The foreclosure defense arguments of some California homeowners were given a big boost by the recent California Supreme Court decision in Yvanova v. New Century Mortgage.  In fact, just last week, we published an interview with one such homeowner, Sherry Hernandez: “First Yvanova, Now Hernandez—Courts Warming Up to Homeowner Arguments.”

However, it was an open question at the time of that interview as to how—or whether—the much-lauded and progressive Yvanova decision would help the plaintiff herself.  That question has now been answered in a decision (read it here) filed this past Friday by the Second District Court of Appeal and the answer is: the Supreme Court precedent which bears her name did not help her in her own case!

To help us understand this unfortunate turn of events, we again turned to David Seal, the attorney who utilized the logic of  Yvanova to help breathe new life into the case of Hernandez v. PNMAC both at the Supreme Court and the Court of Appeal.  Our email discussion follows below…

LRM: In a nutshell, what happened with Yvanova after the Supreme Court sent it back to the court of appeals?

Well, to answer that I think we need to first actually take a look at what the California Supreme Court did when it granted review of the Second District’s prior, adverse ruling in Yvanova v. New Century Mortgage. It was a very narrow review. As stated in the Supreme Court’s Opinion,

“We granted plaintiff’s petition for review, limiting the issue to be briefed and argued to the following: “In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?”

In other words, with that narrow scope of review, the Supreme Court set up a situation in which it was entirely possible that it could enter a ruling which made a sweeping new pronouncement about foreclosure law, which could affect mortgage finance and foreclosure laws and litigation in a wide variety of cases, but which may have very limited effect on the Yvanova case specifically. And it turns out that is exactly what it did.

I believe that the California Supreme Court (and the Attorney General’s office, which wrote an Amicus brief in support of Yvanova) were disturbed that the law as it existed would not give a homeowner the ability to challenge a foreclosure if it were done by the wrong entity, pursuant to a void assignment. The prior Second District’s decision in Yvanova had been based on the concept that a homeowner simply didn’t have that right, previously.

The Supreme Court disagreed with the Second District on that point. But the Supreme Court was very careful not to go so far as to say that Yvanova could or did state a cause of action once that hurdle was removed. It did give some guidance on certain issues, such as the tender rule and the prejudice rule, which were and still are quite useful as seen by the Fourth District’s Opinion in Sciaratta v. U.S. Bank (2016), and the Hernandez v. PNMAC Opinion from the Second District, both of which cited to the California Supreme Court’s Opinion in Yvanova v. New Century Mortgage (2016) 62 Cal. 4^th 919, very heavily. The Supreme Court’s decision also overruled some outdated caselaw.

But the Supreme Court didn’t send Yvanova back to the trial court, or write anything suggesting that given the new analysis of the issues that its own Opinion required, that Yvanova would be entitled to receive or automatically receive remand back to the trial court. Instead, it stated

“[W]e express no opinion on whether plaintiff has alleged facts showing a void assignment, or on any other issue relevant to her ability to state a claim for wrongful foreclosure.”

It merely instructed the Second District to reconsider the matter in light of its Opinion. I am sure Yvanova’s attorney knew this was a possibility given that language.

The Second District panel did its reconsideration, and concluded that the “late addition of a loan to a securitized trust” fact pattern is not viable, as it relies on New York trust law which states that under such facts, one has only pleaded a “voidable” transaction – as the trustee of whichever trust is involved has the ability to ratify late additions of the loan to that trust.

My belief is at this point is that the Yvanova Supreme Court Opinion continues to be important for homeowners in California.

LRM: Is the Court of Appeal thumbing its nose at the Supreme Court in some sense?

No. The Second District was tasked only with reconsidering Yvnova’s appeal, from a ruling on a demurrer denying leave to amend, in light of the Supreme Court’s ruling. It did not state that Yvanova had pleaded sufficient facts under that revised analysis, rather, it left that up to the Second District to determine.

There have been significant developments in caselaw and precedent over the past couple of years, in California (and all of my points are addressing only California substantive law here, as that is all I know) which have provided benefits and protections to consumers which were strangely not recognized by our courts previously. The Yvanova Supreme Court decision being one of those.

