Court Exclaims “Enough!” To Homeowner Who Kept Raising Wrongful Foreclosure Claims

UPDATE:  On July 15, 2015, the California Supreme Court granted review of this matter. For details on the court’s order, click here.

“There are no free houses,” began the decision issued by the Court of Appeal on March 23, 2015 in Boyce v. T.D. Service Company (B255958). Examining three years of litigation in bankruptcy court, unlawful detainer court, and the superior court, and each of their respective appellate courts, the Court of Appeal held that the plaintiff’s wrongful foreclosure claims were barred by res judicata and collateral estoppel.

Plaintiff was a borrower who purchased a home subject to a deed of trust. After plaintiff defaulted on the loan, nonjudicial foreclosure proceedings were initiated. To avoid foreclosure, plaintiff engaged in a series of stall tactics, including filing an emergency bankruptcy petition, appealing the bankruptcy court’s decision to grant the trustee relief of stay, refusing to leave the property following the trustee’s sale thereby causing an unlawful detainer action to be filed, and appealing the granting of summary judgment in favor of the defendants in the unlawful detainer action. Once evicted, plaintiff sued all the entities involved in the foreclosure process for wrongful foreclosure, declaratory relief, violation of Unfair Practices Act, and quiet title. When the trial court sustained the defendants’ demurrers on the grounds of res judicata/collateral estoppel, plaintiff naturally appealed.

In affirming the trial court’s decision, the Court of Appeal declared that plaintiff “had his day in court in the bankruptcy proceeding and another day in court in the unlawful detainer action.” It did not matter that plaintiff’s new counsel had additional facts and a new theory of wrongful foreclosure because plaintiff’s “primary right” was always the same. The court rejected the plaintiff’s argument that “fraud ‘vitiates everything’” because the defendants did not fraudulently prevent plaintiff from presenting the wrongful foreclosure claim in the unlawful detainer action or bankruptcy proceeding.

The court further rejected plaintiff’s reliance on Glaski v. Bank of America, N.A. (which stands for the general principle that borrowers may have standing to challenge untimely securitizations) to argue that the assignments of the note and deed of trust were void because they were made after the mortgage investment pool closed. The court cited various decisions criticizing Glaski and explained that “notwithstanding Glaski,” securitization is not a “ ‘get out of debt’ card” because “[plaintiff’s] loan obligation remained the same.”

Finally, the court added the prophylactic reasoning that even if plaintiff had standing to sue under Glaski, plaintiff “is precluded from litigating the issue a third time around.” Additionally, the Glaski-type cases currently pending before the California Supreme Court were further distinguishable because those cases do not involve a res judicata/collateral estoppel bar.

The Boyce decision is another case added to the pot that has been brewing since the 2006 housing bubble. That dish has finally reached its boiling point. As mentioned by the Boyce court, the California Supreme Court has finally agreed to review the issue of whether a borrower has standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void. (Yvanova v. New Century Mortgage Corporation, Case No. S218973.) Before the petition for review was granted in Yvanova, California appellate courts and federal district courts had become divided on whether plaintiffs had standing to challenge assignments and alleged defects in the securitization process. However, since the plaintiff in Boyce already had two bites at the apple, the Court of Appeal was able to affirm a dismissal on res judicata/collateral estoppel grounds without needing to wait for the Supreme Court’s decision to be served.

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March 24, 2015