The Import & Impact of Glaski v. Bank of America

The California Court of Appeal’s ruling in Glaski v. Bank of America, N.A., 218 Cal. App. 4th 1079 has been out for a month (2013). The opinion was issued in that month, and Bank of America’s motion for rehearing was denied. The opinion, which is now binding on all California trial courts, has received a lot of attention and appreciation from the foreclosure defense community. This article outlines the court’s principal conclusions, situates the judgment in the existing legal context, and assesses its possible significance as well as its limitations.

The Court’s Conclusions

Finally, the court’s findings are based on two basic and connected inquiries that, at least for the time being, clarify (and in some ways simplify) the “power to foreclose” matter in California. First, does the borrower claim, based on specific facts, that the foreclosing party was not the intended beneficiary? Second, was the assignment void or voidable, if the borrower’s claim is based on a failed assignment? Borrowers’ claims may now survive the pleading stage in California courts if they can establish specific facts proving that the purported beneficiary derived their authority from a void assignment, according to Glaski.

A Specific, Factual Allegation and the Basis for a Valid Wrongful Foreclosure Claim is that the Assignment Granting the Beneficiary’s Power to Foreclose is Void.

The court divides wrongful foreclosure claims based on an authority to foreclose theory into two categories: 1) borrowers who allege that the foreclosing entity was not the “true beneficiary under the deed of trust;” and 2) borrowers who allege that the foreclosing entity was not the “true beneficiary under the deed of trust.” 2) Borrowers who assert that the foreclosing entity was not the genuine beneficiary, based on particular circumstances. Borrowers in the first category rarely make it through the pleading stage, although those in the second category might. In other words, it may be sufficient to assert that “X is not the genuine beneficiary because Y,” rather than just “X is not the genuine beneficiary.” .” The claim is viable if “Y” is a particular, factual complaint that the foreclosing entity lacked the right to foreclose.

The court continued, “[o]ne grounds for asserting that a foreclosing party did not hold the deed of trust” is if the assignment purporting to give that party foreclosing power is unlawful. The court did not declare that contesting a beneficiary’s assignment is the only way to bring a wrongful foreclosure claim; rather, the court stated that this precise fault, when asserted with specific circumstances, is sufficient to call into question the jurisdiction to foreclose. Glaski claimed that the WaMu Securitized Trust’s assignment of his deed of trust and note was defective since it occurred after the trust’s closing date.

Standing: Void vs. Voidable Assignment

Many wrongful foreclosure cases based on securitization fail because the borrowers lack “standing” to contest how their loan was securitized. “When a borrower contends an assignment was unsuccessful, a question typically arises concerning the borrower’s standing to dispute the loan’s assignment (note and deed of trust) –an assignment to which the borrower is not a party,” the Glaski court wrote. “A borrower can contest an assignment of his or her note and deed of trust if the flaw asserted would void the assignment,” the court concludes, citing federal cases from other circuits and a California Jurisprudence book. “California courts have mainly taken a knee-jerk approach to securitization theories, dismissing those claims since the borrower is not a party to the assignment agreement or a third-party beneficiary of it (the PSA in most cases). The Glaski court defied California tradition by presenting the question as one of void vs. voidable assignments, allowing void assignment theories to withstand pleading.

A Post-Closing Date Transfer to Trust Renders the Assignment Void

Glaski’s attack on the beneficiary’s assignment was specific enough that it went beyond a general challenge to the foreclosing party’s right to foreclose; and 2) void assignments generally give a borrower standing to challenge the loan’s securitization, even if the borrower was not a party to, or third-party beneficiary of, the PSA. The court then considered whether Glaski’s precise allegations, if proven, would render the assignment null and void, thereby granting him standing.

Glaski’s note and deed of trust, like many mortgage loans, were sold (assigned) to a trust to be packaged with other mortgages, divided up, and sold again. Defendant Bank of America either became the “successor trustee” to the WaMu trust, or acquired the Glaski deed of trust from JP Morgan, which bought all of WaMu’s assets from the FDIC, through a second FDIC takeover, acquisition, and more assignments. In either case, the conceivable chains of title have been severed because the transfer from JP Morgan Chase to the WaMu Securitized Trust took place after the trust’s closing date.

Is a post-closing assignment to a trust, however, null and void? To solve this point, the Glaski court looked at New York law, which the pleadings said was controlling, and came to the conclusion that an assignment transferred after a trust’s closing date is void, not voidable.

Glaski answered both threshold questions with sufficient specificity:

1. Bank of America was not the beneficiary because the assignment purporting to give it foreclosing power was invalid; and
2. The assignment was void, not voidable because the transfer to the trust occurred after the trust’s closing date. The first point was enough to get him past Gomes, and the second solidified his position.

Tender

The court only touched on the tender issue briefly, but it was crucial to its decision and highlights the necessity of distinguishing between a void and voidable foreclosure sale. “When the foreclosure sale is void, rather than voidable, such as when a plaintiff establishes that the entity lacked the right to foreclose on the property, tender is not required.” The court reversed the trial court’s dismissal of the complaint and vacated and overruled the judgment maintaining the Bank of America’s demurrer because the tender was not needed and Glaski asserted a cognizable claim for wrongful foreclosure.

Placing Glaski in the California Foreclosure Landscape

1. Distinguishing Gomes: Specificity

   Glaski’s main stumbling block was most likely Gomes. The court took an entire section of its decision to explain how its judgments differed from those in Gomes. In Gomes, the borrower also filed a claim for wrongful foreclosure, contending that the foreclosing organization, MERS, was not the beneficiary’s nominee because the unknown beneficiary failed to appoint MERS as a nominee or provide MERS consent to foreclose. Unlike Glaski, Gomes, on the other hand, ended his argument there. He failed to explain why MERS, who was identified as the deed of trust’s beneficiary and nominee, was not the genuine beneficiary. Rather, Gomes claimed that CC 2924 gave him the opportunity to “test” whether MERS owned the beneficial interest prior to the sale. The difference between a Gomes claim and a Glaski claim is the word “whether.” Gomes wanted to find out if MERS was the intended recipient. Glaski, on the other hand, claimed that Bank of America was not the beneficiary because the assignment granting them beneficiary status was late and thus void. “Who has the authority to foreclose?” Gomes inquired, while Glaski responded, “X obviously does not have power for these reasons…” The Gomes court determined that CC 2924 does not give debtors the opportunity to inquire as to “whether” the foreclosing party has the authority to do so.

2. Distinguishing Nguyen: Void vs. Voidable

   Nguyen v. Calhoun, 105 Cal. App. 4th 428 (2003), which found that anything outside of the foreclosure sale procedure cannot be utilized to challenge a presumably lawful and full sale, had to be considered by the Glaski court. The court had to decide whether an “ineffective transfer to the WaMu Securitized Trust” was part of the foreclosure sale or if it occurred outside of it and was thus immaterial. The court determined that the trust transfer was part of the foreclosure sale and a valid ground for challenging the foreclosure because it was essential to Bank of America’s jurisdiction to foreclose and would nullify the sale itself.