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URGENT! "Prejudice" left open in Yvanova is met by alleging "LOSS OF HOME" proximately caused by VOID Assignment!

Sciarratta v. U.S. Bank also overruled demurrer to Quiet Title & Cancellation of Instrument

justia.com | May 20, 2016

Court: California Court of Appeal Docket: D069439 Opinion Date: May 18, 2016
Areas of Law: Banking, Civil Procedure, Real Estate & Property Law
In this action for wrongful foreclosure, the homeowner, Monica Sciarratta, alleged that as a result of a void assignment of her promissory note and deed of trust, the entity that conducted a nonjudicial foreclosure sale on her home had no interest in either the underlying debt or the subject property. In Yvanova v. New Century Mortgage Corp., (62 Cal.4th 919 (2016)), the California Supreme Court held that the homeowner has standing to sue for wrongful foreclosure. However, Yvanova did not address "any of the substantive elements of the wrongful foreclosure tort," and in particular did not address "prejudice . . . as an element of wrongful foreclosure." The issue this case presented was the question of "prejudice" left open in Yvanova: The Court of Appeal found that policy considerations that drove the standing analysis in Yvanova compelled a similar result in this case. "[A] homeowner who has been foreclosed on by one with no right to do so -by those facts alone- sustains prejudice or harm sufficient to constitute a cause of action for wrongful foreclosure. When a non-debtholder forecloses, a homeowner is harmed by losing her home to an entity with no legal right to take it. Therefore under those circumstances, the void assignment is the proximate cause of actual injury and all that is required to be alleged to satisfy the element of prejudice or harm in a wrongful foreclosure cause of action." The opposite rule, urged by defendants in this case, would allow an entity to foreclose with impunity on homes that were worth less than the amount of the debt, even if there were no legal justification whatsoever for the foreclosure. "The potential consequences of wrongfully evicting homeowners are too severe to allow such a result." The Court of Appeal reversed the judgment of dismissal entered after the trial court erroneously sustained a demurrer to Sciarratta's first amended complaint without leave to amend, and remanded for further proceedings.
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KEY LANGUAGE BELOW:
Download PDF of whole decision CITE: GLASKI, YVANOVA and SCIARETTA in your Complaint/Amended Complaint Pitfall: Note court critcized Plantiff's counsel for failing to properly PLEAD

"On the issue of standing, the Supreme Court stated, "'Banks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank's deed of trust.'" (Yvanova, supra, 62 Cal.4th at p. 938.) Yvanova's holding on standing would be undermined unless the same considerations applied in determining what prejudice must be alleged to constitute a wrongful foreclosure cause of action. (Ibid.) Therefore, we reverse the judgment of dismissal entered after the trial court erroneously sustained a demurrer to Sciarratta's first amended complaint without leave to amend, and remand for further proceedings."

"Defendants also contend the "[c]orrective [a]ssignment" recorded in December 2009 "demonstrated that beneficial interest had been assigned to Bank of America, not Deutsche Bank." However, defendants cite no authority suggesting that as a matter of law, the "[c]orrective [a]ssignment" recorded in December 2009 has any relevant legal effect on the nonjudicial foreclosure occurring one month prior, in November 2009."

Defendants also argue that the "[c]orrective [a]ssignment" shows that "[a]t most" Chase "made procedural errors on the documents regarding the identity of the beneficiary, and that Chase later corrected these errors." However, this is an appeal from a judgment of dismissal after a demurrer was sustained, where we are required to assume the truth of the facts plaintiff has alleged. Defendants cannot hijack Sciarratta's first amended complaint, delete allegations not to their liking, insert other contrary allegations such as this one about a mere "procedural error[]", and contend the resulting pleading they have cobbled together fails to state a cause of action. Sciarratta alleges that at the time of the nonjudicial foreclosure sale, Deutsche Bank was the assignee and Bank of America was not. The judicially noticeable documents do not contradict these allegations.

Defendants also contend that Sciarratta's complaint admits that Deutsche Bank was not the assignee and never held a beneficial interest in the deed of trust. However, the allegation defendants highlight is not contained in Sciarratta's cause of action for wrongful foreclosure, but rather in her cause of action to quiet title. In any event, an allegation that Deutsche Bank never held a legal or equitable interest in the property is not necessarily inconsistent with an allegation that Bank of America also did not.

