Lawyer Antognini Files Reply Brief in The Yvanova v. New Century Mortgage, OCWEN, Deutsche California Appeal Case at The California Supreme Court - Filed March 2015
Lawyer Antognini Files Reply Brief in The Yvanova v. New Century Mortgage, OCWEN, Deutsche California Appeal Case at The California Supreme Court - Filed March 2015
S218973
TABLE OF CONTENTS
Page
ISSUE PRESENED
INTRODUCTION
ARGUMENT
12
17
20
25
CONCLUSION
27
28
-i-
TABLE OF AUTHORITIES
Page
California Cases
Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226 (1995)
25
21
25, 26
16, 17,
18, 26
20
3
25, 26
3
7, 20
1, 4
16, 21,
22, 23
18, 19
Herrera v. Deutsche Bank National Trust Co., 196 Cal.App.4th 1366 (2011)
Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.Ap.4th 497 (2013)
-ii-
9
14, 15,
18
Page
Joslin v. H.A.S. Insurance Brokerage, 184 Cal.App.3d 369 (1986)
21
12
25
23
12, 13,
14
16
15
18
18, 21
22
13
Federal Cases
Carpenter v. Longan, 83 U.S. 271 (1873)
Rajamin v. Deutsche Bank National Trust Co., 757 F.3d 79 (2d Cir. 2014)
-iii-
California Statutes
Civil Code section 1646
Page
15
24, 26
23
24
Federal Statutes
29 U.S.C. 860A (a)
19
19
Law Review Article
-iv-
19
ISSUE PRESENTED
In an action for wrongful foreclosure on a deed of trust securing a
home loan, does the borrower have standing to challenge an assignment of
the note and deed of trust on the basis of defects allegedly rendering the
assignment void?
INTRODUCTION
In their Answer Brief (or Respondents brief), respondents attempt
to distract this Court by arguing New York law governs and by assuming
the crucial contracts were negotiated by parties with equal bargaining
power. But, California law controls the crucial issues and it does not favor
respondents. Equally important, the key contract, the Deed of Trust, was an
adhesion contract. Thus, the issues in this case must be seen from the
viewpoint of the average borrower. Because the Court should see it as a
consumer protection case, it must find the Deed of Trust, the crucial
consumer contract, gives the borrower clear notice that she can sue to
challenge respondents purported power to foreclose. She can, in other
words, allege standing.
The Court also knows this is a pleading casean appeal from a
demurrer. Appellate review of the sustaining of a demurrer tilts heavily in
favor of permitting a plaintiff to proceed on the merits . . . . Fleet v. Bank
of America, 229 Cal.App.4th 1403, 1414 (2014). This Court will not decide
standing for all time or for all cases. It merely will allow the plaintiff here,
1
rules, the courts of appeal hold that a plaintiff can assert new legal theories
and facts on appeal when seeking leave to amend:
Contrary to longstanding rules generally precluding a party
from changing the theory of the case on appeal a plaintiff may
propose new facts or theories to show the complaint can be
amended to state a cause of action, thereby showing the trial
court abused its discretion in not granting leave to amend.
The plaintiff must show in what manner he can amend his
complaint and how that amendment will change the legal
effect of his pleading. Connerly v. State of California, 229
Cal.App.4th 457, 460 (2014), quoting Cooper v. Leslie Salt
Co., 70 Cal.2d 627, 636 (1969) (citations omitted).
All Yvanova wants to do is take advantage of these cases by
demonstrating how new legal theories support the claims she made before
the trial court and the court of appeal. And, she wishes to use those
theories to provide a response to the issue presented crafted by this Court.
She asks for nothing unusual or unfair.
In addition, this Court reframed the crucial questions in this case by
drafting a single issue presented. Respondents did not address that issue, at
least not as crafted by this Court. So, in answering the question the Court
has posed, the parties should be able to rely on all appropriate legal
theories, whether argued before the court of appeal or not. And, this Court
granted review not just to resolve a dispute between the parties, but to set
down public policy on crucial issues in foreclosure law. It should establish
public policy only after receiving thorough briefs that consider every
quoting Rajamin v. Deutsche Bank National Trust Co., 757 F.3d 79, 91 (2d
Cir. 2014).)
But, the assignment does not use the past tense.
