FYI: Cal App Holds Creditor Waived Right to Deficiency by Violating "Security First" Rule

The California Court of Appeal, Fifth District, recently held that a creditor waived its right to a deficiency judgment, because it violated the security first principle in Cal. Code Civ. P. § 726(a) by releasing its interest in a part of its collateral without the consent of all debtors and before foreclosing on the remaining parcel.

A copy of the opinion is available at: http://www.courts.ca.gov/opinions/documents/F067812.PDF

A bank (“Bank”) filed a judicial foreclosure action to collect a loan secured by two parcels of real estate.  The loan was made to a husband and wife and, after the husband died, the loan went into default.  Bank and wife agreed to a short sale of one of the parcels that was her separate property.  Afterward, Bank foreclosed on the remaining parcel and obtained a deficiency judgment against the representatives of the husband’s estate (“Appellants”) only, as a deficiency judgment was not allowed against the wife because of her bankruptcy.

As you may recall, California generally does not allow deficiency judgments after most residential foreclosures.  See Cal. Code Civ. P. § 580b.  Creditors seeking deficiency judgments must first exhaust all real property security to qualify for a deficiency judgment, and such exhaustion of the real property collateral must be through a single judicial foreclosure lawsuit.  See Cal. Code Civ. P. § 726.  These requirements in section 726 are referred to as the “one form of action” rule.

The consequence of not following the “one form of action” rule is a waiver of the creditor’s rights to a deficiency judgment.  Additionally, if any of the real property collateral is exhausted through any other means, such as a private sale without the consent of the debtors, a deficiency judgment is barred.  See, e.g., Pacific Valley Bank v. Schwenke (1987) 189 Cal.App.3d 134, 145.

Additionally, California protects debtors liable for deficiency judgments from low bids at the judicial foreclosure auction, by limiting the amount of the deficiency judgment to the difference between the fair value of the property and the amount of the indebtedness.  See Cal. Code Civ. P. § 726(b).  A second protection is the right to redeem the property based on the foreclosure sale price, not the amount of the secured debt.  See Cal Code Civ. P. § 726(e). 

On appeal, Appellants argued that the trial court erred by holding them liable for a deficiency judgment because Bank waived its right to a deficiency when it violated the “security first” rule.  By agreeing to a short sale of the second parcel without their consent, the Appellants argued that Bank deprived them of the protections they would have had if the second parcel had been included in the judicial foreclosure action.  The Appellate Court agreed.

Relying on Schwenke, the Appellate Court held that the security first principle in section 726(a) barred any liability for deficiency because Bank, without consent of the Appellants, released part of the security for the note when it allowed the wife to sell the second parcel in a private sale. 

In so ruling, the Appellate Court rejected Bank’s argument that Schwenke was bad law or that the Court should recognize an exception to the consent requirement.  Relying on numerous Court of Appeal decisions that cited Schwenke and referred to its consent requirement, the Appellate Court concluded that Schwenke “is consistent with the statutory language and the concepts underlying the security first principle.”

The Appellate Court also rejected Bank’s attempt to distinguish Schwenke, by arguing that Schwenke is unreliable in the absence of cases involving loans with multiple debtors secured by more than one parcel of real property.  The lack of further appellate decisions since Schwenke, according to the Appellate Court, showed that “bankers and their lawyers have had little trouble applying the rule of law that consent of all debtors must be obtained by the creditor before releasing any parcels securing the loan.”

In short, the Appellate Court concluded that a creditor and one of the debtors should not be able to modify the contractual obligations of the co-debtors without the co-debtor’s consent to that modification. 

Bank presented an alternate argument that did not involve the co-debtor’s consent, contending that “security” for purposes of the “security first” principle is determined at the time of the filing of the action, not when the loan was executed.  Bank supported its argument by citing Bank of America v. Graves (1996) 51 Cal.App.4th 607, which held that where the value of the security has been lost through no fault of the creditor, the creditor may bring a personal action on the debt on the theory that if the security become valueless at the time the action is commenced, the debt is no longer secured. 

The argument was rejected by the Appellate Court for two reasons.  First, the security for the loan, which included two parcels, had not been lost or became valueless at the time Bank commenced its foreclosure.  A judicial foreclosure action on the remaining parcel rather than a personal action on the debt was appropriate.  Second, the parcel sold in the short sale was not exhausted or lost through no fault of Bank.  Instead, Bank released its deed of trust pursuant to its agreement with the wife, without the consent of the Appellants.  For these reasons, the Appellate Court held that the principles in Grave regarding valueless or lost security did not apply.

