In 2016, the California Supreme Court’s decision in Yvanova v. New Century Mortgage Corporation caused a lot of excitement among plaintiffs asserting wrongful foreclosure claims and a lot of grief among secured lenders.
In that decision, covered in a prior Money and Dirt post — California Supreme Court: Borrowers Have Standing to Allege Wrongful Foreclosure Based on Void Assignment of Note — the Court held that borrowers have standing to base wrongful foreclosure claims on void (but not voidable) assignments of the underlying note and deed of trust.
But later decisions by California Courts of Appeal have minimized the impact of Yvanova.
First came Saterbak v. JPMorgan Chase Bank, which limited the applicability of Yvanova to only claims based on a completed foreclosure sale (not one that is about to happen).
The court in Saterbak also held that the challenged assignment to a mortgage trust governed by New York law was merely voidable, not void.
Saterbak was covered on Money and Dirt here: Court of Appeal Rules on “Standing to Challenge Foreclosure” Issues Left Unaddressed by Yvanova
Next came Yhudai v. Impac Funding Corp. , in which the court reviewed recent decisions by New York courts squarely addressing the issue of whether technically invalid assignments of notes and deeds of trust into a securitized investment trust governed by New York law were void or merely voidable.
The court held that based on those New York decisions, such assignments were only voidable and could be ratified by the trust’s beneficiaries, and that a borrower — as a stranger to the securitized trust — had no power to declare the assignment void.
Yhudai was covered on Money and Dirt here: Yvanova Post-Script: It’s Not So Easy For Borrowers To Challenge Foreclosure Based on Defective Assignment of a Deed of Trust
And now we have the recent decision by California’s Third District Court of Appeal in Mendoza v. JPMorgan Chase Bank, N.A.
In Mendoza, the factual allegations were similar to the cases described above. Chase made a loan in 2007, and assigned the note and deed of trust in 2011 to a securitized trust governed by New York law, which had a “cutoff” date several years prior to 2011. The borrower further alleged that the assignment was “robo-signed” by “an individual who simply signs thousands of property record documents without any legal or corporate authority whatsoever.” The borrower claimed that since the assignment failed, the ostensible note owner had no right to foreclose.
The trial court sustained the lender’s demurrer, and the Court of Appeal affirmed.
The court emphasized the “narrow” holding of Yvanova, in which the Supreme Court held only that a borrower could allege wrongful foreclosure if a prior assignment was void, but not if the assignment is merely voidable. The Supreme Court made no ruling as to whether the assignment in that case was void or merely voidable.
The Mendoza decision also emphasized that while courts must accept a plaintiff’s factual allegations as true on demurrer, courts need not accept plaintiff’s legal conclusions. Thus, while the plaintiff’s allegations regarding the dates and circumstances of the note assignments framed the court’s analysis, the court did not need to accept plaintiff’s conclusion that the assignment was legally void.
After reviewing the recently published case law from New York and other courts (described as a “mountain of authority” against the plaintiff’s position), the court held that the challenged note assignment was merely voidable, that plaintiff lacked standing to challenge the assignment, and therefore plaintiff’s wrongful foreclosure claim failed.
In light of the cases published after Yvanova, both in New York and California, plaintiffs in wrongful foreclosure cases based on an allegedly defective note assignment cannot rely entirely on Yvanova to save their claims.
While some types of assignments may well be void (e.g., fraudulent assignments) and thus susceptible to challenge, an assignment that is defective based on the timing of a trust’s closing date or the fact that it was “robo-signed” is most likely only voidable, and can be ratified by the beneficiary to remove any taint on the foreclosure.