California Supreme Court Opens Door For Wrongful Foreclosure Lawsuits And Challenges To Transfers Of Mortgages: Practical Implications And Options Moving Forward

In Yvanova v. New Century Mortgage Corporation et al, the Supreme Court of California reversed the Court of Appeal's ruling, and held that a borrower plaintiff who has been subject to a nonjudicial foreclosure has standing to bring an action for wrongful foreclosure based on an allegedly void deed of trust assignment (without making any determination as to whether the alleged facts established a void assignment). In so doing, the Supreme Court came down solidly in favor of the "aggrieved" borrower thus settling, at least in California and likely other non-judicial foreclosure states, the issue regarding the standing of such a plaintiff to challenge the acts of a securitization trust. Since the financial crisis there have been several cases considering the standing issue, most notably the California Court of Appeal decisions in Glaski v. Bank of America, N. A. (2011) 198 Cal. App. 4th 256 (holding the plaintiff had standing to challenge the authority of the beneficiary to foreclose) and Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal. App. 4th 497 (holding the plaintiff had no standing to enforce the terms of the agreements allegedly violated). The Supreme Court stated "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."

The Yvanova case has a particularly bad fact pattern where the deed of trust was executed in 2006 together with an assignment of mortgage or deed of trust "in blank", or without filling in the name of the assignee of the deed of trust and recording the assignment. New Century, the lender and beneficiary on the deed of trust, filed for bankruptcy on April 2, 2007 and on August 1, 2008 was liquidated and its assets were transferred to a liquidation trust. Prior to that time, the mortgage was sold to a securitization trust - MSAC-2007 Trust-HE-1 Pass Thru Certificates. Ocwen Loan Servicing LLC, as attorney in fact for New Century, completed the assignment of mortgage on December 19, 2011, and the assignment was recorded on December 30, 2011. Although not deciding on the issue of whether the assignment was "void" and not merely "voidable", the Court noted that New Century no longer existed when the assignment of mortgage was "completed". The foreclosure occurred in September 2012.

Practical Implications for Securitization Trusts

Securitization trusts have typically provided...