Accordingly, the Appellate Court reversed the trial court’s order granting the motion for summary adjudication and the related decree for judicial foreclosure and writ of sale, and remanded the matter to the superior court with instructions to enter an order denying the motion for summary adjudication.

Eric Tsai
McGinnis Wutscher Beiramee LLP 
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402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

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FYI: Cal App Ct Affirms Decertification of Class in Alleged Unlawful Eavesdropping Action

The California Court of Appeal, Fourth District, recently affirmed the decertification of a class action lawsuit where a lender allegedly monitored telecommunications with its borrowers, finding individual issues regarding putative class members’ objectively reasonable expectations of privacy predominated.

A copy of this opinion is available at: 

http://www.courts.ca.gov/opinions/documents/D063363.PDF.

In 2006, several borrowers sued their lender (Lender) alleging that Lender monitored their telephone conversations without their knowledge or consent, in supposed violation of California law.  The borrowers alleged they each borrowed money from Lender and, in making the loans and collecting delinquent payments on those loans, Lender “secretly” monitored and eavesdropped on telephone conversations between Lender’s employees and borrowers, including conversations pertaining to “sensitive financial information.”

Over Lender’s objections, the trial court certified a class on one of the borrower’s claims, an alleged violation of California Penal Code section 632, which imposes liability on a “person” who intentionally “eavesdrops upon or records [a] confidential communication” and engages in this conduct “without the consent of all parties.”

After class certification, Lender successfully moved for summary adjudication on the section 632 claim.  The trial court found as a matter of law a company does not violate the statute when one of its supervisory employees secretly monitors a conversation between a customer and another company employee, reasoning that two employees are a single “person” within the meaning of the statute.

In a prior appeal, the Fourth District reversed the trial court’s order granting summary judgment, and held that the statute applies even if the unannounced listener is employed by the same company as the known recipient of the conversation, concluding the trial court's statutory interpretation was inconsistent with section 632's language and purpose.

In the prior appellate decision, the Fourth District found that the confidential-communication statutory element requires borrowers to show they had an “objectively reasonable expectation” that their conversations would not be secretly monitored.  The Fourth District explained, “The issue whether there exists a reasonable expectation that no one is secretly listening to a phone conversation is generally a question of fact that may depend on numerous specific factors, such as whether the call was initiated by the consumer or whether a corporate employee telephoned a customer, the length of the customer-business relationship, the customer's prior experiences with business communications, and the nature and timing of any recorded disclosures.”

Based upon the Fourth District’s prior appellate decision, Lender moved to decertify the class, arguing that the issue of whether any particular class member can satisfy this reasonable-expectation test requires an assessment of numerous individual factors, and these individual issues predominate over any remaining common issues, making a continued class action unmanageable.

Lender’s decertification motion focused on the circumstances surrounding each of the named borrower’s telephone conversations with Lender’s employees.  This evidence showed that each borrower had different experiences regarding the timing, extent, and nature of the monitored calls and of the Call Monitoring Disclosure, and had different prior experiences with business communications.

The trial court granted the decertification motion.  The trial court found that the appellate decision reversing summary adjudication constituted changed circumstances and “individual issues regarding the individual putative class members’ ‘objectively reasonable expectation of privacy’ predominate over [Lender’s] alleged uniform policies.”

On appeal, the Fourth District noted that class certification requires a “well-defined community of interest,” including that common questions of law or fact will predominate in the litigation.  Citing Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 28.  On the predominance issue, “the ‘ultimate question’ . . . is whether ‘the issues which may be jointly tried, when compared with those requiring separate adjudication, are so numerous or substantial that the maintenance of a class action would be advantageous to the judicial process and to the litigants.’”

The Fourth District explained that after certification, a trial court retains flexibility to manage the class action, including to decertify a class if “the court subsequently discovers that a class action is not appropriate.”  Citing Weinstat v. Dentsply Internat., Inc. (2010) 180 Cal.App.4th 1213, 1226.  To prevail on a decertification motion, a party must generally show “new law or newly discovered evidence showing changed circumstances.”

The Fourth District affirmed the trial court’s decertification order, and held that whether its prior ruling constituted “new” law or a clarification of existing law as applied to the facts of this case, it constituted a reasonable and sufficient ground for the trial court to conclude that reevaluation of class certification was necessary.

