EDITOR’S NOTE: This blog post was written by Steven Ellis, a partner in Goodwin’s Consumer Financial Services Litigation Practice Group. Steve was one of the authors of an amicus brief filed in the Yvanova case on behalf of the California Bankers Association.
Do borrowers have standing to challenge a non-judicial foreclosure on the ground of alleged defects in an assignment from the original lender to a successor? This is a question that has divided courts, both in California and across the country. See, e.g., Glaski v. Bank of Am., 218 Cal. App. 4th 1079 (2013) (borrower may have standing); Jenkins v. JP Morgan Chase Bank, 216 Cal. App. 4th 497 (2013) (borrower does not have standing); Rajamin v. Deutsche Bank Nat’l Trust Co., 757 F.3d 79 (2d Cir. 2014) (no standing).
On February 18, 2016, the California Supreme Court waded into these muddy waters and sided with the borrowers, at least in part. Yvanova v. New Century Mortgage Corp., et al., Case No. S218973 (Feb. 18, 2016). The court ruled that, at the pleading stage, if (and only if) the defect in the assignment alleged by the borrower would render the assignment void (and not merely voidable), then the borrower has standing to bring a wrongful foreclosure claim for damages against the assignee. The court rejected the argument made by defendants that, under standard contract law, the borrower lacked standing to challenge the assignment as she was neither a party to, nor a third party beneficiary of, the assignment. Rather, the court reasoned, if plaintiff could prove that the assignment was truly void, and therefore of no legal effect whatsoever, foreclosure by the assignee would constitute “an invasion of [the borrower’s] legally protected interests” in “limiting foreclosure … to those with legal authority to order a foreclosure sale.”
The court itself stated that the Yvanova ruling was “a narrow one” and that the court was not deciding a number of issues that had been briefed by the parties, including (a) whether the particular defect that the plaintiff alleged in Yvanova (related to the timing of the assignment) rendered the assignment void or merely voidable; (b) whether the plaintiff in this case alleged, or will be able to prove, that there was any actual defect in the assignment; (c) whether a borrower who has been in default for months or years (as was true for the plaintiff in Yvanova) must show, in order to recover damages in a wrongful foreclosure case, not only that the “wrong” beneficiary of the deed of trust initiated the foreclosure but also that the “true” beneficiary of the deed of trust would have acted differently and not pursued a foreclosure; (d) whether a borrower seeking to recover monetary damages in a wrongful foreclosure case must allege tender; (e) whether, post-sale, a borrower can obtain any remedy other than monetary damages; and (f) whether a borrower, prior to a foreclosure sale, can bring a pre-emptive suit to enjoin a foreclosure.
Accordingly, even after Yvanova there are a substantial number of unresolved issues that remain regarding whether borrowers in California will be able to succeed in bringing wrongful foreclosure claims based upon alleged defects in assignments. These wrongful foreclosure claims may prove to be far easier for borrowers to allege than to prove, and further litigation will be required to address, and resolve, the many issues left open by the Yvanova decision.