Court Holds that a Home Loan Borrower May Assert a Claim that the Foreclosure was Wrongful Because the Underlying Assignment of the Deed of Trust was Void

In Yvanova v. New Century Mortgage Corporation, the California Supreme Court recently allowed a home borrower to assert a claim that a non-judicial foreclosure sale was wrongful because the assignment of the deed of trust was void. In Yvanova, plaintiff executed a promissory note in the amount of $483,000, which was secured by her home located in Woodland Hills, California. The lender was New Century Mortgage Corporation. One year later, New Century filed bankruptcy and the deed of trust was assigned to Deutsche Bank National Trust Company as the trustee. Both the Trustee and lender served plaintiff with a Notice of Default. Deutsche later assigned its interest to Western Progressive, LLC. Western Progressive served plaintiff with a Notice of Trustee Sale and sold her property at public auction. Plaintiff filed suit challenging the assignment from New Century to Deutsche Bank. According to plaintiff, there were defects in the assignment, which deprived Deutsche Bank of any standing to foreclose. The trial court sustained the defendant’s demurrers without leave to amend finding that plaintiff could not state a cause of action because she failed to tender funds to discharge her debt. On appeal, plaintiff alleged that she should have been granted leave to amend her complaint. The court of appeals affirmed. The California Supreme Court reversed holding that plaintiff had standing to challenge the validity of the assignment to Deutsche Bank. The Supreme Court recognized that a deed of trust may be assigned one or multiple times during the course of the loan. If the borrower defaults, only the current beneficiary may direct the Trustee to undertake a non-judicial foreclosure. A foreclosure initiated by one without authority, has no right to initiate a foreclosure. The issue in this case was whether a wrongful foreclosure plaintiff could challenge the authority of a party claiming such authority by assignment. The Supreme Court concluded that Plaintiff may challenge that authority.

Shannon B. Jones, Partner, sbj@sbj-law.com