful Foreclosure Based on Void Assignment of Note, summarized the February 2016 opinion in Yvanova v. New Century Mortgage Corporation.  In Yvanova, the California Supreme Court held that borrowers have standing to allege wrongful foreclosure after a completed foreclosure sale based on a void assignment of the underlying promissory note and deed of trust.

The Yvanova opinion clarified that its holding applied only to an action challenging a completedforeclosure sale (not to an action seeking injunctive relief to halt an anticipated sale), and only where the assignment was allegedly void (not merely voidable).  The opinion made no ruling as to whether the challenged assignment of the note in that case — made to an investment trust governed by New York law after the trust’s closing date — was actually void or merely voidable.

A recent opinion from the Fourth District Court of Appeal, Division One (in San Diego) — Saterbak v. JPMorgan Chase Bank — weighs in on the issues left unaddressed in Yvanova.

Facts: borrower defaults on loan, challenges lender’s ability to foreclose based on allegedly void assignment of note and deed of trust

The borrower, Laura Saterbak, borrowed $1 million in April 2007 to buy real property in La Mesa.  The deed of trust named Mortgage Electronic Registration Systems, Inc. (“MERS”) as the beneficiary.

In 2011, MERS executed an assignment of the note and deed of trust to Citibank, as trustee for a real estate mortgage investment trust governed by New York law.  Under the terms of the trust’s pooling and servicing agreement, all loans had to be transferred to the trust on or before its September 2007 closing date.

Saterbak fell behind on her payments.  JPMorgan Chase Bank, acting as attorney-in-fact for Citibank, substituted in a new trustee, which recorded a notice of trustee’s sale.

Before the sale, Saterbak filed a lawsuit seeking a judicial declaration that the assignment of the note was void.  The trial court sustained the lender’s demurrer and dismissed the case on the grounds that Saterbak was not a party to the trust’s pooling and servicing agreement, and therefore lacked standing to challenge the assignment.

Saterbak appealed.

The Court of Appeal’s opinion

The Court of Appeal affirmed the trial court’s ruling.

The court first concluded that Saterbak lacked standing to challenge the assignment before the completion of the foreclosure sale, noting that “California courts do not allow such preemptive suits because they would result in the impermissible interjection of the courts into a nonjudicial scheme enacted by the California Legislature.”  The court noted that the Supreme Court’s ruling inYvanova — finding a borrower did have standing to challenge a similar assignment — was “expressly limited to the post-foreclosure context.”

Unlike the Yvanova opinion, the court of appeal also tackled the issue of whether the alleged assignment was really void, or instead merely voidable, under New York law.  The court concluded, based on New York authority, that the assignment was merely voidable by the beneficiary (not by Saterbak).

Lesson

Under Yvanova, a borrower has standing to sue for a completed wrongful foreclosure sale based on an allegedly void assignment of the note.  But under Saterbak, the same borrower would have no standing to assert a claim for injunctive relief before the foreclosure sale.

Two developments post-dating the events in Saterbak are noteworthy:

First, the California Homeowner Bill of Rights (enacted after the challenged assignment in Saterbakand therefore inapplicable to that case) allows a borrower to sue for injunctive relief based on certain defects with an assignment.

Second, the California Supreme Court has granted review in Keshtgar v. U.S. Bank, N.A., a case involving a pre-foreclosure challenge based on alleged deficiencies in the assignment of a deed of trust.  Briefing should begin soon in the Keshtgar case, with a decision expected in 2017.  Stay tuned….

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