The Difference Between a “Voidable” and “Void” Assignment of a Deed of Trust, and Why It Matters
For nearly three years, one of the rapidly developing areas of California foreclosure law has focused on whether a borrower has “standing” to challenge a wrongful foreclosure based on defective assignments of the note or deed of trust before the foreclosure sale.
A recent opinion from California’s Second Appellate District — Hacker v. Homeward Residential, Inc. — adds the most recent layer to this debate.
But first, a recap of how we got to where we are today:
The recent evolution kicked off with Yvanova
In 2016, the California Supreme Court published its opinion in Yvanova v. New Century Mortgage Corporation, in which the Court confirmed that a borrower has standing to allege wrongful foreclosure based on a void — but not merely voidable — assignment of a note or deed of trust. Money and Dirt covered that seminal opinion here — see California Supreme Court: Borrowers Have Standing to Allege Wrongful Foreclosure Based on Void Assignment of Note.
As described in that opinion, a void transaction has no legal effect, and “has no existence whatsoever.” It cannot be ratified or validated even by the parties to the transaction.
A voidable transaction, on the other hand, is one where either party to the transaction (but usually not an outsider) may elect to avoid, or to ratify, the legal relations created. The transaction can be declared void, but is not void in itself.
In Yvanova, after laying out the framework above, the Court declined to decide the pivotal issue of whether the challenged assignment in that case (an assignment of a note to a securitized trust after the trust’s closing date) was void or voidable, leaving that issue for the lower court to decide.
Yvanova gave wrongful foreclosure plaintiffs hope that they could win by showing that a prior assignment of the deed of trust was “void.” But that hope was soon diminished by a string of cases limiting the impact of Yvanova.
Has Yvanova lost its mojo?
A string of cases threw cold water on wrongful foreclosure plaintiffs hoping to use Yvanova in their favor. Money and Dirt covered that development here — see Has Yvanova Lost Its Mojo For Wrongful Foreclosure Plaintiffs?.
Those opinions generally held that, under both New York and California law, an assignment that is defective based on the timing of a mortgage trust’s closing date or the fact that it was “robo-signed” is most likely only voidable, and can be ratified by the lender to remove any taint on the foreclosure.
Many wrongful foreclosure cases seem to have been based on an assignment of a deed of trust into a mortgage trust after the trust’s closing date. In those cases, the assignment was only voidable, not void, and the wrongful foreclosure plaintiff was out of luck.
Some assignments are still void
Amidst the swarm of cases minimizing the impact of Yvanova by holding that assignments were only voidable, not void, one notable exception stood out: Sciarratta v. U.S. Bank National Association. Money and Dirt covered that case here — Court of Appeal Addresses “Prejudice” Element of Wrongful Foreclosure.
In Sciarratta, the lender assigned a note and deed of trust to one assignee, and then months later purported to assign the same note and deed of trust to a different assignee. The second assignee foreclosed.
The Court of Appeal held that the lender had already assigned the note and deed of trust earlier, and thus its second purported assignment was not just voidable, but void.
Following in Sciarratta‘s footsteps came the Hacker opinion.
Hacker v. Homeward Residential
In Hacker, the fact pattern was similar to Sciarratta. The borrower obtained an $875,000 loan from Option One Mortgage Corporation. On June 1, 2006, Option One transferred the loan to a securitized mortgage trust called the Option One Mortgage Loan Trust 2006-2.
Two years later, in 2008, Option One’s successor attempted to assign the same loan to Deutsche Bank. Deutsche Bank’s successors later foreclosed.
Hacker, who had obtained the property by Grant Deed before the foreclosure, sued for wrongful foreclosure. Hacker alleged that the lender’s attempted second assignment was void, because the lender no longer owned the loan due to its first assignment.
The trial court dismissed Hacker’s case after sustaining a demurrer without leave to amend. But the Court of Appeal reversed, relying on Sciarratta.
The court emphasized that Hacker’s claim was not based on a violation of the mortgage trust governing documents, which would have resulted in a merely “voidable” assignment because the beneficiary could still ratify the unauthorized actions. Instead, the court found, Hacker’s claim was based on the simple chronology of events — the lender had already assigned the loan in 2006, and no longer had anything to assign in 2008. The court held, “an assignment by a party that never possessed legal title to the property is void.”
Lesson
Based on the two lines of cases that have emerged in the aftermath of Yvanova, an assignment of a loan that violates the technical provisions of a mortgage trust (e.g., a transfer after the trust’s closing date) is probably only voidable, can be ratified afterward by the beneficiary, and will not support a plaintiff’s claim for wrongful foreclosure.
But an attempted second assignment of a loan by a lender who has already assigned the loan away is likely void and cannot be ratified. A foreclosure by the second “assignee” in that scenario will be vulnerable to a wrongful foreclosure claim.