This one–the Yvanova decision by the California Supreme Court–was a no-brainer, of course. Had the Court ruled that homeowners cannot challenge a bogus assignment, there would be no point in a bank or other purported holder of California mortgages following the law about assignments at all, because they’d never be challenged. And what would be the result? An absolutely broken system of keeping up with what person owns what property. Which is kinda already the case, but that’s another story.
First, a little background…
Two of the major hallmarks of wrongful, fraudulent foreclosure were present in the Yvanova situation:
1. Zombie assignments: Defunct and/or bankrupt company assigns a mortgage or deed of trust years after said company has been dissolved. In the Yvanova case, New Century was liquidated in 2008 but supposedly assigned Yvanova’s deed of trust to Deutsche Bank in 2011.
2. Closed pools: By law, mortgages placed in trust pools have to be placed there by a certain cutoff date. In Yvanova’s case, the Morgan Stanley trust pool (of which Deutsche Bank was the purported servicer) had a cutoff date of January 2007 but the zombie assignment from New Century to Deutsche Bank purported to put the Yvanova deed of trust in that pool in December 2011.
It speaks volumes about the bank-friendly courts that it would take the Supreme Court to step in and say, essentially, “Duh, a homeowner absolutely has the right to challenge a zombie assignment to a closed pool—why would you think otherwise?” Or, as the Supreme Court put it:
“… California borrowers whose loans are secured by a deed of trust with a power of sale may suffer foreclosure without judicial process and thus ―would be deprived of a means to assert [their] legal protections if not permitted to challenge the foreclosing entity‘s authority through an action for wrongful foreclosure. (Culhane, supra, 708 F.3d at p. 290.) A borrower therefore ―has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity‘s status qua mortgagee‖ (id. at p. 291)— that is, as the current holder of the beneficial interest under the deed of trust.”
To make it perfectly clear, the Court goes on to say:
“In seeking a finding that an assignment agreement was void, therefore, a plaintiff in Yvanova‘s position is not asserting the interests of parties to the assignment; she is asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale. This, then, is not a situation in which standing to sue is lacking because its ―sole object . . . is to settle rights of third persons who are not parties. (Golden Gate Bridge etc. Dist. v. Felt (1931) 214 Cal. 308, 316.)”
Again, the fact that this has to be explicitly stated is kind of disheartening. None of this should be some new concept. I mean, just strip away the “securitization” mumbo-jumbo and all you’re dealing with is garden-variety fraud and theft on the part of the would-be foreclosers. If the Court had sided with the banks on this issue, they’d have been essentially saying that ordinary people can’t protect themselves from fraud and theft.
In fact, the Court points out that such an argument is basically one that the banks were trying to make in this case. The banks said, “Hey, the borrower didn’t pay up, so someone was gonna take the house—doesn’t really matter to the borrower who takes it.” Said the Court:
“Defendants argue a borrower who is in default on his or her loan suffers no prejudice from foreclosure by an unauthorized party, since the actual holder of the beneficial interest on the deed of trust could equally well have foreclosed on the property. As the Jenkins court put it, when an invalid transfer of a note and deed of trust leads to foreclosure by an unauthorized party, the ―victim‖ is not the borrower, whose obligations under the note are unaffected by the transfer, but ―an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.”
Again, the Court smacks down that claptrap, and smacks it down quite forcefully:
“As it relates to standing, we disagree with defendants‘ analysis of prejudice from an illegal foreclosure. A foreclosed-upon borrower clearly meets the general standard for standing to sue by showing an invasion of his or her legally protected interests (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 175)—the borrower has lost ownership to the home in an allegedly illegal trustee‘s sale. (See Culhane, supra, 708 F.3d at p. 289 [foreclosed-upon borrower has sufficient personal stake in action against foreclosing entity to meet federal standing requirement].) Moreover, the bank or other entity that ordered the foreclosure would not have done so absent the allegedly void assignment. Thus ―[t]he identified harm—the foreclosure—can be traced directly to [the foreclosing entity‘s] exercise of the authority purportedly delegated by the assignment.”
Lastly—and perhaps most importantly—the Court reiterates the black-letter law about who can enforce the debt, i.e. the note. The note, after all, is the main document in a mortgage transaction, while the deed of trust is only an incident to the note. As we’ve written about many times here at Liberty Road Media, the four corners of the standard Fannie/Freddie note states that the debt is owed only to the party that meets both of the following criteria: 1. entitled to the payments due (i.e., via endorsement) and 2. took the note by transfer. That is the definition of the “note holder” which the UCC explicitly protects. Here’s the Court’s take:
Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to object to an assignment of the promissory note, he or she is obligated to pay the debt, or suffer loss of the security, only to a person or entity that has actually been assigned the debt. (See Cockerell v. Title Ins. & Trust Co., supra, 42 Cal.2d at p. 292 [party claiming under an assignment must prove fact of assignment].) The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.
Hear, hear! Again, this is not some arcane premise that no one really knows about—it’s right there in black and white on every promissory note! And the Court approvingly quotes Levitin on this matter (the second quote from Levitin in the decision):
“It is no mere procedural nicety, from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so. (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 650.) ―Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee [and only the mortgagee—LRM] may sell the property pursuant to the requisite legal procedure. (Ibid., italics added and omitted.)”
So, sanity prevails! Whew—that was close. And a parting gift from the decision:
“A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity‘s hands. No more is required for standing to sue.”
It doesn’t get much clearer than that, boys and girls! Now that you have standing, stand up and sue these banks! Hopefully this is one of those California trends that will sweep across the country in no time flat!