In opposition to decertification, the borrowers argued that as a matter of law the trial court could not consider the decertification motion because of the problem of “one-way intervention.” 

As you may recall, the “one-way intervention” issue arises when a trial court rules on the substantive merits before reaching a final conclusion on class certification.  Fireside Bank v. Superior Court (2007) 40 Cal.4th 1069, 1078-1084. 

Generally, in a merits-first procedure, a defendant may be prejudiced because “not-yet-bound absent plaintiffs may elect to stay in a class after favorable merits rulings but opt out after unfavorable ones.”  And, plaintiffs may also be prejudiced: “[A] defendant should not be allowed to sandbag a plaintiff, withholding its best case against certification and then seeking decertification if it suffered an unfavorable merits ruling.”  A rule requiring a court to decide on class certification before the merits promotes fairness by “ensuring that parties bear equally the benefits and burdens of favorable and unfavorable merits rulings.”

In rejecting the borrowers’ argument, the Fourth District noted that the certification-before-merits rule is not an “iron-clad standard.”  The Fourth District found that “[i]t would be both unduly rigid and unjust to force the maintenance of [a class] action [after a ruling on the merits] even when there is a proper reason for decertification . . . .”  citing Fireside Bank, 40 Cal.4th at p. 1081.  The Fourth District explained that decertification generally requires changed circumstances, but courts retain inherent authority (and in fact have the affirmative duty) to decertify a class if a merits ruling makes clear that individual issues will engulf the litigation such that the class litigation becomes unmanageable and/or will substantially interfere with one or both of the parties' due process rights.

Based upon these principles, the Fourth District held that the trial court’s decertification order was not precluded by the certification-before-merits rule. 

The borrowers also argued that decertification was improper because the trial court erred in concluding that the existence of individual issues regarding the existence of “confidential communication[s]” precluded the case from going forward as a class action.

The Fourth District rejected borrowers’ arguments, and relied upon the recent decision in Hataishi v. First American Home Buyers Protection Corp. (2014) 223 Cal.App.4th 1454.  The Hataishi court held a trial court properly refused to certify a class of “outbound” callers who alleged a violation of section 632.  The Hataishi court held:  “[T]he determination whether an individual plaintiff had an objectively reasonable belief that his or her conversation with [the defendant] would not be recorded will require individualized proof of, among other things, 'the length of the customer-business relationship [and] the [plaintiff's] prior experiences with business communications …”

The Hataishi court concluded that “due process requires that [the defendant] be permitted to cross-examine an individual plaintiff regarding those experiences that may impact the reasonableness of his or her alleged confidentiality expectation.”

The Fourth District agreed with the Hataishi court, and affirmed the trial court’s decertification order because “the trier of fact would have to determine whether a person under the particular circumstances and given the background and experience of each plaintiff would have understood that the particular call was not being monitored.”

Finally, the borrowers argued that decertifying the class because of the existence of individual issues on the “confidential communication” issue is inconsistent with the strong public policy underlying section 632 that seeks to protect individual privacy rights.  The borrowers maintained that without a class action, it will not be economically feasible for borrowers to enforce their right to telephone privacy under section 632.

The Fourth District rejected the borrowers’ public policy argument:  “To the extent [borrowers] believe the "confidential communication" statutory element makes the enforcement of the statute too cumbersome or too expensive for an individual to recover on the claim, their remedy lies with the Legislature and not with the courts.”

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

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FYI: SD Cal Rejects FCC's Interpretation of ATDS Under TCPA, Enters Summary Judgment in Favor of Defendant in TCPA Putative Class Action

The U.S. District Court for the Southern District of California recently ruled that a company’s promotional text message platform did not constitute an automated telephone dialing system (“ATDS”) as defined by the federal Telephone Consumer Protection Act, 47 U.S.C. § 227(a)  (“TCPA”).  The Court also held that the FCC has no authority to modify or definitively interpret § 227(a) of the TCPA, in which the term ATDS is defined.

A copy of the opinion is available at:  Link to Opinion

The defendant company (Vendor) operated a gym which used a third-party web-based platform to send promotional text messages to its members and prospective customers’ cell phones. 

The phone numbers were inputted into the platform by one of three methods: (1) when vendor or another authorized person manually uploaded a phone number onto the platform; (2) when an individual responded to vendor’s marketing campaigns via text message (a “call to action”); and (3) when an individual manually inputted the phone number on a consent form through vendor’s website which interfaced with the platform. 

