You Have No Standing to Challenge the Assignment or Transfer of Your Mortgage and Note in …

On August 27, 2014, the California Supreme Court granted a petition for review in which the Second Appellate District of the California Court of Appeals dismissed a mortgagor’s challenge to foreclosure proceedings, ruling that she had no standing to challenge assignment of her promissory note and the deed of trust from the originator to third parties.  Yvanova v. New Century Mortgage Corporation, 226 Cal. App. 4th 495 (2014).

The trial court decided the case on narrow grounds, finding that the mortgagor was not entitled to quiet title because the mortgagor did not allege that she tendered funds to discharge her debt – which is a prerequisite to a California quiet title claim.  The Court of Appeals affirmed the trial court on this ground, but also took a broader view, asking the parties to submit briefing about whether the mortgagor could state a claim for wrongful foreclosure if the Court permitted her to amend her complaint.  The borrower challenged assignments of her note and deed of trust, but did not otherwise claim that the foreclosure process was unlawful.  The Court of Appeals concluded that the mortgagor had no standing to challenge assignments of her note and deed of trust for two reasons:

(1)The mortgagor has no standing to challenge her promissory note’s transfer.  A promissory note is freely transferable under California law, and a transfer of the note does not alter the borrower’s obligations under the note.  The Court reasoned that any defect in the transfer would affect the parties to the transfer, not the mortgagor.

(2)The mortgagor also has no standing to challenge the assignment of her promissory note and deed of trust from the originator to the trustee for the mortgage-backed securities trust, and the subsequent agreements securitizing the promissory note.  The Court again reasoned that any agreement relating to securitization would affect the parties to those agreements, but not the mortgagor.

In reaching this decision, the Court of Appeals explicitly affirmed its opinion in Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th 497 (2013), while rejecting the contrary holding in Glaski v. Bank of America, 218 Cal.App.4th 1079 (2013), in which the Court held that a borrower had standing to challenge a foreclosure by alleging that at least one transfer in the chain of title of a trust deed was void.

This appeal promises to be the most significant lending case to come before the California Supreme Court in years – on a subject about which the California Supreme Court has been noticeably silent.  The California Supreme Court is likely to definitively decide whether (and/or to what extent) mortgagors have standing to challenge the propriety of foreclosure proceedings by alleging defects in assignments of their notes and mortgages in the State of California.

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