In sum, we hold that Sciarratta has alleged the nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party, Bank of America, purportedly took a beneficial interest in the deed of trust was void. Therefore, under Yvanova, Sciarratta has standing to assert such a claim. (10)

Footnote 10: Because Sciarratta alleges a void as distinguished from a voidable assignment, she is excused from having to allege tender as an element of her wrongful foreclosure cause of action. (Yvanova, supra, 62 Cal.4th at p. 929, fn. 4 ["Tender has been excused when . . . the plaintiff alleges the foreclosure deed is facially void, as arguably is the case when the entity that initiated the sale lacked authority to do so."].)

"There are also strong policy reasons favoring this approach. A contrary rule would lead to a legally untenable situation—i.e., that anyone can foreclose on a homeowner because someone has the right to foreclose. "And since lenders can avoid the court system entirely through nonjudicial foreclosures, there would be no court oversight whatsoever." (Miles, supra, 236 Cal.App.4th at p. 410.) Moreover, giving homeowners—who have the most at stake and the most to lose—the ability to challenge improper loan assignments as being absolutely void will provide a proper incentive to lending institutions to employ due diligence to properly document assignments and confirm who currently holds a loan. "The consequences of wrongfully evicting someone from their home are too severe to be left unchecked." (Ibid.)

Cases cited by defendants that reach a contrary result did not have the benefit of the Supreme Court's decision in Yvanova and as a result incorrectly and exclusively focus on the plaintiff's ability to have avoided any foreclosure. For example, in Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256 (Fontenot) disapproved on other grounds (standing) in Yvanova, supra, 62 Cal.4th at page 939, footnote 13, the court found that plaintiff had failed to demonstrate prejudice resulting from an allegedly improper transfer of her debt because the plaintiff conceded she was in default, did not allege the transfer interfered with her ability to pay her debt, and did not allege the original lender would have refrained from foreclosure. (Fontenot, supra, at p. 272.)

Similarly, in Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495 (Herrera), disapproved on other grounds (standing) in Yvanova, supra, 62 Cal.4th at page 939, footnote 13, the court found that the plaintiffs could not demonstrate prejudice where they had defaulted on their loan and could not cure the default. (Herrera, supra, 205 Cal.App.4th at p. 1508.)

Thus, Fontenot and Herrera interpret prejudice narrowly to mean the plaintiff must demonstrate that she could have avoided foreclosure. These cases are inconsistent with the policies underlying the standing rule in Yvanova: "The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security." (Yvanova, supra, 62 Cal.4th at p. 938.) Fontenot and Herrera also ignore the fact that the wrongful nature of the foreclosure alleged here would require the sale to be unwound, at least where there are no intervening third-parties. (See Miles, supra, 236 Cal.App.4th at p. 408 ["The basic elements of a tort cause of action for wrongful foreclosure track the elements of an equitable cause of action to set aside a foreclosure sale."]) In her wrongful foreclosure cause of action, Sciarratta seeks such a remedy, alleging an entitlement not only to money damages, but also "a declaration that the sale of the Subject Property by . . . [Bank of America] . . . was a void act of no legal effect."

Fontenot and Herrera also fail to recognize that the measure of damages for wrongful foreclosure is the familiar measure of tort damages: all proximately caused damages. "Wrongfully foreclosing on someone's home is likely to cause other sorts of damages, such as moving expenses, lost rental income . . . and damage to credit. It may also result in emotional distress . . . ." (Miles, supra, 236 Cal.App.4th at p. 409.) We are not suggesting that any of these damages will be actually recoverable here. It may be that Sciarratta has no such damages. It may be that any such damages are entirely offset by the benefit of being free from a loan with unfavorable terms, the benefits of apparently living rent-free during this litigation, or some other reason(s). "


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Nancy Duffy McCarron, CBN 164780
Attorney, Real Estate Broker, BBB Arbitrator, CA Notary Public
Certified Forensic Loan Auditor, Property Manager

 

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