This is called due process at work. The right to due process does not mean that one will always win, but it does mean that one will get a fair consideration. And here, the Supreme Court weighed in, said “we think you’re looking at some of the issues wrong,” and sent it back for them to reconsider their ruling in light of that. As imperfect as our system is (and it is quite imperfect) one has to say that there has been much process here.

I do see that the different Courts of Appeal are struggling to come to terms with what Yvanova means, and I really wish it had reached a contrary result on re-hearing, as this result on complicates things.

Now it very well may be that Yvanova will again seek Supreme Court review, of some of the issues which were considered this second time around.

There is a natural tendency by people to look at the big signals of who “won” or “lost”, instead of getting to what that win or loss really meant. Taken at its most basic, we see the Internet go crazy with glee when a homeowner wins a trial or an appeal, and the overreaction to that can be the thought that now all homeowners will win all their cases from here on out. The law doesn’t work that way.

Even among lawyers, there is a tendency to over-estimate the effects of changes in the law from appellate decisions. Often those are extrapolated too far. I personally don’t believe that the “late addition of a loan to a securitized trust” fact pattern has much life in it. I could be proven wrong, and the Courts could change how they analyze such cases in the future. But presently, even before this latest Second District case, I had been less than optimistic about it.

But I remain, conversely, optimistic about OTHER fact patterns which involve “void assignments” which are void for different reasons – such as what we had in Hernandez v. PNMAC. I think the battlefield of this area of litigation will define over the next couple years which fact patterns are sufficient to allege a “void assignment” and which are not. There remains a lot of litigation, and appellate work, on many cases to come before that is clarified.

LRM: Is it not somewhat unusual for an appeals court to be overruled by the Supreme Court, only to have that same appeals court issue a ruling identical in result—if not in logic or reasoning?

Yes. It is somewhat unusual. The first unusual thing that happened was the California Supreme Court granted review, but only to review to consider this abstract legal theoretical question, and having ruled on that, was sending it back to the Second District without much case or fact-specific guidance.

Much as it might seem like a judicial mutiny, I don’t really see it that way. I think the Second District Court of Appeal just sees this particular fact pattern as being dead. Which is why I like Sherry Hernandez’s case so much, as hers does not involve these facts which are so reliant on New York trust law!

It also is confusing to laypersons and consumer advocates, and basically anyone who isn’t a lawyer. Actually, I shouldn’t stop there. It has probably confused plenty of them, too. God forbid it gets published! We’ll have inept lawyers running around citing the wrong Yvanova opinion with abandon and effectively short circuiting their clients’ cases.

LRM: So it is unusual is it for an appeals court to affirm a trial court, have that affirmation overruled by the Supreme Court, and then just issue another affirmation of the trial court?

It is quite rare. But I have to say, on balance, consumers in California are better off for Yvanova having persevered. Consumers are better off for the Supreme Court Opinion to exist. Consumers are better off for the Supreme Court to change the way courts look at the prejudice rule, and to (once again) state the often-ignored exceptions to the tender rule. And I think we are yet to see more law revision by the California Supreme Court in this area of law, and I hope I am right in that regard.

But the problem for Yvanova’s case was that her particular fact pattern was not getting judicial support at all with the exception of Glaski.

Every case is unique and different. One has to look at the details. I know of a case, where I have been consulting with a gentleman up north, who is alleging that he has an exception to this latest rule already – arguing that his loan wasn’t just belatedly added to a securitized trust, but further arguing that the trust has since disclaimed any ownership of it, citing to statements it made in litigation filings against governmental agencies for that proposition. So, he argues it can no longer be “ratified” and what was once “voidable” has now become “void.” So, maybe there’s hope for cases with these facts after all!

LRM: Does it strike you as odd and/or unjust that Hernandez (and eventually others) will be using the Yvanova decision to help her in the lower court while Yvanova herself is denied the right to use the Yvanova decision in the lower court?

Yes, it is odd.

For Sherry Hernandez, it is wonderful. But even there, the battle is not over. Ms. Hernandez still has to go back to the trial court, and plead her case in such a way that the trial court agrees she has pleaded a valid cause of action. If not, the case will again be lost to a demurrer. She will then have to prove her case factually in the trial court, and will have to beat the inevitable Motion for Summary Judgment. Though it might seem her case has been around for a long time, keep in mind it was dismissed at the front end, in the pleadings stage. The paper war is only getting started there.