The plaintiff consumer (Consumer) joined Vendor’s gym sometime before November 20, 2012.  He alleged that he received three unwanted text messages from Vendor between November 20, 2012 and October 18, 2013.  He filed a putative class action alleging violation of the TCPA.

As you may recall, an ATDS is equipment that “has the capacity (A) to store or produce numbers to be called, using a random or sequential number generator; and (B) to dial such numbers.”  See 47 U.S.C. § 227(a)(1).

The Court granted Vendor’s motion for summary judgment.

First, the Court rejected Consumer’s efforts to rely on FCC commentary in support of his position.  Section 227(a)(1) defines an ATDS.  In contrast to § 227(b) and (c), section 227(a) does not include a provision giving the FCC rulemaking authority.  Further, § 227(b) and (c) expressly limited rulemaking authority to those subsections.  Thus, the Court held that any attempt by the FCC to modify the statutory language of § 227(a) was impermissible.

The Court acknowledged that FCC commentary broadly interpreted the definition of ATDS as “any equipment that has the specified capacity to generate numbers and dial them without human intervention regardless of whether the numbers called are randomly or sequentially generated or come from calling lists.” See In the Matter of Rules and Regulations Implementing the Tel. Consumer Prot. Act of 1991, 27 F.C.C.R. 15391, 15392, n. 5 (2012). 

However, the Court noted that because the definition of ATDS was clear and unambiguous, the FCC’s statutory interpretation of an ATDS was not binding on the court.  See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

Next, the Court noted that other courts have defined “capacity” in the context of the definition of an ATDS as “the system’s present, not potential, capacity to store, produce or call randomly or sequentially generated telephone numbers.”  See Gragg v. Orange Cab Co., 995 F.Supp.2d 1189, 1193 (W.D. Wash. 2014). 

The Court also noted that the words “random or sequential number generator” in the definition of ATDS could not be construed to refer to a list of numbers dialed in random or sequential order.  According to the Court, this interpretation would effectively render the TCPA’s “random or sequential number generator” requirement superfluous.  Rather, the Court held, the term referred to the genesis of the list of numbers, not to an interpretation that rendered “number generator” synonymous with “order to be called.”

Applying these principles, the Court held that the platform at issue did not have the present capacity to store or produce numbers using a random or sequential number generator.  In the platform at issue, numbers only entered the system through three methods, all of which required human curation and intervention.  None could be termed a “random or sequential number generator.” 

Next, the Court concluded that even if potential or future capacity to randomly or sequentially autodial numbers were fairly included in the definition of ATDS, Vendor’s contractual obligations precluded such a finding in this case.  The Vendor used a third-party platform that audited users’ accounts pursuant to an “Anti-Spam Policy,” and it was contractually banned from inputting numbers into the system without either a response to a call for action or written consent.

Finally, the Court distinguished the case from a prior ruling from the Ninth Circuit in which a predictive dialer at issue in that case was treated as an ATDS because it had the “capacity to dial numbers without human intervention.” See Meyer v. Portfolio Recovery Assocs. LLC, 696 F.3d 943, 950 (9th Cir. 2012) (quoting 18 F.C.C.R. 14014, 14092 (2003)).  The Court noted that the Meyer opinion was inapplicable because challenges to the FCC’s authority regarding the definition of an ATDS had been waived at the district court level, and therefore were not at issue in the appeal.

Accordingly, the Court granted Vendor’s motion for summary judgment.

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

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          McGinnis Wutscher Beiramee LLP

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FYI: Cal App Ct Confirms Borrower Cannot Pursue Foreclosure Standing Before Foreclosure Completed, Cannot Assert Violations of Pooling and Servicing Agreement

The California Court of Appeals, Second District, recently affirmed a lower court’s dismissal of a borrower’s complaint, that a borrower cannot pursue preemptive judicial action challenging the right, power, and authority of a foreclosing party to initiate and pursue foreclosure.  The Court further held that a borrower lacks standing to challenge any alleged violations of an investment trust’s pooling and servicing agreement. 

