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Common Sense Is Common Sense, Even When It’s The Minority Who See It That Way

We need more Judges like Rubin, J.

Here is his dissenting opinion:



Plaintiffs and Appellants,



Defendants and Respondents.

APPEAL from a judgment of the Superior Court of Los Angeles County.

Jan Pluim, Judge. Affirmed.


RUBIN, J. – Dissenting


I respectfully dissent.


The promissory note signed by appellants Jeffry and Grace Peng obligated them to repay their home loan. In August 2007, Freddie Mac acquired the promissory note from Chase. Based on Freddie Mac owning the note, appellants seek to amend their complaint to allege Chase did not have authority to enforce the promissory note or to foreclose on their home, but the majority rejects appellants’ proposed amendment. Relying on case law rebuffing a homeowner’s challenge to a creditor-beneficiary’s authority to foreclose, the majority notes that courts have traditionally reasoned that the homeowner’s challenge is futile because, even if successful, the homeowner “merely substitute[s] one creditor for another, without changing [the homeowner’s] obligations under the note.” (Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 271.) The only party prejudiced by an illegitimate creditor-beneficiary’s enforcement of the homeowner’s debt, courts have reasoned, is the bona fide creditor-beneficiary, not the homeowner. Such reasoning troubles me. I wonder whether the law would apply the same reasoning if we were dealing with debtors other than homeowners. I wonder how most of us would react if, for example, a third-party purporting to act for one’s credit card company knocked on one’s door, demanding we pay our credit card’s monthly statement to the third party. Could we insist that the third party prove it owned our credit card debt? By the reasoning of Fontenot and similar cases, we could not because, after all, we owe the debt to someone, and the only truly aggrieved party if we paid the wrong party would, according to those cases, be our credit card company. I doubt anyone would stand for such a thing.

I think cases such as Fontenot – and their solicitude for self-proclaimed creditor beneficiaries who ask us to take on their say-so authority to foreclose on someone’s home are, or should be, a legacy from a bygone era. There was a time when the orderliness and regulatory oversight of the mortgage industry perhaps justified a presumption that creditor-beneficiaries acted lawfully when they enforced a homeowner’s debt. In those days, courts excused mortgage lenders from proving their authority because we trusted they acted properly, and we presumed that a homeowner’s challenge was typically a delaying tactic to avoid a valid foreclosure. (See e.g. Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 82 [“California courts have refused to allow [homeowners] to delay the non-judicial foreclosure process by pursuing preemptive judicial actions challenging the authority of a foreclosing ‘beneficiary’ or beneficiary’s ‘agent.’ ”]; Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497, 511-512 [same].)

I think the old presumption no longer withstands the press of current events. Today’s foreclosures playing out in the courts and elsewhere bear little resemblance to what happened with the mortgages of our grandparents. Widespread securitization of mortgages in the years before the financial meltdown of 2008, an economic catastrophe triggered in part by the often unlawful repeated packaging, selling, repackaging, and reselling of mortgages mostly unseen and poorly understood by homeowners, investors, regulators, and the public, has changed the financial landscape, and should change the legal landscape, too. The common law evolves to meet new challenges from new circumstances. In a quip often attributed, perhaps incorrectly, to John Maynard Keynes, “When the facts change, I change my mind. What do you do sir?” The time has come to insist upon regularity in foreclosure proceedings. I therefore believe we have reached the time to make clear a homeowner’s right to challenge a foreclosure based on the foreclosing party’s absence of authority to foreclose. Perhaps in recognition that the mortgage business is not what it once was, courts have started to permit homeowners to challenge the loss of their homes on the ground that the foreclosing party did not own the homeowner’s promissory note or security interest and did not represent the party who did. “[O]nly the ‘true owner’ or ‘beneficial holder’ of a Deed of Trust can bring to completion a non-judicial foreclosure under California law.” (Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, 972.) “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 a trustee to file a Notice of Default and initiate non-judicial foreclosure.” (Id. at pp. 972-973.) Among the cases in this post-2008 financial meltdown era are:

Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1088, 1097: A homeowner successfully “raised questions regarding the chain of ownership, by contending that the defendants were not the lenders or beneficiaries under his deed of trust and, therefore, did not have the authority to foreclose.”

Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1378- 1379: Deutsche Bank was not entitled to summary judgment on a wrongful foreclosureclaim because it failed to show a chain of ownership that would establish it was the true beneficiary under the deed of trust.

Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at pages 973–974: The court permitted a cause of action for wrongful foreclosure where a homeowner alleged that Chase lacked authority to foreclose because Washington Mutual securitized the subject loan, divesting itself of any interest, prior to transferring its beneficial interest to Chase.

Sacchi v. Mortgage Elec. Registration Sys. (C.D.Cal. June 24, 2011, No. CV 11- 1658 AHM (CWx)) 2011 U.S.Dist. Lexis 68007, *16-21: A homeowner stated a cause of action for wrongful foreclosure where MERS transferred a lender’s beneficial interest in a deed to the lender’s successor after the successor executed without authority a substitution of trustee, making the new trustee’s notice of sale invalid.

