SAN FRANCISCO – The California Supreme Court has granted a shallow breath of life to foreclosed homeowners in a recent ruling that could pull financial institutions into litigation.
The court ruled in Yvanova v. New Century Mortgage Corp. that the plaintiff did have standing to file a wrongful foreclosure claim against the lending agency, New Century Mortgage. This ruling contradicts the lower court and potentially opens the courthouse doors for more future wrongful foreclosure claims.
The court, however, explicitly stressed the narrowness of the ruling, clearly taking a stance that this decision is purely about standing for foreclosed homeowners, not asserting the validity of the facts or that preemptive action can be taken if a homeowner suspects a wrongful foreclosure.
But the breath of life, however shallowly or narrowly given, is still the same.
“This was a narrow ruling, so it may not have a huge impact,” Judith Fox, a law professor who runs the Economics Justice Clinic at Notre Dame Law School, recently told the Northern California Record. “California law tends to be unique so that a precedent in California tends not to have national reach. However, it is a crack in the (door). It is possible that this could lead to further erosion to the barriers homeowners fight when trying to contest the very suspect paperwork lenders produce to foreclose."
Statistics from RealtyTrac.com, a provider of real estate data across the U.S., show that 1 in 1,531 of mortgaged homes in California faced foreclosure as of February, new lows for the state.
According to Tsvetana Yvanova’s complaint, she secured a loan with a deed of trust to purchase her home in Los Angeles County through New Century Mortgage in 2006. New Century then filed for bankruptcy in 2007, liquidating to a trustee in August 2008. In the years leading up to Yvanova’s foreclosure in 2012, New Century transferred her deed of trust to Deutsch Bank National Trust Co. as a securitized trust through Morgan Stanley in December 2011.
Approximately nine months later, Western Progressive LLC recorded a substitution of the trust with Deutsch Bank; and in September 2012, foreclosed on and sold the property at public auction.
Yvanova believes that the foreclosure on her home was void due to an unauthorized selling of her trust to Deutche Bank due to New Century’s liquidation prior to 2011, and asked the state Supreme Court for the standing to file suit in lower courts.
Without commenting on the validity of the plaintiff’s statements or the facts of this case, according to the unanimous court’s opinion written by Justice Kathryn Werdegar, “A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity‘s hands. No more is required for standing to sue.”
In this ruling, Werdegar mentioned the amicus brief filed by California Attorney General Kalama Harris.
“But as the attorney general points out in her amicus curiae brief, a holding that anyone may foreclose on a defaulting home loan borrower would multiply the risk for homeowners that they might face a foreclosure at some point in the life of their loans,” Werdegar said.
Fox is not very confident that the ruling will have much impact on financial institutions.
“Financial institutions have been getting away with the sloppy paperwork for years and have not been much moved by sanctions, fines and consent judgments,” she said.
She did, however, point out that California is a nonjudicial foreclosure state, whereby lending agencies do not go through the court system to pursue evictions. Fox believes this ruling speaks to the need for judicial intervention.
“Otherwise, there are no checks to funny business that financial institutions have been getting away with," she said. “As I said, California tends to be an outlier. It is very consumer friendly. It is a nonjudicial foreclosure state, yet it has the homeowner's bill of rights. I think the court went out of its way to narrow this decision. We will have to see, I suppose, but I would be surprised if this opens things up very much nationally. In California, it may well bring relief to many. Unfortunately, it will only bring relief to those whose homes have already been lost.”
Yvanova’s case will head back to the court of appeal. It's unclear if the California Supreme Court expects to see the case again in the future, but in trying to glean foresight into the next proceedings by remaining consistent with the opinion is to understand this from Werdegar:
“The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.”