There were several noteworthy California decisions this year which impact real estate contracts:
- Riverisland Cold Storage, Inc. v. Fresno-Madera Production Credit Ass’n overturned a 78-year-old rule that prohibited evidence of oral promises that contradict a written contract in a case involving a secured loan modification; and
- Maynard v. BTI Group, Inc. interpreted an attorney fee provision in a brokerage contract very broadly to cover tort claims as well as contract claims.
Each of these decisions is significant not only for its impact on real estate contracts but also for its impact on contracts more generally.
However, Glaski v. Bank of America, National Association, et al., in which an Appeals Court found that borrowers have standing to challenge void assignments of their loans, even if they were not a party to or a beneficiary of the assignment, stands out as a particularly significant California decision in 2013 affecting real estate contracts.
In Glaski, the plaintiff’s home was foreclosed upon after he defaulted on his loan. Glaski filed a lawsuit for wrongful foreclosure, alleging that the foreclosing entity was not the true owner of the loan because its chain of ownership had been broken by a defective transfer of the loan. Washington Mutual (WaMu) made a loan to Glaski in 2005, and he later alleged that an attempt to assign his note and deed of trust to a WaMu Securitized Trust was ineffective because it was made after the trust’s closing date of December 21, 2005. In 2008, the FDIC seized WaMu and sold it to JP Morgan Chase, and Glaski started a loan modification process with Chase. In late 2008, JP Morgan transferred the Glaski deed of trust to the WaMu Securitized Trust and filed a notice of default and election to sell the home. Bank of America, as successor trustee to the Securitized Trust, bought the home in a trustee sale.
The trial court sustained Bank of America’s demurrer, holding that Glaski could not challenge the authority of the foreclosing party, under the 2011 decision in Gomes v. Countrywide. InGomes, a borrower alleged that the current note owner did not authorize the nominee to foreclose. That Court held that California’s non-judicial foreclosure system is a comprehensive regulatory framework that did not allow a borrower to challenge the authority of the trustee, mortgagee, beneficiary or authorized agent to foreclose.
The Appeals Court in Glaski, however, held that a borrower has standing to challenge an assignment if the defect would void it, but not when it is merely voidable by the assignor. InGlaski, the WaMu Securitized Trust was formed under and governed by New York law, under which a statute provides that every conveyance or other trustee act in contravention of the trust is void. While courts in Texas and Illinois treated some acts in contravention of this New York Statute as voidable, the Appeals court in Glaski joined other courts in reading the statute literally and held that acceptance of a note and mortgage by the trustee after the date the trust closed would be void. Thus, Glaski stated a claim for wrongful foreclosure by alleging that the transfer was ineffective.
The Court held that Glaski’s claim was not precluded by Gomes and relied on a federal case that limited Gomes to the factual circumstances of that case, in which the nominee’s role was central Glaski alleged that the entity claiming to be the noteholder was not the true owner, so the Gomes principle about the noteholder’s nominee was distinguishable. Glaski also alleged specific grounds for his wrongful foreclosure claim, unlike in Gomes. The Court thus overruled the demurrer since Glaski had stated a claim for wrongful foreclosure.
Since Glaski involved mortgage-backed securities and was decided at the demurrer stage, it is unclear if other courts will follow or extend its reasoning. Yet the decision may open the door to further chain-of-title challenges and will likely be used in other circumstances in which the entity being foreclosed upon is not the beneficiary under the deed of trust.