Without a “void assignment” we have the odd situation of Yvanova herself not being able to benefit from her own recent California Supreme Court case.

The problem for Yvanova’s case was that her particular fact pattern was not getting judicial support at all with the exception of Glaski. It relied on out of state trust law to get to the assignment being “void.” I understand her attorney made an attempt to argue that California law, and not New York trust law, should be applied to the issue. The Second District didn’t agree with this position and didn’t see how that would make a difference. But perhaps that issue can be further developed in other cases or on review by the Supreme Court.

There are many other ways to state a cause of action for wrongful foreclosure. And it is a cause of action that is growing in strength and applicability in California, or at least it has been over the past couple of years. I remain a big fan of suing for wrongful foreclosure, and suing for negligence, in foreclosure cases, where the facts call for it.

But I have to confess that the Glaski-type fact pattern has always left me a little curious about its appeal. At its root you have a plaintiff who is suing based on something that did or didn’t happen relative to timing and record keeping of this trust, that one wouldn’t even know exists without doing some digging. That digging is a smart thing to do, it can reveal some interesting facts which are sometimes actionable. But the idea that a trust can’t ratify a late addition of a loan (ratification making it merely voidable and not void) just never sat right with me.

However, as stated above, the Supreme Court’s Opinion in Yvanova v. New Century Mortgage (2016) 62 Cal.4^th 919 can be used by any litigant attempting to allege they are fighting a foreclosure by the wrong entity. It was cited by Yvanova in her briefs on rehearing before the Second District, as well, so strictly speaking she wasn’t “denied the right to use it” but I see what you mean. Because the Court of Appeal doesn’t think she has a “void assignment” the Court of Appeal also didn’t need to give much consideration to the Supreme Court’s pronouncements of new law in dealing with void assignments.

Up is down and down is up. Unless you are blessed or burdened as I am, with a long background in reading these cases, in which it all still makes some sense! I hope I haven’t been thoroughly confusing.

LRM: The tender rule played an important role in the Yvanova case at the trial court. How has the Yvanova Supreme Court decision changed the tender rule?

The quick answer is that it hasn’t changed it at all. However, it is helpful to have the Supreme Court reiterate the exceptions to the tender rule. Even though none of those are all that new, courts are still loathe to follow them. Sherry Hernandez’s case is a case in point. I made pretty much all the same tender rule arguments the first time through at the Second District Court of Appeals, and yet one of their reasons for affirming the trial court was based on the “tender rule.” Once the Supreme Court issued its Opinion in Yvanova, which cited to all the exceptions, and sent Hernandez’s case back to the Second District, we again made those arguments, but could make them with reference to a recent California Supreme Court Opinion.

My opposing counsel for PNMAC tried to tell the court that Yvanova did not mention the tender rule at all, which was inaccurate, and generally briefed and argued the issue as if those laws don’t exist. Which is one reason why we’re trying to get the Second District’s Opinion on rehearing of Hernandez v. PNMAC published. As a side note, it would be great to see one of these big firm lawyers ripped a new one for doing things like that!

LRM: One issue that Yvanova argued made her assignment void was that New Century went bankrupt and was liquidated in 2008 but somehow made an assignment of her note in 2011? This type of corporate zombie behavior is fairly common and to at least the layperson, this seems to be a pretty strong argument in favor of the idea that the Yvanova assignment is void. Why did the courts not agree?

The Opinion addresses this issue beginning at page 7. It states that New Century had appointed OCWEN Loan Servicing, LLC as its attorney-in-fact with the power to “act in the name, place and stead” and to “execute assignments of the deed of trust/mortgage and other usual and customary documents.” It went on to say that even if OCWEN had no authority to assign deed of trust to the Morgan Stanley investment trust (as Yvanova argued) that would make the assignment voidable and not void. The bankruptcy trustee had the discretion to ratify the transfer of the assets of New Century’s bankruptcy estate, which included the subject loan. The ability to ratify means it is not void.

LRM: To get back to the idea of Yvanova herself not being able to benefit from the precedent that bears her name for a minute, why do you think that the Supreme Court decided to address the issues in her case as opposed to others?

