In June of 2014, the Second District Court of Appeal held that California’s non-judicial foreclosure statutes do not grant a defaulting borrower the right to enjoin a foreclosure sale by alleging that the lender lacks standing. (Keshtgar v. U.S. Bank, N.A. (2014) 226 Cal.App.4th 1201.)
The California Supreme Court recently granted review of the Keshtgar decision and deferred briefing until resolution of a related matter entitled Yvanova v. New Century Mortgage Corp.
The court has also granted review of Mendoza v. JPMorgan Chase Bank and deferred briefing until resolution of Yvanova.
The grant of review in Yvanova is limited to a single issue:
“In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?”
As we noted our blog entry of July 21, 2014, the Keshtgar court followed the Second District’s holding Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149 (“Gomes”), but departed from the Fifth District’s subsequent holding in Glaski v. Bank of America, N.A. (2013) 218 Cal.App.4th 1079 (“Glaski”)
Given this discrepancy between two courts of appeal, we postulated that, “Keshtgar’s disagreement with the Glaski holding arguably creates a conflict between the districts that California Supreme Court may elect to address.”
Interestingly, the lead Yvanova decision involves a post-foreclosure claim of wrongful foreclosure and quiet title based upon an allegedly improper assignment of the deed of trust, whereas the Keshtgardecision involves a claim of pre-foreclosure injunctive relief. Implicit in its grant of review of Keshtgar, the California Supreme Court may be signaling that a borrower’s claim of lack of standing, whether that claim is asserted pre-foreclosure or post-foreclosure, requires the same legal analysis.
It’s difficult to predict how the California Supreme Court will rule on the issue before it. On one hand, the holdings in Keshtgar and Gomes are technically correct – i.e., California’s non-judicial foreclosure statutes set forth in Civil Code 2924 through 2924k did not provide for any pre-foreclosure determination of the standing of the foreclosing lender. “Nothing in the statutory provisions establishing the non-judicial foreclosure process suggest that such a judicial proceeding is permitted or contemplated.” BUT, neither do the statutes say such a determinatiion is “prohibited.” A general proposition of law is that what ever is not prohibited is permitted.
On the other hand, standing is a jurisdictional issue that goes to the core of a civil dispute between two parties. Hypothetically, what would happen if a “lender” foreclosed on real property (which was then sold to a bona fide purchaser) and later the true lender sought to enforce either its deed of trust against the property or its promissory note against the borrower? While such situations are rare, they raise interesting hypothetical scenarios if, in fact, the foreclosing lender truly lacks standing due to a failed or improper assignment of the deed of trust.