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Sciaratta v. US Bank as Trustee

May 24, 2016

APPEAL from a judgment of the Superior Court of Riverside County, John Vineyard, Judge. Reversed and remanded.

Stephen F. Lopez Esq. and Stephen F. Lopez for Plaintiff and Appellant.

Keesal, Young & Logan, David D. Piper, Michael T. West and Joshua B. Norton for Defendants and Respondents.

This is an action for wrongful foreclosure. The homeowner, Monica Sciarratta, alleges 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. (2016) 62 Cal.4th 919 (Yvanova), the California Supreme Court held that in a case such as this—where a homeowner alleges a nonjudicial foreclosure sale was wrongful because of a void assignment—the homeowner has standing to sue for wrongful foreclosure. (Id. at pp. 942–943.) However, Yvanova did not address "any of the substantive elements of the wrongful foreclosure tort" (id. at p. 924), and in particular did not address "prejudice . . . as an element of wrongful foreclosure." (Id. at p. 929, fn. 4.)

This case presents the question of "prejudice" left open in Yvanova: Where a homeowner alleges foreclosure by one with no right to do so, do such allegations alone establish the requisite prejudice or harm necessary to state a cause of action for wrongful foreclosure? Or instead, to adequately plead prejudice, does the plaintiff-homeowner have to allege the wrongful foreclosure interfered with his or her ability to pay on the debt, or lead to a foreclosure that would not have otherwise occurred?

Although Yvanova did not address this precise issue, the policy considerations that drove the standing analysis in Yvanova compel a similar result here. As the Supreme Court stated in Yvanova, it would be an "'odd result' indeed" were a court to conclude a homeowner had no recourse where anyone, even a stranger to the debt, had declared a default and ordered a trustee's sale. (Yvanova, supra, 62 Cal.4th at p. 938.) Accordingly, we conclude that 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. (See Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 410 (Miles).)

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.

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