I think the Supreme Court–and as the amicus briefing shows, the Attorney General’s office–were of the belief that some of the foreclosure caselaw and concepts are outdated. They’re right. It actually could be called, on some level, “judicial activism” to grant the review in Yvanova the way the Supreme Court did it. In essence, saying, “Never mind the facts of the Yvanova case, let’s argue an abstract legal theory.” But I am glad they did it. The idea that a homeowner could not challenge a foreclosure by the wrong entity, done pursuant to a void, or even a fraudulent assignment, is an absurdity that needed to be overturned.

LRM: Surely she [Yvanova] wasn’t the first—or only—homeowner to try to get the Supreme Court to address these issues. Seems that the Supreme Court wouldn’t have addressed her issues at all unless they thought her overall case had some merit.

You are absolutely correct there. The Supreme Court often waits until several judicial districts have a split of authority on an issue, and once there exists enough different schools of thought, it will weigh in to encourage uniformity of laws and “orderly development of caselaw.” It can therefore take a long time before a legal issue gets reviewed by the State Supreme Court, and many cases are won or lost in the meantime, before it gets to it.

LRM: One thing that strikes me about the Court of Appeal’s decision is that it keeps faulting Yvanova, essentially saying that if she had only said x instead of y, the Court of Appeal would’ve ruled differently. For example, on p. 8, the Court of Appeal concludes that Yvanova “never explains exactly what she would allege if given leave to amend.”

I think what they are saying is that the Court of Appeal needed to hear some explanation beyond what they got as to what Yvanova would allege if given leave to amend. Her one argument raised a legal issue (and not a factual one). As it was a legal issue which could be resolved by review of law, that left them with no reason to believe she could state a valid cause of action in the trial court. Now maybe she could do that, but those facts didn’t make it into the brief, or there is some other explanation, or whatever. But they can only work with what is in the brief, and even then, they want it in the opening brief. Hernandez had the same problem the first time through in the Second District Court of Appeal.

LRM: And on p. 7 they say that “If plaintiff means to argue the trustee never obtained physical possession of the trust deed itself, she offers no authority” that such a defect is relevant. That is to say, the Court of Appeal seems to want Yvanova to state some magic words, but since she didn’t, she’s out of luck. That doesn’t seem to me to serve the interest of justice, at least not to this layperson.

I take it to mean they are looking for legal authority for the proposition that failure to obtain physical possession of the deed of trust is relevant to the analysis. Without that, they don’t generally volunteer the issue. Now there may indeed be no such authority, which would explain the lack of such a citation. But in the absence of any binding or even persuasive authority (which could be an out of state decision, or even a treatise, text, or law review article), should the court just make the assumption that the point referred to is on solid legal ground?

LRM: Is there not a contradiction in the Court of Appeal’s logic when they state on the one hand (p. 7 of Court of Appeal Yvanova decision) that Yvanova (Supreme Court decision) says that “the deed of trust, moreover, is inseparable from the note it secures, and follows it even without a separate assignment,” while arguing just a few paragraphs later (on p. 8) that Ocwen’s lack of authority to assign only the deed of trust (i.e., separately from the note) is merely something that Yvanova “theorizes?”

To be fair, Yvanova did theorize that, so they were just being accurate in saying it was theorized by her. I think when they said she theorized it, they were meaning Yvanova theorized that Ocwen lacked the authority to assign the deed of trust. I don’t think they meant Yvanova theorized that the deed of trust needs to follow the note. They don’t seem to have an issue with that, as I read it.

LRM:  In other words, the Court of Appeal itself states that deeds of trust are inseparable from notes but then turns right around and dismisses an assignment of a deed of trust separate from a note—something central to the whole case—as basically only some sort of conspiracy theory to which Yvanova subscribed.

I don’t think they implied it was a conspiracy theory, rather they thought it was a legal theory which didn’t have any citation to authority. Without a citation to binding authority to say that the Court of Appeal is required to agree with Yvanova’s position in that regard, or persuasive authority, which would say that in someone’s opinion, it should agree with that position, the court is left with an unsupported legal theory, which it pointed out.

And I know Ms. Yvanova had competent counsel so I don’t mean that as any slight at him, and reiterate I haven’t researched the issue of whether there is or is not such supporting authority. It’s a good question, and one of these days when I am all caught up on my work, I’ll do that.