On February 26, 2014, the California Supreme Court refused to strike down the Court of Appeal’s controversial ruling in Glaski v. Bank of America. The plaintiff in Glaski sued his loan investor, deed of the trust beneficiary, and trustee, among others, to have the foreclosure sale of his property set aside. The plaintiff claimed fraud, quiet title, and declaratory relief among other things. The plaintiff additionally claimed that the defendants lacked standing to foreclose on his property since his loan was transferred into a securitized trust after the trust closing date specified in the pooling and servicing agreement governing the securitized trust, voiding the assignment.
Prior to Glaski, a large number of California appellate and federal courts had held that the plaintiff lacked standing to question the legitimacy of a securitized trust assignment because he or she was not a party to the securitized trust pooling and servicing agreement or a third-party beneficiary. The defendants’ demurrers were upheld by the trial court without permission to amend as to all causes of action, and the plaintiff was found guilty. On appeal, the Glaski Court concluded that the assignment in question was void (rather than voidable) and that a borrower has the standing to oppose the assignment because the foreclosing company lacked the authority to foreclose on the property in the first place.
The Court’s decision was based on the claim that the securitized trust was constituted under New York trust legislation, which prohibited a securitized trust from accepting a loan beyond the trust’s closing date. However, the securitized trust was created under Delaware law, not New York law, therefore assigning a debt into a securitized trust after the trust’s closing date does not immediately negate the assignment. Furthermore, the Court never addressed whether the assignment harmed the plaintiff, such that he was unable to make his mortgage payments or cure his default because of the “void” assignment. A number of courts have ruled that abnormalities in the foreclosure process, such as inaccuracies in deeds of trust assignments, are irrelevant if the petitioner cannot show that he or she was harmed.
Federal and California decisions have typically followed the majority position since the Glaski decision was released seven months ago. With one exception, the Glaski holding has never been accepted by a federal court or a published California Court of Appeal ruling. Glaski has been dubbed an “outlier,” and certain California federal courts have stated flatly that they will not follow Glaski’s reasoning unless and until the California Supreme Court or the Ninth Circuit publicly adopts it.
It would be fascinating to see whether the California Supreme Court’s decision not to disrupt Glaski’s publication status is seen as a signal of the court’s position on the ruling, or whether the courts will continue to reject Glaski, making it an “outlier.” Only time will tell if this is true.
A District Court Rules That a Late Assignment to a Securitized Trust Is Voidable, Not Void, and Doesn’t Allow a Wrongful Foreclosure Claim
In Spangler v. Selene Finance, LP, the United States District Court for the Northern District of California rejected a borrower’s claim that an assignment of a deed of trust recorded after a foreclosure auction was defective and not merely voidable. The court did so by interpreting the California Supreme Court’s 2016 decision in Yvanova v. New Century Mortgage narrowly and joining a growing number of courts in rejecting the California Court of Appeal’s decision in Glaski v. Bank of America, N.A., which held that an assignment made after a securitized trust’s closing date was void. The closing date, according to Glaski, is the date set in the trust document after which the trust can no longer receive loans.
Spangler, the borrower, claimed to have secured a home loan in 2007. The loan was repossessed during a trustee’s auction on January 28, 2016, after an earlier trustee’s sale and assignment were canceled. On February 4, 2016, the trustee’s deed upon sale was recorded. An assignment of the deed of trust to the foreclosing beneficiary, a securitized trust, was recorded the next day, on February 5. The assignment was completed on June 29, 2015, more than six months before the sale. Spangler filed a wrongful foreclosure lawsuit, claiming that the assignment to the trust was unlawful since it took place after the trust’s closing date. Yvanova was particularly mentioned in Spangler’s suit as the source of the unlawful foreclosure claim.
The court dismissed the suit without leave to amend after rejecting Spangler’s accusations. First, the court rejected the argument that a deed of trust assignment is only valid if it is documented, noting that a deed of trust or an assignment of a deed of trust is not required to be recorded.
The court then considered whether the assignment to the securitized trust was unlawful because it occurred after the trust had closed. Spangler’s contention that Yvanova speaks for the concept that a wrongful foreclosure lawsuit might be founded on an assignment made after the trust’s closing date was rejected by the court. “Yvanova does not hold that a late assignment produces an invalid foreclosure,” the court concluded. Yvanova’s comment that it “express[es] no opinion” on “whether a post-closing date transfer into a… securitized trust is void or merely voidable” was quoted by the court.
Although Yvanova noted that a panel of the California Court of Appeal decided in Glaski that a late assignment to a securitized trust was void, not voidable, the Supreme Court refused to comment on whether that conclusion was correct. Glaski is an “outlier and not commonly accepted law,” according to the court, which concurred with a succession of federal district court decisions. Glaski was also founded on a New York ruling that was later overturned on appeal, according to the court. Spangler lacked standing to pursue a wrongful foreclosure claim, the court reasoned, “because an act in violation of a trust agreement is voidable—not void—under New York law, which controls the Pooling and Servic[ing] Agreement.”
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