Borrower Fails in Preemptive Action Challenging Right to Foreclose

Foreclosure and Legal Update by Peter N. Brewer, Esq.

In 2004, Ms. Brown borrowed $450k and secured that loan with a deed of trust against her property in Oakland, California.  The beneficiary under that deed of trust was Washington Mutual Bank, F. A.

WAMU failed in 2008 and the FDIC sold WAMU’s assets to JP Morgan Chase Bank, N.A.  This sale included Ms. Brown’s loan and was memorialized in a September 2008 Purchase and Assumption Agreement (P&A Agreement).

In March of 2011, the foreclosing Trustee, California Reconveyance Company (“CRC”) recorded a Notice of Default for Chase stating Brown was in arrears for slightly over $60k.  One month later, Chase Bank assigned the deed of trust to Deutsche Bank.  CRC remained the trustee.  Two months later, CRC recorded a notice of sale.

In January of 2012, Brown filed the first of three lawsuits challenging the foreclosure.  She voluntarily dismissed the first two.  Each time, CRC republished its notice of sale.  Finally, in July 2013, CRC executed a third notice of sale and two days later Brown filed her third lawsuit challenging this foreclosure sale.  In her complaint, she alleged that the deed of trust assignment to Deutsche Bank was invalid and the foreclosure proceedings were initiated without authority.

Additionally, after the defendants successfully demurred to the complaint, she amended it to allege various other allegations, including violation of the California Homeowner Bill of Rights (HBOR), which had gone into effect Jan. 2013.

The defendants again demurred.  The trial court sustained the demurrer without leave to amend and dismissed the case.  The trial court found that Ms. Brown’s causes of action for cancellation of the instruments, foreclosure by entity lacking a beneficial interest (allegedly Deutsche Bank) and that the declaratory relief sought failed for three reasons: 1) the causes of action were barred as a matter of law because there is no recognized cause of action that allows a borrower to test the legal authority of the entity commencing foreclosure in a preemptive action, 2) Brown lacked standing and 3) Brown’s allegation that Deutsche Bank lacked authority to enforce the deed of trust was contradicted by matters subject to judicial notice (the P&A Agreement).

THE DECISION:  AFFIRMED. The appellate court decision began by reciting the overview of California’s non-judicial foreclosure process and then briefly looked at the issues of standing and whether a borrower can bring a preemptive action to challenge an entity’s (usually a lender or trustee) authority to foreclose.  The Brown court noted that the Supreme Court in Yvanova expressly declined to address the validity of preemptive actions.  Then, the Brown court went on to state that under Yvanova’s determination that a borrower has standing in the post-foreclosure timeframe that it is likely that a borrower in a pre-foreclosure challenge would have sufficient injury to confer standing.  However, the Brown decision made it clear that even in noting those two issues of standing and preemptive actions, it was affirming the lower court’s decision on separate grounds.

Specifically, the Brown court found that nowhere in the briefing did Brown “present any reasoned argument…” that the P&A Agreement should be interpreted any differently than how it is written, wherein in plainly transfers WAMU’s assets to Chase.  Clearly, this case turned on the record before the court and Brown’s facts lacked any viability as compared with those facts found in Yvanova.  In Yvanova, the entity purportedly transferring its assets had long ago gone through a bankruptcy and been dissolved, leading to a inference of forgery.  Brown’s mere allegation was not sufficient to counter the plain reading of the P&A Agreement itself.

Why this case is important:  The Yvanova decision had been long awaited, but in the end was a very narrow holding.  Subsequent decisions suggest that Yvanova offered little guidance to issue of borrower preemptive actions.

COMMENT:   This opinion placed great weight on the P&A Agreement, which was part of the record as a matter of judicial notice.  Prudent practitioners know that most judges would be reluctant to take notice of the actual contents of the agreement and instead limit the judicial notice to the existence of the record itself.  Here, the opinion clearly analyzed the context of the P&A Agreement and transfer wording.  This is essentially a fact finding and usually beyond the scope of judicial notice.  At one point in the opinion, the appellate court noted that Brown had failed to challenge trial court’s determination that the P&A was proper subject for judicial notice, and went on to include a footnote.

Brown v. Deutsche Bank National Trust Company, as Trustee, etc. ., et al Opinion filed May 9, 2016 (First District A144339)

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