Monday, September 22, 2014

FYI: Cal App Ct Rejects Borrower's Attempt to Void Foreclosure Sale Based on "Robo-Signing" Securitization Challenge Due to Lack of Resulting Prejudice

The California Court of Appeal, Third District, recently affirmed the dismissal of the borrower’s complaint, holding that a wrongful foreclosure cause of action based on alleged defects in the assignment and securitization of the mortgage loan requires the borrower to demonstrate resulting prejudice.

The Court also held that the Borrower lacked standing to challenge the transfer because she was not party to the assignment, nor was she the intended recipient of the assignment.

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/C071882.PDF

The borrower (“Borrower”) obtained a loan from lender (“Lender”) secured by a deed of trust.  After the Borrower defaulted on her loan, the Lender assigned the deed of trust, and the assignee substituted the trustee under the deed of trust.  Borrower alleged that the assignment was executed by a “robo-signer” without any “legal or corporate authority whatsoever.”  Additionally, Borrower alleged defects in the process by which her loan was securitized, leaving the foreclosing entities without title to the property and without authority to foreclose.

The trial court sustained the defendants’ demurrer without leave to amend, dismissing Borrower’s second amended complaint for wrongful foreclosure, quiet title, and declaratory relief. 

On appeal, the Third District began by analyzing whether the Borrower’s claims were barred by her failure to tender payment of the debt. 

As you may recall, California generally requires a homeowner in default to tender payment of the obligation in full in order to achieve standing to challenge nonjudicial foreclosure proceedings.  See, e.g., Lona v. Citibank, N.A. (2011) Cal.App.4th 89, 112.  However, the “tender rule” does not apply where the sale is void.  Id. at 113-14.  Because the Borrower alleged that the foreclosure sale was void due to defects in the securitization process or on account of the fraudulent substitution of trustee by a robo-signer, the Court held that the issues raised in Borrower’s complaint had to be resolved on the merits.

The Third District then turned to whether the Borrower had standing to challenge the alleged securitization of her loan.  Relying on Ramirez v. Kings Mortgage Services, Inc. (2012 E.D. Cal.), 2012 U.S. Dist. LEXIS 60583 and Sami v. Wells Fargo Bank (2012 N.D. Cal.) 2012 U.S. Dist. LEXIS 38466, the Appellate Court held that the Borrower lacked standing even if her loan and/or deed of trust were transferred to the securitization trust after the specified closing date, and despite the Borrower’s arguments that the assignment was void. 

In addition, California courts have refused to delay the nonjudicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the authority of the foreclosing beneficiary or its agent to initiate foreclosure.  See, e.g., Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 506.

The Appellate Court reasoned that whether the beneficiaries may or may not have changed, the Borrower remained liable on her debt and she failed to allege any facts to show that the purported defects in the foreclosure process interfered with her ability to repay, or that the original lender would not have foreclosed under the circumstances.  The Third District concluded that the Borrower’s wrongful foreclosure cause of action based on securitization was properly dismissed because of a lack of prejudice.

Next, the Third District examined the Borrower’s allegations that a “robo-signed” assignment is a void assignment, and a void assignment unraveled the entire nonjudicial foreclosure.  Relying on In re MERS Litigation, 2012 U.S. Dist. LEXIS 37134, 2012 WL 932625, at *3 (D. Ariz. 2012), the Appellate Court held that the Borrower lacked standing to challenge the transfer because she was not party to the assignment, nor was she the intended recipient of the assignment.  Thus, the Third District found that the trial court properly sustained the defendants’ demurrer to the wrongful foreclosure cause of action. 

Finally, the Third District held that the Borrowers’ final two causes of action were deficient on their face.  First, the property has been sold and there were no prospective claims appropriate for declaratory relief.  Second, the Borrower cannot quiet title in her favor without demonstrating paramount title and tender of the indebtedness. 

Accordingly, the Third District affirmed the judgment of dismissal.   



Eric Tsai
McGinnis Wutscher Beiramee LLP
 
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