A copy of the opinion as available at: http://www.courts.ca.gov/opinions/documents/B254007.PDF

In July of 2007, the plaintiff borrower (“Borrower”) executed a first note for $516,000.00 (the “First Note”), which was secured by a deed of trust (the First Deed of Trust”) on real estate (the “Property”).  Borrower also executed a second note for $64,500.00 (the “Second Note”) secured by a deed of trust (the “Second Deed of Trust”) on the Subject Property.  Both trust deeds named Defendant Lender (“Lender”) as trustee, and MERS as the beneficiary acting as nominee for Trustee, its successors, and assigns. 

Over two years later, Borrower recorded two instruments that purported to “modify” the First and Second Deeds of Trust to “correctly reflect” an indebtedness of zero dollars.  These instruments further stated the First and Second Deeds of Trust “were modified to eliminate any further payments, and to reflect a status of ‘paid as agreed.’”  Thereafter, a trust, which Borrower created, recorded two documents called “full reconveyance,” allegedly reconveying the First and Second Deeds of Trust to Borrower and declaring them void at inception.  Borrower then deeded the property to his trust. 

Despite Borrower’s transfer activity, MERS assigned all beneficial interest under the First Deed of Trust to another financial institution (the “Assignee of the First Deed of Trust”).  The Assignee of the First Deed of Trust recorded a notice of default and served a notice of trustee’s sale in March of 2012.  The foreclosure had yet to occur. 

As to the Second Deed of Trust, MERS assigned it to a different financial institution (the “Assignee of the Second Deed of Trust”) in July of 2012.

In October of 2012, Borrower, in his capacity as trustee of his trust, filed a complaint against Lender alleging, among other things, that the loans securing the Subject Property were improperly securitized, resulting in Lender’s interest in the Subject Property being extinguished and discharged.  Borrower’s complaint also alleged that all debt had been satisfied and the securitization process was deficient because the transfer of the promissory notes to a securitized trust did not comply with the terms of the pooling and servicing agreement governing the securitized trust.

Borrower did not name the Assignees of the First or Second Deeds of Trust as defendants, and thus they filed a motion to intervene.  The trial court granted their motions. 

The Assignee defendants promptly demurred to Borrower’s complaint.  The demurrers were sustained and Borrower’s complaint was dismissed without leave to amend.  Borrower appealed the trial court’s ruling.

On appeal, Borrower only argued that he stated a valid cause of action to quiet title.   Specifically, Borrower claimed that the attempt to transfer the First Deed of Trust to the mortgage backed investment trust did not comply with the trust’s servicing and pooling agreement, and thus was void.

Moreover, Borrower proposed that he should be allowed to amend his complaint to make the following the allegations: (1) the investment trust was created under New York law; (2) the trust is subject to the requirements imposed by the Internal Revenue Code on real estate investment trusts; (3) New York law requires that all trust deeds be transferred to such an investment trust before the trust closes; (4) the transfer of the subject trust deed to the investment trust occurred after the trust closed in 2007; and (5) the attempted transfer to the investment trust was therefore void.

The Court rejected Borrower’s argument noting that the “argument that a defendant lacks standing to foreclose because of an improper securitization process has recently become particularly popular in regards to the wave of real estate defaults over the past decade.” 

The Court explained that Borrower’s exact argument was recently addressed in Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal. App. 4th 497, 511 (2013) (Jenkins).  In Jenkins, the plaintiff alleged that her loan was pooled with other home loans in a securitized investment trust in a way that violated the trust’s pooling and servicing agreement, and thus any security interest in her home was extinguished. 

The Jenkins’ Court rejected plaintiff’s argument stating that “California courts have refused to delay the non-judicial foreclosure process by allowing trustor-debtors to pursue preemptive judicial actions to challenge the right, power, and authority of a foreclosing ‘beneficiary’ or beneficiary’s ‘agent’ to initiate and pursue foreclosure.”  Id. at p. 511.  A preemptive action by a borrower “seeks to create ‘the additional requirement’ that the foreclosing entity must ‘demonstrate in court that it is authorized to initiate a foreclosure’ before the foreclosure can proceed, a process not contemplated by the non-judicial foreclosure statutes.”  Id. at 512-513, quoting Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th 1149, 1154 (2011). 

The Jenkins court distinguished a borrower’s preemptive action to delay a foreclosure from a factual situation involving misconduct during a non-judicial foreclosure sale, which could provide a basis for a post-foreclosure cause of action.

