By T. Robert Finlay, Esq. Wright, Finlay & Zak, LLP

T. Robert Finlay

Perhaps the most anticipated ruling in the area of consumer lending in California has been Yvanova v. New Century Mortgage Co., concerning the question of whether a borrower facing foreclosure has standing to challenge the securitization of the defaulted loan based on a claim that the transfer occurred after the closing date of the Trust. The dispute started in 2013, when California’s 5th Appellate District ruled in Glaski v. Bank of America (2013) 218 Cal. App. 4th 1079, that a borrower could, in the context of being foreclosed upon, challenge whether his loan was properly securitized into a securitized pool of loans. Glaski was almost universally rejected by federal and state courts, culminating in the 2nd Appellate District’s decision in Yvanova v. New Century Mortgage Co. (2014) 226 Cal. App. 4th 495, which openly rejected Glaski, holding that a borrower did not have standing to challenge the securitization of the loan. Other decisions followed, resulting in the California Supreme Court’s review of the issue in 2015.

The lines were drawn and support groups lined up on either side. The UTA, in conjunction with other industry groups, retained Wright, Finlay & Zak, LLP to file an Amicus Brief supporting affirmance of the decision in Yvanova and arguing that allowing defaulted borrowers facing a non-judicial foreclosure to challenge the securitization of the loan would turn every non-judicial foreclosure sale into a judicial foreclosure, overwhelming the courts and breaking the delicately crafted balance created by the legislature in drafting the non-judicial foreclosure statutes. California’s Attorney General, among others, filed Amicus Briefs for the borrowers, advocating the borrower’s right to challenge whether the loan was properly securitized before losing their home. Oral argument took place in early December 2015.

Today, the California Supreme Court ruled that the borrower has standing to challenge the ability of a beneficiary/servicer to conduct a non-judicial foreclosure sale by arguing that the transaction by which the loan was acquired rendered it void. The Court cautioned that its ruling was a narrow one:  “We conclude a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trustee was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale.” While the decision goes on to state that the Court was not expressing any opinion on whether an assignment recorded after the closing date of a trust was void or not, the narrowness of the decision only serves to create greater uncertainly and will undoubtedly lead to more litigation. The decision’s impact will be felt throughout the mortgage industry. A California borrower now has presumptive standing to challenge the assignments and securitization of their loan if the complaint is pled artfully.

The Yvanova decision just came down today and it will need to be analyzed further, from its impact on pending cases, the non-judicial foreclosure process in California and, potentially, other states. In other words, expect more analysis and discussion.