Recently, much judicial ink has been deployed writing opinions addressing borrower challenges to foreclosure based on allegations that the deed of trust was not validly assigned to the foreclosing lender.
Earlier this year, the California Supreme Court weighed in on the issue in its Yvanova decision, reviewed on Money and Dirt here: California Supreme Court: Borrowers Have Standing to Allege Wrongful Foreclosure Based on Void Assignment of Note. In Yvanova, the Supreme Court ruled that a borrower had standing to allege wrongful foreclosure where the foreclosure sale had already occurred and where the borrower alleged that a prior assignment of the deed of trust was not merely voidable, but void.
Following Yvanova, one Court of Appeal decision — Saterbak — ruled that a borrower can only challenge the validity of a deed of trust assignment if the foreclosure sale had already occurred. The Saterbak decision was reviewed on Money and Dirt here: Court of Appeal Rules on “Standing to Challenge Foreclosure” Issues Left Unaddressed by Yvanova.
The Yvanova and Saterbak opinions zero in on some of the complicated legal issues surrounding “invalid assignment” claims — e.g., the critical distinction between “void” and “voidable” transactions, and the difference between a preemptive attack on an assignment versus a similar attack made after foreclosure.
But a recent opinion by another California Court of Appeal (First District in San Francisco) — Brown v. Deutsche Bank National Trust Co. — shows that sometimes “invalid assignment” claims can be decided on much more straightforward factual grounds: judicially noticeable documents.
The facts: borrower defaults on loan, asserts “invalid assignment” argument to stop impending foreclosure sale
The borrower obtained a $450,000 loan in 2004, secured by real property in Oakland. The original lender was Washington Mutual (“WaMu”). After WaMu failed in 2008, the FDIC was appointed its receiver and agreed to sell many of WaMu’s assets to JP Morgan Chase Bank (“Chase”), as memorialized in a September 2008 Purchase and Assumption Agreement. Pursuant to that Agreement, Chase became the holder of the borrower’s deed of trust.
In March 2011, the trustee recorded a notice of default. The next month, Chase assigned the deed of trust to Deutsche Bank. Two months later, the trustee recorded a notice of sale.
The borrower sued, seeking to stop the trustee’s sale based on allegations that the assignment to Deutsche Bank was invalid.
The trial court’s ruling
The trial court sustained Deutsche Bank’s demurrer and dismissed the case. The court based its ruling on three grounds:
(1) the claims were barred as a matter of law because “invalid assignment” claims can be asserted only after a completed foreclosure sale;
(2) the borrower lacked standing to challenge the assignment; and
(3) the judicially noticeable documents submitted by Deutsche Bank showed the assignment, in fact, was valid.
The borrower appealed.
The court of appeal’s opinion
The court of appeal addressed, but ultimately sidestepped, the trial court’s first two legal grounds for sustaining the demurrer.
The court acknowledged some decisions — like Saterbak — holding that borrowers cannot bring “preemptive” attacks on the assignment of a deed of trust before a foreclosure sale.
But, the court observed, the California Supreme Court expressly declined to rule on that issue in Yvanova. Moreover, the court held, the reasoning in Yvanova “raises the distinct possibility that our state Supreme Court would conclude that borrowers have a sufficient injury, even if less severe, to confer standing to bring similar allegations before the sale.”
Ultimately, the court held that it did not need to weigh in on this evolving legal issue, because there was a much simpler way to resolve the case.
The court observed that the judicially noticeable documents submitted by Deutsche Bank with its demurrer (which included foreclosure-related documents, filings from prior lawsuits involving the borrower, and the critical assignment documentation) directly contradicted the borrower’s claims.
Based on these judicially noticeable documents, the court affirmed the trial court’s judgment of dismissal.
The issue of whether and how a borrower can attack the validity of a lender’s assignment of a deed of trust is a rapidly evolving area of the law involving complex concepts relating to “standing” and public policy. The comments by the court in Brown suggest that California Courts of Appeal have differing views on whether a borrower can assert such a claim preemptively (before a foreclosure sale). The Supreme Court may ultimately have to decide that issue.
But the Brown decision illustrates that sometimes these cases can be won or lost based on their simple facts. When those facts are subject to judicial notice and directly contradict the borrower’s claims, the claims can be defeated without confronting the more interesting legal issues.