A borrower has the standing to bring securitization claims to stop or set aside a non-judicial foreclosure, according to the Fifth Appellate District of California. The borrower in Glaski v. Bank of America asserted that the mechanism used to securitize his loan was unlawful, and so the securitized trust lacked standing to enforce the deed of trust.
The question is whether Glaski opens the floodgates of securitization challenges.
The answer is, thankfully, no.
Facts and Procedural History
Borrower Thomas Glaski took out a loan from Washington Mutual Bank in July 2005, at the same time that the WaMu Mortgage Pass-Through Certificates Series 2005-AR17 Trust (WaMu Trust) was established. The Federal Deposit Insurance Corporation (FDIC) closed Washington Mutual in September 2008. The Glaski loan, as well as other assets and liabilities, were later purchased from the FDIC as receiver by JPMorgan Chase Bank, N.A. (Chase). Glaski admits to defaulting on his loan during this time. JPMorgan transferred and assigned all beneficial rights under the Deed of Trust and the Note to LaSalle Bank, N.A., as trustee for the WaMu Trust, according to an Assignment of Deed of Trust filed by Chase on December 9, 2008. On the same day, a Notice of Default was filed, kicking off the nonjudicial foreclosure process, and on May 27, 2009, a trustee’s sale was held. Glaski sued Chase, Bank of America, N.A. (successor trustee to LaSalle Bank, N.A.), and the foreclosure trustee, California Reconveyance Company, after the foreclosure sale. Glaski claimed that the operational pooling and servicing agreement required the trustee of the WaMu Trust to receive certain papers, including the promissory note and deed of trust for loans sold to the trust, prior to the trust’s closing date. This, according to Glaski, was not done, preventing the loan from vesting in the WaMu Trust. As a result, Glaski claimed that the Assignment was invalid and that Bank of America, as trustee of the WaMu Trust, had no authority to carry out the foreclosure. Defendants’ Demurrer to the whole complaint was eventually sustained by the trial court without permission to amend. Glaski appealed the trial court’s decision in a timely manner.
The California Court of Appeals concluded in a published opinion that the plaintiff cannot simply claim that the entity performing the foreclosure is not the proper beneficiary under the deed of trust. This theory requires plaintiffs to allege facts proving that the entity is not the true beneficiary. The Glaski court then determined that Plaintiff had met his burden of proof. Glaski claimed, first, that the Note and Deed of Trust were not transferred to the WaMu Trust before the closing date, as required by the pooling and servicing agreement. Bank of America would have no legal authority to carry out the foreclosure under those circumstances. Second, if Bank of America acquired its stake in the Deed of Trust through the 2008 Assignment, such a transfer would be ineffectual because it was recorded three years after the WaMu Trust closed. In any case, the Glaski court found that the borrower had stated enough information to support his claim that Bank of America, as trustee of the WaMu Trust, was not the genuine beneficiary under the Deed of Trust.
A borrower has the standing to contest the validity of a deed of trust assignment if doing so will render the assignment void, according to the Glaski court. In reaching the judgment that a post-closing date transfer would render the subsequent Assignment unlawful, the Appellate Court looked to case law from other federal districts and even attempted to interpret New York trust law. As a result, Glaski may question the Assignment’s authenticity.
Defaulted borrowers who challenged the beneficiary’s status before the Glaski ruling faced an uphill struggle, contending that:
Fortunately, a number of federal courts have already ruled against Glaski. The borrower in Diunugala filed a lawsuit disputing the foreclosure on the same grounds as Glaski.
Diunugala claimed that “the note on [Plaintiffloan ]’s was not transferred within 90 days or repurchased… within 180 days as required by the [pooling and servicing agreement] of the MBS trust,” and that “the note on [Plaintiffloan ]’s was not transferred within 90 days or repurchased… within 180 days as required by the [pooling and servicing agreement] of the MBS trust.” While Diunugala relied on Glaski to back up his claims, the court disagreed, holding that any transfer that violates a pooling and servicing agreement is voidable, not void, as Glaski had previously held. As a result, such assignment of deed of trust would not be subject to a borrower’s challenge under Diunugala. Furthermore, the Diunugala court, citing Fontenot, found that a plaintiff opposing a foreclosure sale must prove that the defendant “did not get a legitimate assignment of the obligation in any manner,” rather than only an unsuccessful assignment of a note and deed of trust. Even then, the plaintiff must establish that they were harmed as a result of the parties involved in the foreclosure process’s lack of authority.”
In Newman, the borrower challenged the foreclosure on the basis of claimed pooling and servicing agreement violations. Glaski was called upon once more by the borrower. The Newman court, like the Diunugala court, dismissed Glaski, finding that “no courts have yet followed Glaski, and Glaski is in a distinct minority on the issue.” This Court will continue to follow the majority rule until the California Supreme Court, the Ninth Circuit, or other appellate courts follow Glaski.” WL 5603316 n.2 WL 5603316 n.2 WL 5603316 n.2 Chase petitioned the California Supreme Court to have Glaskidepublished on October 4, 2013. The Supreme Court has received numerous responses in support and opposed to Chase’s request for depublication. While the Supreme Court has no deadline for making a decision on a depublication request, it does try to make a decision within 90 days of receiving a proper request. If the California Supreme Court decides to depublishGlaski, no one will be able to quote it, and lower state courts will not be bound by its judgment. Glaski, in that case, will be a distant memory. Even if the California Supreme Court refuses to depublishGlaski, it is clear that many federal court justices will decline to follow the decision, limiting the ruling’s detrimental impact.
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