The Court of Appeal of California, Third Appellate District, recently affirmed the lower court’s ruling that plaintiff borrower lacked standing to challenge the alleged irregularities in the securitization of her loan, thereby dismissing her complaint alleging wrongful foreclosure, declaratory relief and quiet title.  See Mendoza v. JPMorgan Chase Bank, N.A., 2016 WL 7217199 (Cal. App. 3d Dist. 2016).  Plaintiff borrowed a loan from defendant, secured by a deed of trust.  The lender subsequently assigned the deed of trust and substituted a trustee for the deed of trust.  This assignment of the deed of trust and substitution of the trustee are what plaintiff sought to challenge in this action.  Plaintiff admitted that she is in default, but alleged that “the bank defendants are attempting to take advantage of the complex structured finance system to defraud yet another homeowner.”  On appeal, plaintiff relied on the California Supreme Court’s “narrow ruling on a borrower’s standing to challenge the validity of the chain of assignments involved in the securitization of her loans” in Yvanova v. New Century Mortgage Corp., 199 Cal. Rptr. 3d 66 (2016) and argued that her allegation that the assignment is void is sufficient to survive a demurrer.  However, the Court of Appeal determined that the Yanova court did not consider the precise question presented in the instant appeal: whether either the assignments of plaintiff’s deed of trust to the investment trust after the trust’s closing date or the alleged “robo-signing” of the documents rendered the assignment void, not merely voidable.  The Court of Appeal held that while none of the cases plaintiff cited discussed the “critical issue we face, whether an untimely assignment into a securitization trust is void or voidable,” the overwhelming majority of New York (applicable to this case because the deed of trust to the foreclosing party was transferred into a New York securitized trust), California and federal courts provides that defects in the securitization of loans can be ratified by the beneficiaries of the trusts and, as a result, the assignments are voidable.  Accordingly, a borrower does not have standing to challenge an assignment that allegedly breaches a term or terms of a pooling and service agreement because the beneficiaries, not the borrower, have the right to ratify the trustee’s unauthorized acts.  As such, an assignment after the publicized closing date is voidable, not void.  The Court of Appeal also rejected plaintiff’s alternative argument that beneficiaries of the trusts could not ratify a trustee’s late acceptance of mortgages because it would threaten the viability of the trust and held that, like the several federal courts that have rejected such an argument, “we do not believe that losing favorable tax treatment renders a transaction void as a matter of law.”  Finally, the Court of Appeal found plaintiff’s remaining causes of action for declaratory relief and quiet title to be fatally deficient on their face.

For a copy of the decision, please contact Michael O’Donnell at modonnell@riker.com or Clarissa Gomez at cgomez@riker.com.