Borrowers Have Standing to Challenge Void Assignments of Their Loans

A California Court of Appeal reversed a trial court’s decision and held that a borrower may sue a bank for wrongful foreclosure when an attempted transfer of loan to a securitized trust occurred after the trust’s closing date.  Glaski v. Bank of America (--- Cal.Rptr.3d ----, Cal.App. 5 Dist., July 31, 2013).

Facts

Bank of America acquired title to a California residence at a nonjudicial foreclosure sale pursuant to a successful credit bid under a promissory note and deed of trust.  The homeowner sued Bank of America.  The homeowner sought, among other things, to quiet title to his residence contending that the nonjudicial foreclosure sale was void due to an alleged defect in the chain of title of ownership of the promissory note and deed of trust under which the foreclosure sale was conducted.

The homeowner's loan originally was with Washington Mutual Bank.  After a number of assignments, the homeowner's promissory note and deed of trust were purportedly assigned to a securitized trust created under New York law that purportedly held title to the homeowner's promissory note and deed of trust in a pool of similar residential mortgages.  At the time of the foreclosure sale, Bank of America was the successor trustee of the securitized trust.  Bank of America directed the trustee under the deed of trust to foreclosure on the homeowner's home. 

The homeowner alleged that the transfer of his promissory note and deed of trust to the securitized trust occurred after the securitized trust closed and after the securitized trust could no longer accept assignments.  The homeowner alleged that the securitized trust did not own the promissory note and deed of trust due to this defect and, therefore, Bank of America could not foreclose on his home.  In a demurrer, Bank of America principally asserted that the homeowner lacked standing to challenge the validity of the assignment of the promissory note and deed of trust because he was not a party to the assignment agreement nor was he a third party beneficiary.

Decision

The Fifth District Court of Appeal reversed the trial court's decision sustaining Bank of America's demurrer and dismissing the homeowner's complaint.  It held that transfers that violate the terms of the trust instrument are void under New York trust law and borrowers have standing to challenge void assignments of their loans even though they are not parties to, or third party beneficiaries of, the assignment agreements.