Ohlendorf v. Am. Home Mortg. Servicing (E.D.Cal. 2010) 279 F.R.D. 575, 583: Permitted a homeowner to pursue a claim for wrongful foreclosure where the foreclosings beneficial interest to pursue foreclosure. Documents showed that MERS was the beneficiary under the deed of trust at the time foreclosure proceedings began, but the notice of default listed ” of the inconsistent recorded documents, MERS filed a backdated assignment of the beneficial interest to the mortgage servicer, and 11 seconds later the mortgage servicer recorded a backdated assignment of the deed of trust to Deutsche.

Javaheri v. JPMorgan Chase Bank, N.A. (C.D.Cal. June 2, 2011, No. CV10-08185 ODW (FFMx)) 2011 U.S.Dist. Lexis 62152, *12-14: A homeowner stated a claim for wrongful foreclosure against J.P. Morgan Chase by alleging that lender Washington Mutual sold the homeowner’s promissory note to an investment pool, which thereafter transferred the promissory note to another investment pool, preventing J.P. Morgan Chase from obtaining the note when it acquired Washington Mutual’s assets because the note was no longer owned by Washington Mutual at the time of the assignment.

I suspect that creditor-beneficiaries and their trustees do not want to be forced to prove they own a homeowner’s debt and have authority to foreclose because it is nowwell understood that in too many cases they can’t prove their ownership and authority. I am not prejudging the facts in this case, for that is why we have discovery and a trial. But tellingly, even here respondents’ demurrer was beset by missing paperwork. In their demurrer, respondents state: “On June 12, 2007, Plaintiffs obtained a loan (“Loan”) from Chase. In connection with the Loan, Plaintiffs executed a promissory note (“Note”) and deed of trust (“DOT”), securing the Loan . . . . Chase was the beneficiary and First American was the trustee under the DOT. [¶] Subsequently, Chase assigned the DOT to Chase Home Finance, LLC. After Plaintiffs defaulted on the Loan, First American recorded a Notice of Default and Election to Sell Under Deed of Trust (“NOD”) against the Property. Chase Home Finance, LLC, also recorded a Substitution of Trustee, reflecting the substitution of Northwest Trustee as the trustee under the DOT. Because Plaintiffs failed to cure the default, Northwest Trustee recorded, on February 1, 2011, a Notice of Trustee’s Sale (“NOTS”) against the Property. Northwest Trustee conducted the trustee’s sale on December 28, 2011, where Chase, successor by merger to Chase Home Finance, LLC, acquired title to the Property. On March 28, 2012, Chase recorded a Grant Deed, reflecting that it had granted the property to FHLMC.”

But notice what is missing from respondents’ history of the loan – Chase’s sale to Freddie Mac of appellants’ promissory note in August 2007. Freddie Mac’s “Loan Look-Up Tool” states its “records show that Freddie Mac is the owner of your [i.e. appellants’] mortgage and it was acquired on August 23, 2007.” I do not suggest that respondents intended to mislead the trial court by omitting the fact that Chase had sold appellants’ promissory note in 2007, four years before Chase bought the house in foreclosure. The reason I point out the omission is to highlight the difficulty of learning from tangled paper trails “who, what, where, when, and how” in mortgage cases involving lender documents that are sometimes – take your pick – incomplete, lost, inaccurate, post-dated, altered, robosigned, or created after the fact.1 I would therefore permit appellants to pursue their claim for wrongful foreclosure on the grounds that Chase did not have authority to enforce the debt or to foreclose. What do respondents have to fear? Chase either had the authority to act when it submitted a credit bid to foreclose on appellants’ home despite having sold appellants’ promissory note to Freddie Mac – and has the evidence to prove it – or it did not. (See Civ. Code, § 2924h, subd.(b) [the “present beneficiary” may credit bid at trustee’s sale].) It really is a simple matter. Is that too much to ask when people are losing their homes?


1 In this case, for example, appellants signed their promissory note and deed of trust in June 2007 and Chase sold the note to Freddie Mac in August 2007. The Trustee’s Deed Upon Sale states Chase bought appellants’ home in foreclosure on December 28, 2011 (by credit bid, a prerogative of the present beneficiary). Chase thereafter gave the house to Freddie Mac by Grant Deed on March 9, 2012, but, incongruously, the Trustee’s Deed Upon Sale – which precedes the Grant Deed in the chain of title – was not notarized until March 22, 2012, almost two weeks after Chase had deeded the house to Freddie Mac. A trifle, perhaps, but wouldn’t it have been more businesslike and orderly to notarize the Trustee’s Deed Upon Sale closer to the actual sale in late December 2011, rather than wait three months until after Chase transferred ownership of the house by a Grant Deed to Freddie Mac (thus superseding the yet-to-be-recorded Trustee’s Deed Upon Sale)?

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