Additionally, the Jenkins court held the plaintiff did not have standing to challenge any alleged violations of the investment trust’s pooling and servicing agreement.  Id. at 514-515.  The Jenkins court explained the plaintiff was an unrelated third party to the securitization, and even if any transfers were invalid, the plaintiff would not be injured as she would still be obligated to make payments under the promissory note.  Id.  Rather, a party who could assert violations of the pooling and servicing agreement would be someone who believed it held a beneficial interest in the promissory note.  Id. 

Borrower argued that Jenkins was incorrectly decided, and instead, the Court should apply the holding of Glaski v. Bank of America, 218 Cal. App. 4th 1079 (2013) (“Glaski”).  In Glaski, the court held a plaintiff “could properly allege a valid cause of action for wrongful foreclosure by stating facts showing the defendant who invoked the power of sale was not the true beneficiary, and a plaintiff’s allegations detailing the faulty transfer to the trust met this pleading standard.”  Glaski, 218 Cal. App. 4th at 1094.

The Glaski court also held that a borrower has standing to contest a defective assignment to a real estate investment trust, and explicitly rejected the view that a borrower’s status as a nonparty or non-third party beneficiary to an assignment agreement prevents the borrower from challenging the transfer.  Id. at 1094-1095. The Glaski court justified its holding by explaining that “it protects the beneficiaries of the investment trust from the potential adverse tax consequence of the trust losing its status as a REMIC trust under the Internal Revenue Code.”  Id. at 1097. 

The Court rejected Borrower’s argument that Glaski applied to his claims for several reasons.  First, Glaski involved a claim for wrongful foreclosure, but Borrower asserted a cause of action for pre-foreclosure quiet title.  Second, Glaski did not address other case law which held that “preemptive action is not authorized by the non-judicial foreclosure statutes because it creates an additional requirement that a foreclosing entity first demonstrate in court that it is entitled to foreclose.”  Gomes at 192 Cal. App. 4th at 1154-1156. 

Second, if Borrower was allowed to assert a preemptive action, it “would result in the impermissible interjection of the courts into a non-judicial scheme enacted by the California Legislature,” which “‘would be inconsistent with the policy behind non-judicial foreclosure of providing a quick, inexpensive, and efficient remedy.’”  Jenkins, 216 Cal. App. 4th at 512-513.

Thirdly, the Court explained that Jenkins involved essentially the same allegations as Borrower’s proposed amended allegations—that the subject deed of trust was not assigned to the investment trust prior to its closing date.  Thus, and just as Jenkins decided, the Court held that Borrower’s allegations did “not give rise to a viable preemptive action that overrides California’s non-judicial foreclosure rules.”

The Court noted a number of other courts that have criticized Glaski, including Keshtgar v. U.S. Bank, N.A., 226 Cal. App. 4th 1201 (2014) (“Keshtgar”), which involved similar facts as Borrower alleged here.  The Keshtgar court, citing to Gomes and Jenkins, held there was “no basis under the non-judicial foreclosure scheme for the plaintiff to challenge the authority of the party initiating foreclosure.”  Keshtgar, 226 Cal. App. 4th, at 1205-1206. 

The Keshtgar court also distinguished Glaski, stating that Glaski involved a post-foreclosure action for damages and not an action to prevent a foreclosure.  Id. at 1206.  The Keshtgar court went even further and specifically rejected Glaski’s holding because “an assignment of a deed of trust and promissory note do not change the borrower’s obligations and therefore do not create prejudice.” Id. at 1207.

Despite acknowledging the amount of criticism of Glaski, the Court saw no reason to expressly determine whether Glaski was correctly decided because it has “no direct applicability to this pre-foreclosure action.”  Borrower did not dispute whether the deed of trust allowed for its assignment, nor did Borrower dispute that his loan was in default.  Thus, California non-judicial foreclosure statutes did not provide Borrower with any basis to challenge the entity that initiated the foreclosure process. 

Accordingly, the Court held that the lower court properly sustained the demurrer and affirmed the lower court’s judgment. 

Eric Tsai
McGinnis Wutscher Beiramee LLP 
Emerald Plaza
402 West Broadway, Suite 400
San Diego, CA 92101
Direct: (619) 955-6989

Fax: (866) 581-9302

Mobile: (714) 600-6000

Email: etsai@mwbllp.com

Admitted to practice law in California, Nevada and Oregon

          McGinnis Wutscher Beiramee LLP

CALIFORNIA   |   FLORIDA   |   ILLINOIS   |   INDIANA   |   WASHINGTON, D. C.

                                 www.mwbllp.com