In June 2005, Monica Sciarratta (“Borrower”) obtained a loan in the amount of $620,000 from Washington Mutual Bank. In April 2009, Chase Bank (“Chase”), the servicer of the loan, recorded an assignment of the loan and transferred it to Deutsche Bank National Trust Company (“Deutsche”). In that same month, Borrower began defaulting on the loan. Chase began foreclosure proceedings. In November 2009, Chase recorded another assignment of the loan and transferred the loan to Bank of America (“BoA”), notwithstanding the fact that it had already been assigned to Deutsche. On the same day, the trustee recorded a Trustee’s Deed Upon Sale on behalf of BoA naming BoA as the foreclosing beneficiary. The Trustee’s Deed noted that BoA was winner at the foreclosure pursuant to a credit bid. In December 2009, Chase records another assignment of the loan purporting to correct the assignment made in April. Prior to the foreclosure sale, the Borrower filed a lawsuit in federal court. Eventually, in May 2012, that case was dismissed. In February 2013, the Borrower once again filed a lawsuit in state court. There, the Borrower alleged that BoA was not the lender of record for the loan as Chase had transferred the loan to Deutsche. Further, as Chase had transferred all of its interest to Deutsche, the second transfer was void as a matter of law as Chase had nothing to transfer. In response, BoA filed a demurrer to the complaint alleging that the case was barred by the previous federal case and because the Borrower did not allege any harm.
Initially, the trial court denied the demurrer and allowed the case to proceed. However, after the demurrer, BoA filed a motion for judgment on the pleadings on the same arguments raised in the demurrer. Somewhat confusingly, the Court granted that motion finding that the Borrower did not allege harm. The Court then gave the Borrower leave to amend the complaint. The Borrower then filed another complaint which BoA once again demurred to again. The Court granted the demurrer without leave to amend. The Borrower then appealed the decision.
THE DECISION:
The California Court of Appeals for the Fourth District reversed the lower courts’ rulings and held a borrower is automatically prejudiced by a foreclosure by a third party and does not need to specify any other damages. Here, the Court noted that the California Supreme Court’s decision in Yvanova v. New Century Mortgage Corp. has largely held that a foreclosure by a third party is actionable. While it may be true that the Borrower would be unable to pay the loan, that was not relevant to the analysis of whether the borrower had been damaged. Further, it would be against good policy to prohibit a borrower from challenging any third party from foreclosing as the borrower only owes a debt to the specific lender and only that lender has the right to foreclose. Finally, the Court noted that Chase could not assign the Loan to BoA as it had already assigned all of its rights to Deutsche. Accordingly, the public record showed that BoA was not the holder of the loan and did not have the right to foreclose.
WHY THIS DECISION IS IMPORTANT:
This case follows the reasoning in the Yvanova decision. It is likely that more cases will continue to be decided in favor of borrowers allowing them to challenge more foreclosure sales. The court explicitly stated that there was a strong policy reason to allow a borrower to challenge a void foreclosure sale as California has a nonjudicial foreclosure procedure that does not involve the court system. The court rejected the lender’s arguments as the natural extension of it would be to allow any third party to foreclose as long as a debt was owed and largely escape any consequences.
COMMENT:
Given the Yvanova decision, this case, and likely many similar ones in the pipeline, we expect that lenders will be more and more careful in making assignments of the loan. It is unclear why Chase recorded the second and third assignments instead of requesting that Deutsche record the assignment and avoiding the void transfer. However, given the likelihood of borrowers prevailing on these claims, lenders will likely work to clean up the recording issues and work with each other to prevent further cases such as these from happening.
Sciarratta v. U.S. Bank, 247 Cal.App.4th 552 (2016)
