Compliance Bulletin

Supreme Court Allows Mortgage Debtor to Challenge Downstream Loan Assignment
February 22, 2016

In a much-anticipated decision, the California Supreme Court ruled in Yvanova v. New Century Mortgage that a debtor in default has standing to challenge the legality of the assignment of the note and deed of trust in furtherance of a wrongful foreclosure action. The plaintiff in this case sued for wrongful foreclosure on the basis that her loan had been assigned into a loan pool after the closing date to do so. Since the assignment was allegedly illegal the trustee who conducted foreclosure proceedings thus had no authority to foreclose. Similar claims have been made by other debtors and most of the state and federal courts that have addressed the issue held that a debtor has no standing to challenge an assignment to which they are not parties. But the Supreme Court adopted the minority view, narrowly holding that if the alleged assignment is void (as opposed to voidable), then Plaintiff has standing to challenge the assignment and thus pursue her wrongful foreclosure claim. See CBA’s Regulatory Compliance Bulletin for more information.