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CASE UPDATE: Wrongful Foreclosure Plaintiff Can Challenge The Validity Of The Assignment Of The Underlying Note And Deed Of Trust.

In Yvanov v. New Century Mortg. Corp., (2016) 62 Cal.4th 919, the California Supreme Court resolved a split of authority in the appellate courts and held that a borrower who has suffered a nonjudicial foreclosure has standing to sue for wrongful foreclosure based on an argument that the foreclosing loan beneficiary and trustee lack foreclosure authority because the loan was not properly assigned.   Generally speaking, “standing” is a constitutional requirement that a plaintiff in a lawsuit have a legally protectable and tangible interest at stake in the litigation.

The underlying facts in this case were these:   In 2006, the plaintiff executed a note secured by a deed of trust in favor of lender/beneficiary New Century.  In 2007-08, New Century filed for bankruptcy and all its assets were liquidated.  In 2011, New Century purported to assign the deed of trust to Deutsche Bank, as trustee for the Morgan Stanley investment trust.  The Morgan Stanley investment trust had a “closing date” of January 2007, which was the date by which all loans, mortgages and trust deeds were to be transferred into this investment pool.  In 2012, Western Progressive substituted itself for Deutsche Bank as trustee, and then gave notice and conducted the foreclosure sale.  The plaintiff alleged that the 2011 assignment from New Century to Deutsche Bank was void because: 1) all its assets were previously transferred to the bankruptcy trustee; and 2) the Morgan Stanley investment trust had closed to new loans in 2007.

A prior appellate case, Jenkins v. JP Morgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, held that a wrongful foreclosure plaintiff had no standing to challenge an improper assignment because it was not a party to the assignment.  However, another prior case, Glaski v. Bank of America, National Association (2013) 218 Cal.App.4th 1079, held to the contrary.  The California Supreme Court adopted the reasoning of the Glaski decision, which was this:  an invalid assignment is “void” (meaning without ever having legal force or effect), and if the assignment of a deed of trust is void, then the purported new beneficiary and trustee do not have legal authority to undertake the nonjudicial foreclosure process, and such an authorized sale constitutes a wrongful foreclosure.

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©2016 Miles J. Dolinger.  This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship.

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Miles J. Dolinger
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