In an interview, Ballard Spahr’s Scott Pearson described how a recent California Supreme Court decision may increase the cost to obtain a home loan. The decision in Yvanova v. New Century Mortgage Corporation opens the door for homeowners in default to challenge the validity of their foreclosure.

The Supreme Court ruled earlier this year in the case that "a home loan borrower has standing to claim a non-judicial foreclosure was wrongful" if the foreclosing party does not have the authority to order a trustee’s sale.

"This case is about a technical error in the process of securitizing a loan, so that the bank doesn’t have all the right paperwork," attorney Scott Pearson told the Northern California Record. "This isn’t about whether someone lost their home and shouldn’t have lost their home. It’s about whether they should be able to use the technical error made during that securitization process as a reason to claim damages because the foreclosure wasn’t proper."

Pearson, a partner with Ballard Spahr in Los Angeles, said at the peak of the credit crisis of 2007, lenders made paperwork errors in the process of securitizing and transferring loans. But the vast majority of foreclosures were the direct result of borrowers failing to make payments on their mortgages.

"Someone was certainly allowed to foreclose on the home," he said. "Here, the argument is, well, you the banker or mortgage servicer, whoever it is, you think that you’re the one who owns this loan right now but there was a technical mistake, so you’re not the one who really owns it and you’re not the right person to complete this foreclosure. So I don’t see this as being some victory for justice."

He said the Supreme Court’s ruling is a narrow technical position that will merely make it easier for plaintiffs to survive a little longer in court.

"You’re preventing the foreclosure or, here, you can tie them up in court a little longer and maybe get them to pay you something to settle the case, because it’s expensive to litigate these cases," Pearson said.

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