It says: the
Assignor does . . . hereby grant, bargain, sell, transfer and set over unto
Assignee. . . . (RA, at page 72.) The use of the present tense tells most
people, and certainly most homeowners, that the assignment is happening at
the same time as the recording. The assignment was signed December 19,
2011 and recorded later in December 2011. (Ibid.) There is no language in
the assignment warning anyone, let alone a homeowner, that the assignment
had been done earlier. No language tells the homeowner the assignment
had occurred on the effective date of the PSA, in January 2007.
Given the assignments plain language, the average homeowner,
such as Yvanova, would have questions about its validity. The investment
trust that received the assignment had, according to the PSA, a January 1,
2007 cut-off date. (See PSA, definition of Cut-off Date, in the definitions
section of the PSA, found at https://www.sec.gov/Archives/edgar/data/
1385840/000091412107000322/ms7263661-ex4.txt, accessed March 18,
2015.) The December 2011 date of the assignment is proof by itself that it
was not executed in 2007 but in 2001. An assignment that comes nearly
five years after the cut-off date surely raises questions.
Respondents then argue that the late assignment is perfectly
consistent with the PSA, which provides, according to respondents,
5
Respondents claim about the assignment also does not make sense
given the chronology of the foreclosure. They believe the late assignment
was recorded only after Yvanovas loan went into foreclosure.
But,
respondents issued the first Notice of Default, which began the foreclosure
process, on August 29, 2008. (RA, at page 65.) The assignment dates from
over three years later, in December 2011.
As
respondents read the PSA, the assignment and the start of the foreclosure
should occur close together. They should not occur more than three years
apart.
In any case, even if the PSA language does somehow apply to the
late assignment, it merely creates an issue of fact. Yvanova argues the
December 2011 assignment violates the PSA because it came nearly five
years after the PSA cut-off date. Respondents argue the late assignment
occurred only because Yvanovas loan went into foreclosure. This is a
factual dispute. Demurrers do not resolve factual disputes. Evans v. City of
Berkeley, 38 Cal.4th 1, 5 (2006).
Respondents also are unwise to rely on the December 2011
assignment. They point out that under California law, the assignment of
the note carrie[s] with it the security of the deed of trust. (Respondents
brief, at page 19, quoting Seidell v. Tuxedo Land Co., 216 Cal. 165, 170
(1932).)
promissory note and does not mention the deed of trust. In that event,
7
California law dictates that assignment of the promissory note also transfers
the deed of trust.
It merely states:
Assignor does . . . hereby grant, bargain, sell, transfer and set over unto the
Assignee . . . to the following deed of trust describing land therein. . . .
(RA, at page 72.) Without language specifically describing the promissory
note, the December 2011 assignment might run afoul of the rule that the
failure to assign the note with the deed of trust invalidates the deed of trust
and makes the loan unsecured. See, e.g., Carpenter v. Longan, 83 U.S.
271, 275 (1873), cited in Respondents brief, at page 19.
Respondents then come to their main argument under the PSA. The
PSA, by its clear language, transferred the Yvanova loan from the lender to
the investment trust automatically on the day the PSA went into effect.
(Respondents brief, at pages 19-20.) According to Respondents reading
of the PSA, the PSA shows that New Century sold and assigned all right,
title, and interest in her debt, including the beneficial interest in the Deed of
Trust, to [the investment trust] in 2007, and that the Trusts ownership
vested on that date. . . . (Respondents brief, at page 20.) Respondents
quote this language from the PSA to support that proposition:
there they may argue that Yvanova admitted the genuineness of the PSA
and their interpretation of the document. But, you can read Yvanovas
complaints and her opposition to the demurrers as saying that she disputed
whether respondents had the power to foreclose. She also disputed whether
the PSA, the December 2011 assignment, or any other document authorized
the foreclosure. Nothing she submitted can be construed as an admission
that the PSA allowed respondents to foreclose or that she accepted
respondents interpretation of the PSA.
The second problem is that respondents fail to cite all the relevant
portions of the PSA.
concurrently with the execution, and delivery hereof, hereby sells, transfers
assigns . . . all the right, title and interest of the Depositor in the Trust Fund.
. . . (Respondents brief, at page 20, quoting AA Vol. 1-2, p. 337, 2.01
(a) of the PSA.) Who is the depositor? According to first page of the PSA
and the PSAs definition section, the Depositor is Morgan Stanley ABS
Capital I Inc. Yet, respondents argument misses a crucial step. The PSA
does not explain how Yvanovas loan passed from New Century Mortgage
Corporation, the originator of the loan, to the Depositor, Morgan Stanley
ABS Capital I Inc.
transfer. Without that preliminary step, respondents cannot rely on the PSA
as proof that the Depositor transferred the Yvanova loan to the investment
trust. There is no indication that the Depositor had the right to do so.
