Business Solutions Client Alert: Improper Transfer of Loan to Securitized Trust May Preclude Foreclosure

On July 31, 2013, the California Court of Appeal in Glaski v. Bank of America, National Association, et al., Case No. F064556, decided whether the trial court erred by sustaining the defendant bank’s demurrer, where the plaintiff, a borrower of a home loan, challenged the bank’s securitized trust chain of ownership. The plaintiff alleged that the assignment to the secured trust by the bank was void because the attempts to transfer his deed of trust to the securitized trust occurred after the trust’s closing date. The Court of Appeal held that transfers that violate the terms of the trust instrument are void, and borrowers have standing to challenge void assignments of their loans even though they are not a party to, or a third party beneficiary of, the assignment agreement.

In July 2005, Thomas A. Glaski purchased a home in Fresno, California. To finance the purchase, he obtained a loan from Washington Mutual Bank, FA (WaMu). In late 2005, WaMu formed a common law trust (WaMu Securitized Trust). The corpus of the trust consisted of a pool of residential mortgage notes purportedly secured by liens on residential real estate. The closing date for the WaMu Securitized Trust was December 21, 2005, or 90 days thereafter.

In September 2008, WaMu was seized by the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (FDIC) was appointed as a receiver for WaMu. That same month, the FDIC sold the assets and liabilities of WaMu to defendant JPMorgan Chase Bank, N.A. (JP Morgan). In December 2008, JP Morgan transferred and assigned all beneficial interest under the Glaski deed of trust to LaSalle Bank NA as trustee for the WaMu Securitized Trust. JP Morgan also filed a Notice of Default and Election to Sell, as Glaski was in default under his deed of trust. On May 27, 2009, a nonjudicial foreclosure sale of Glaski’s property was conducted. Bank of America, as successor by merger to LaSalle Bank NA and trustee for the WaMu Securitized Trust, was the highest bidder at the sale. On June 15, 2009, JP Morgan assigned all beneficial interest under the Glaski deed of trust to Bank of America.

Glaski filed his original complaint in October 2009. In August 2011, he filed a Second Amended Complaint (SAC), alleging, among several causes of actions, wrongful foreclosure against all defendants, based on the failure to timely and properly transfer the Glaski loan to the WaMu Securitized Trust. In September 2011, the defendants filed a demurrer that challenged each cause of action in the SAC on the grounds that it failed to state facts sufficient to constitute a claim for relief. The trial court sustained the demurrer. Glaski appealed.

The Court of Appeal identified two possible chains of title under which Bank of America, as trustee for the WaMu Securitized Trust, could claim to be the holder of the Glaski deed of trust and alleged that each possible chain of title suffered from the same defect – a transfer that occurred after the closing date of the trust. First, the Court found that if WaMu did not transfer Glaski’s note and deed of trust into the WaMu Securitized Trust prior to the closing date established by the pooling agreement, then Bank of America could not claim to be the holder of the Glaski deed of trust simply by virtue of being the successor trustee of the WaMu Securitized Trust. Second, JP Morgan’s attempted assignment of the deed of trust to the WaMu Securitized Trust in June 2009 occurred long after the WaMu Securitized Trust closed (i.e., 90 days after December 21, 2005).

The Court further considered whether Glaski’s wrongful foreclosure claim was precluded by the principles set forth in Gomes v. Countrywide Home Loans, et al. (2011) 192 Cal.App.4th 1149. In Gomes, the Court held that a plaintiff does not have a right to bring an action to determine the nominee’s authorization to proceed with a nonjudicial foreclosure on behalf of a noteholder. This Court distinguished Gomes, finding that the principle set forth in Gomes concerned the authority of the noteholder’s nominee, MERS. The Court also noted that Glaski had alleged specific grounds for his theory that the foreclosure was not conducted at the direction of the correct party. Based on the foregoing, the Court concluded that Glaski had properly stated a claim for wrongful foreclosure.

Glaski illustrates that an assignment of a deed of trust between multiple parties does not necessarily establish that the last assignee will be the owner or holder of the beneficial interest, if a transfer within the stream of transfers, is found to be void.

This document is intended to provide you with information about business solutions law related developments. The contents of this document are not intended to provide specific legal advice. This communication may be considered advertising in some jurisdictions.

August 21, 2013