In its unanimous ruling in the case of Yvanova v. New Century Mortgage Corp. et al., the California Supreme Court held, “Our ruling in this case is a narrow one. We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment.”
The court did not, however, assert that the mortgage transfers were void, just that the plaintiff had the right to contest the foreclosure.
“(This ruling) will increase the number of lawsuits against entities who have foreclosed on homeowners, but it doesn’t necessarily lead to success because it will depend on each individual case,” Lawrence H. Jacobson, a real estate attorney and expert witness for civil trials, told the Northern California Record.
Tsvetana Yvanova had asserted that the Morgan Stanley investment trust didn’t own the loan to her home when it foreclosed on it. Lower courts ruled against Yvanova, stating that she had no right to sue because she was in default on the loan.
New Century was the lender and beneficiary on the original deed of trust. New Century allegedly sold the mortgage to a securitization trust owned by Morgan Stanley before New Century filed for bankruptcy and was liquidated in 2008.
The assignment of mortgage on Yvanova’s property was recorded on Dec. 11, 2011. Yvanova argued that New Century no longer existed in 2011, thus the transfer to Morgan Stanley was void.
This is not the first time that courts have considered the standing issue in California. In Glaski v. Bank of America NA, the court held that the plaintiff did have the standing to challenge the authority that foreclosed.
In a separate case, Jenkins v. JP Morgan Chase Bank NA, the court said that the plaintiff had no standing to challenge the terms of any agreements allegedly violated in a foreclosure.
"In Glaski, the court ruled that in order to foreclose, you must have the right to foreclose," Jacobson said. "In Jenkins, the court said that it doesn’t matter who forecloses. The homeowner has no standing.”
In the Yvanova case, a lower court upheld Jenkins v. JP Morgan Chase Bank NA, but the Supreme Court concluded to the contrary.
Another effect this ruling could have is to increase closing costs.
“Loan companies will have to be more careful in their documentation,” Jacobson said. “It’s difficult to ascertain at one point in time to determine who holds deed of trust.”