Improper Transfer of Loan to Securitized Trust May Preclude Foreclosure

In Glaski v. Bank of America, National Association, et al., Case No. F064556, the California Court of Appeal decided whether the trial court erred in upholding the defendant bank’s demurrer, when the plaintiff, a house loan borrower, disputed the bank’s securitized trust chain of ownership. The plaintiff claimed that the bank’s assignment to the secured trust was void since his deed of trust was transferred to the securitized trust after the trust’s closing date. The Court of Appeal decided that transfers that contravene the conditions of the trust instrument are void and that borrowers, even though they are neither a party to or a third-party beneficiary of the assignment agreement, have the standing to contest defective assignments of their loans.

Thomas A. Glaski bought a house in Fresno, California, in July 2005. He got a loan from Washington Mutual Bank, FA to pay for the purchase (WaMu). WaMu established a common-law trust in late 2005. (WaMu Securitized Trust). The trust’s corps was made up of a group of home mortgage notes that were allegedly backed by liens on residential real estate. The WaMu Securitized Trust was set to close on December 21, 2005, or 90 days later.

WaMu was seized by the Office of Thrift Supervision in September 2008, and the Federal Deposit Insurance Corporation (FDIC) was appointed as receiver. The FDIC sold WaMu’s assets and liabilities to defendant JPMorgan Chase Bank, N.A. in the same month (JP Morgan). JP Morgan transferred and assigned all beneficial interests under the Glaski deed of trust to LaSalle Bank NA, the WaMu Securitized Trust’s trustee, in December 2008. Glaski was in default under his deed of trust, so JP Morgan also filed a Notice of Default and Election to Sell. Glaski’s property was sold at a non-judicial foreclosure auction on May 27, 2009. The highest bidder in the sale was Bank of America, as successor by merger to LaSalle Bank NA and trustee for the WaMu Securitized Trust. JP Morgan assigned the entire beneficial interest under the Glaski deed of trust to Bank of America on June 15, 2009.

Glaski first filed his suit in October of 2009. In August 2011, he filed a Second Amended Complaint (SAC) against all defendants, alleging unjust foreclosure based on the failure to swiftly and correctly transfer the Glaski loan to the WaMu Securitized Trust, among other things. The defendants filed a demurrer in September 2011 challenging each cause of action in the SAC on the grounds that it lacked sufficient facts to support a claim for relief. The demurrer was upheld by the trial court. Glaski filed an appeal.

The Court of Appeal found two alternative chains of title via which Bank of America, as trustee for the WaMu Securitized Trust, could claim to be the holder of the Glaski deed of trust, and claimed that each chain of title had the same flaw – a transfer after the trust’s closing date. First, the Court determined that if WaMu did not transfer Glaski’s note and deed of trust into the WaMu Securitized Trust before the pooling agreement’s closing date, Bank of America could not claim to be the holder of the Glaski deed of trust simply by virtue of being the WaMu Securitized Trust’s successor trustee. Second, JP Morgan attempted to assign the deed of trust to the WaMu Securitized Trust in June 2009, after the WaMu Securitized Trust had closed (i.e., 90 days after December 21, 2005).

The Court also addressed whether the standards set forth in Gomes v. Countrywide Home Loans, et al. (2011) 192 Cal.App.4th 1149 prohibited Glaski’s wrongful foreclosure claim. The Court concluded in Gomes that a plaintiff does not have the standing to file an action to assess the nominee’s authorization to proceed with a nonjudicial foreclosure on a noteholder’s behalf. This Court distinguished Gomes, stating that the concept laid forth in Gomes involved the noteholder’s nominee, MERS, and not the noteholder’s authority. The Court further noted that Glaski had provided specific evidence to support his claim that the foreclosure was not carried out at the correct party’s direction. The Court concluded that Glaski had properly established a claim for wrongful foreclosure based on the following.

If a transfer within the stream of transfers is found to be void, Glaski shows that an assignment of a deed of trust amongst numerous parties does not definitely demonstrate that the last assignee will be the owner or holder of the beneficial interest.

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Challenging the Authority to Foreclose Requires Specific Factual Allegations

Other state cases

Mortg. Elec. Registration Sys., Inc. v. Siliga (Aug. 27, 2013): The use of non-judicial foreclosures is governed by law. Borrowers may not sue foreclosing entities in court to force them to prove anything beyond what the law already requires. These actions are “preemptive” in that they do not seek remedy for specific wrongdoing (which would constitute a genuine cause of action), but rather contend that the entity beginning the foreclosure does not have the authority to do so. “If the plaintiff has no ‘specific factual [reason]’ for the assertion that the foreclosure was not launched by the correct person, such an action is ‘preemptive'” (emphasis added).

Borrowers claimed MERS lacked the authority to foreclose because

  1. The lender’s agreement with MERS (making MERS the DOT beneficiary and the lender’s nominee) “lapsed,” negating any authority to foreclose MERS may have had;
  2. MERS had no authority to assign the note, and any DOT assignment without a note assignment is void, and
  3. MERS required the lender’s acquiescence.

The borrowers failed to state in the complaint that the lender had gone out of business in the first accusation. The lender’s chapter 11 bankruptcy signals reorganization but “neither the company’s death nor an inability to contract,” according to the court. Second, MERS’ authorization to assign the note stems from the lender’s “agency agreement.” A generic argument that MERS lacks power without a specific issue with the agency agreement is insufficient to state a claim. Finally, the charge that MERS lacks written authorization to assign the note to DOT is an attempt to force MERS to justify its jurisdiction to foreclose outside of the statutory scheme without a more factual charge. The court upheld the rejection of the borrower’s lawsuit due to a lack of adequate factual allegations.

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