The California Supreme Court has unanimously ruled in Yvanova v. New Century Mortgage Corp. that a homeowner has standing to bring a wrongful foreclosure action after a completed nonjudicial foreclosure sale on the grounds that an assignment from the original lender to the foreclosing lender was void. In doing so, the Court partially resolved a split in authority in the California Court of Appeal between Glaski, which held that a plaintiff had standing, and Jenkins, and the cases following it, which held that a plaintiff lacked such standing, in favor of Glaski.

Glaski held that a borrower's allegation that the assignment of his loan into a securitization trust occurred after the trust's closing date was sufficient to state a basis for concluding that the transfers were void as a matter of New York law. Glaski further held that where the assignment is void, the borrower has standing to challenge the foreclosure by the assignee. Jenkins and the cases following it reached the opposite conclusion, concluding that the borrower lacks standing to enforce a securitization trust's pooling and servicing agreement. Glaski has been widely criticized by trial and appellate courts, and had not previously been followed by any reported California appellate decision. In following Glaski, the Supreme Court specifically disapproved four other Court of Appeal decisions ''to the extent they held borrowers lack standing to challenge an assignment of the deed of trust as void.''

Yvanova was decided at the pleading stage. For purposes of determining whether the plaintiff had stated a claim, the Court assumed, without deciding, the truth of her allegation that the assignment of the deed of trust securing her promissory note in favor of New Century Mortgage Corporation was void and not merely voidable. The plaintiff alleged that the deed of trust was assigned to an investment trust more than four years after the trust closed and more than three years after the same deed of trust was assigned to New Century's bankruptcy trustee following its liquidation. The trial court sustained the defendants' demurrers and the Court of Appeal affirmed the resulting judgment of dismissal.

The Supreme Court limited its review to the following question: ''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?''

The Court held that under the facts alleged, the plaintiff had standing to bring a wrongful foreclosure action for damages. The Court was careful to state that it was not ruling upon or suggesting its views on the related questions of whether the plaintiff had alleged facts showing the assignment was void or that, to the extent that she had, she would be able to prove those facts. The Court also expressly stated that it was not addressing the question of whether a borrower can preempt a threatened nonjudicial foreclosure by a suit challenging the foreclosing party's right to proceed.

The Supreme Court remanded the case to the Court of Appeal for further proceedings consistent with its opinion. It is unclear from the Supreme Court's opinion whether the record is sufficiently developed for the Court of Appeal to determine whether the facts alleged by the plaintiff constitute a void assignment or whether trial court proceedings will be necessary. The Supreme Court expressly stated that it was offering no opinion on the question of whether a post-closing assignment of a loan to a securitized trust is void. Notably, the New York decision relied on by the California Court of Appeal in Glaski has since been reversed by the New York Appellate Division.

Although Yvanova is obviously a disappointing decision for lenders, the scope of the Court's review was narrow, and did not reach the question of whether a late assignment to a securitization trust is void or voidable. Perhaps that is why the Court did not seriously address the amicus briefs dealing with industry practice regarding such assignments. The Court also did not address the question of whether an alleged late assignment would give rise to an injunctive remedy prior to a foreclosure sale. We anticipate extensive litigation over these issues at the trial and appellate levels in the near future.

Ballard Spahr's Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). Ballard Spahr's Mortgage Banking Group combines broad regulatory experience assisting clients in both the residential and commercial mortgage industries with formidable skill in litigation and depth in enforcement actions and transactions.


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