Glaski v. Bank of America – lenders can be held responsible
Posted On: August 11th 2013
On July 31, 2013, the California Appellate Court, in Glaski v. Bank of America, issued a groundbreaking legal opinion declaring unequivocally that a homeowner has “standing” to challenge a foreclosure on the basis that the mortgage loan was not properly assigned to the securitized trust which sought to foreclose. Although long-standing California law permits only a “beneficiary” (ie owner of the mortgage loan) or a beneficiary’s agent to foreclose, many California courts had previously concluded that that a homeowner couldn’t challenge an improper foreclose—even if the homeowner presented facts showing the party seeking to foreclose was not the beneficiary. To achieve this objective, many banks and their attorneys twisted the holdings of other appellate court cases involving foreclosure to mean that a homeowner in default could never challenge a foreclosure on the basis that the wrong party was foreclosing. Our position, and the position that the Appellate Court took in Glaski, is that such a blanket prohibition on a homeowner’s right to challenge a foreclosure in not supported by case law statutory law.
What is even more surprising—and groundbreaking—about this decision is that the Court took the additional step of recognizing that a homeowner can challenge a foreclosure on the basis that the lender tried to improperly transfer the mortgage loan to a securitized trust after the trust’s closing date. InGlaski, Chase recorded an Assignment of Deed of Trust signed by the infamous “Deborah Brignac,” claiming that the mortgage loan had been assigned to the securitized trust in 2009, years after the trust’s closing date. Applying New York trust law, the court held that this purported “assignment” violated the plain terms of the trust agreement rendered the assignment void. The Court concluded that because the mortgage loan could not have been assigned to the trust, any foreclosure conducted on behalf of the securitized trust could be challenged as a “wrongful” foreclosure. This, the court opined, is because the trust did not obtain an ownership interest and could not be considered the beneficiary under the deed of trust with the power of sale.
In coming to this conclusion, the court also made another powerful statement of law: “We reject the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or third party beneficiary of, the assignment agreement.” This statement is important because many lenders were making the argument that a homeowner could never challenge a defect in any previously recorded assignment (no matter how defective) because the homeowner was “not party to that transaction.”
Notably, the court relied on a case Bergman & Gutierrez litigated to find that the appellate case Gomes v. Countrywide did not bar a homeowner from brining claims for wrongful foreclosure: “ In Naranjo v. SBMC Mortgage (S.D.Cal., Jul. 24, 2012, No. 11-CV-2229-L(WVG)) 2012 WL 3030370 (Naranjo), the district court addressed the scope of Gomes, stating:
“In Gomes, the California Court of Appeal held that a plaintiff does not have a right to bring an action to determine the nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. [Citation.] The nominee in Gomes was MERS. [Citation.] Here, Plaintiff is not seeking such a determination. The role of the nominee is not central to this action as it was in Gomes. Rather, Plaintiff alleges that the transfer of rights to the WAMU Trust is improper, thus Defendants consequently lack the legal right to either collect on the debt or enforce the underlying security interest.” (Naranjo, supra, 2012 WL 3030370, at p. *3.)
The court ultimately reversed the lower court’s dismissal and remanded the case after finding that the plaintiff had sufficiently alleged claims for wrongful foreclosure, declaratory relief, violation of the Unfair Competition Law, cancellation of instruments, and quiet title.
Here are some other notable portions of the decision:
- “We conclude that a borrower may challenge the securitized trust’s claim to ownership by alleging the attempts to transfer the deed of trust to the securitized trust (which was formed under New York law) occurred after the trust’s closing date. Transfers that violate the terms of the trust instrument are void under New York law, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.” (Glaski v. Bank of America, slip opinion at page 3.)
- “In Barrionuevo v. Chase Bank, N.A. (N.D. Cal. 2012) 885 F.Supp. 964, the district court stated: ‘Several courts have recognized the existence of a valid cause of action for wrongful foreclosure where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.’ (Id., at p. 973). We agree with this statement of law, but believe that properly alleging a cause of action under this theory requires more than simply stating that the defendant who invoked the power of sale was not the true beneficiary under the deed of trust. Rather, a plaintiff asserting this theory must allege facts that show the defendant who invoked the power of sale was not the true beneficiary.” (Glaski v. Bank of America, slip opinion at page 17.)
- “We reject the view that a borrower’s challenge to an assignment must fail once it is determined that the borrower was not a party to, or a third party beneficiary of, the assignment agreement.” (Glaski v. Bank of America, slip opinion at page 19.)
- “In light of the limiting statements included in the Gomes opinion, we do not interpret it as barring claims that challenge a foreclosure based on specific allegations that an attempt to transfer the deed of trust was void. Our interpretation, which allows borrowers to pursue questions regarding the chain of ownership, is compatible with Herrera v. Deutsche Bank National Trust Co..” (Glaski v. Bank of America, slip opinion at pages 24-25.)
- “Tender is not required where the foreclosure sale is void, rather than voidable, such as when a plaintiff proves that the entity lacked the authority to foreclose on the property.” (Glaski v. Bank of America, slip opinion at page 25.)
Read the case here: glaski_v._bank_of_america_ca5