California Ruling Seen Boosting Foreclosure Challenges

By Chris Bruce

Feb. 18 — The California Supreme Court on Feb. 18 said a borrower in a nonjudicial foreclosure has standing to allege wrongful foreclosure, raising the potential for more challenges of foreclosures and securitized loans.

The ruling allows the borrower, Tsvetana Yvanova, to amend her complaint to include a claim of wrongful foreclosure, based on her claim that an assignment of her loan to a securitized trust was void because it took place after the closing date specified in the agreement that governed the trust.

“We conclude a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee's sale,” Judge Kathryn M. Werdegar said for the court.

Fredrick S. Levin, a partner with Buckley Sandler in Los Angeles, Feb. 18 said the decision reverses a rule followed by the overwhelming majority of California courts that says borrowers lack standing in such cases.

“The decision thus opens the door to lawsuits by borrowers claiming that their homes were improperly foreclosed upon by persons who allegedly lacked power under California law to institute foreclosure,” Levin told Bloomberg BNA.

But Yvanova's lawyer, Richard L. Antognini of the Law Offices Of Richard L. Antognini in Grass Valley, Calif., said those claims may not come as a surprise.

“The lending industry has had four years to react to what the Yvanova opinion says, and I have to think they’ve assembled their records and that they can prove they own these loans,” Antognini told Bloomberg BNA Feb. 18. “If they haven’t, then I assume they will have a significant problem.”

Holding Called Narrow

Yvanova originally sued New Century Mortgage Corporation, which filed for bankruptcy in 2007 and was liquidated in 2008. Yvanova's suit later named Ocwen Loan Servicing LLC, Western Progressive LLC, Deutsche Bank (as trustee), Morgan Stanley Mortgage Capital, Inc., and the Morgan Stanley investment trust at issue in the case.

Werdegar called her 33-page opinion a narrow ruling. According to Werdegar, it means only that Yvanova is not barred from court simply because she is in default on the loan, or because she wasn't a party to the assignment that her suit challenges.

“We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party's right to proceed,” Werdegar said. “Nor do we hold or suggest that plaintiff in this case has alleged facts showing the assignment is void or that, to the extent she has, she will be able to prove those facts. Nor, finally, in rejecting defendants' arguments on standing do we address any of the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.”

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Mike Ferullo at mferullo@bna.com

For More Information

The ruling is at http://src.bna.com/cIL.


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