10
______,
point to any document in the record that shows the Depositor completed
these tasks. But, without them, the Depositor could not transfer Yvanovas
loan. In the end, the PSA does not support respondents case; the PSA
destroys it.
C.
accordance with and governed by the substantive laws of the State of New
York applicable to agreements made and to be performed in the State of
New York. (PSA, at section 10.03 Governing Law.)
How the language of the PSA should be interpreted is a secondary
question, perhaps governed by New York law and perhaps not. As noted
above, New York law applies to interpret the PSA if the PSA is to be
performed in the State of New York. In this case, however, the PSA was
to be performed in California, because the loan was made in California,
and the foreclosure occurred in California. Thus, Yvanova can argue the
agreement was performed in part in California, which makes New York
law inapplicable even under the PSAs choice of law clause.
But, before any court gets to the interpretation of the PSA, it must
answer a preliminary question: who has the power to enforce terms of the
PSA? The PSAs choice of law clause does not resolve that issue, because
the clause just deals with interpretation of the PSAs terms. The answer to
that crucial, first question should be a matter of California law, as it affects
California homeowners. The PSA will determine who has the power to
foreclose on their homes and who has the power to grant or deny loan
modifications.
Instrument shall bind . . . and benefit the successor and assigns of Lender.
(RA, at page 50, Deed of Trust, section 13, cited by Respondents brief, at
page 4.) The investment trust in this case claims to be an assign of the
Lender through the December 2011 assignment and through the PSA.
The trust thus is bound by the Deed of Trust and all its clauses. One
crucial clause is section 22, which provides that the borrower has the right
15
16
The question is not whether the Yvanova Deed of Trust is void. The
question is whether the investment trust, as the purported holder of
Yvanovas loan, had the power to order a foreclosure on her home. The
foreclosure had to start with the trust as the claimed assignee of the
Lender. Jenkins v. JPMorgan Chase Bank, N.A., 216 Cal.App.4th at 508.
The investment trust could claim that power only if it had a valid
assignment of the Yvanova Deed of Trust. Cockerell v. Title Ins. & Trust
Co., 42 Cal.2d at 292. Either it was an assign of the lender or it was not.
Void or voidable makes no difference.
In California, when a party authorizes a foreclosure without the
power to do so, the foreclosure is void, not voidable. See, e.g., Pro Value
Properties, Inc. v. Quality Loan service Corp., 170 Cal.App.4th 579, 581,
583 (2009), and Glaski v. Bank of America, 218 Cal.App.4th 1079, 1094
(2013). As the First District recently held, a sale is rendered void when it
is conducted by an entity that lacks authority to do so. Ram v. OneWest
Bank, 223 Cal.App.4th 1, 10 (2015).
The question of whether a foreclosure is void must be decided by
California law.
harmed a California homeowner, not a New York borrower. New York has
no interest in this question. California law dictates that if Yvanova can
allege an improper assignment, she has alleged a void foreclosure sale. She
has alleged an invalid assignment by charging that the 2011 assignment of
18
her Deed of Trust violated the terms of the PSA, which required a transfer
of all property into the trust by its 2007 closing date.
Respondents void vs. voidable argument has another flaw.
As
respondents note, even if a contract is voidable, the injured party can chose
to ratify it despite its flaws. (Respondents brief, at page 28.) So, assuming
respondents are correctand they are notthe investment trust could
choose to ratify the invalid 2011 assignment of the Yvanova Deed of Trust.
But, can this Court assume as a matter of law that they would ratify? No.
The assignment violated the PSA by being made over four years after its
closing date. The federal tax laws require a closing date because they
require that all property be deposited into the trust before that date. Glaski
v. Bank of America, 218 Cal.App.4th at 1093, fn. 12; 26 U.S.C. 860A (a)
and 860D (a); Oppenheim, et al., Deconstructing the Black Magic of
Securitized Trusts, 41 Stetson.L.Rev. 745, 757-758 (2012).
Under the Internal Revenue Code, income received by an REMIC
investment trust is not taxed if the trust is properly formed. (Ibid.) The
investment trust in Yvanovas case was a REMIC trust. (Ibid.) But, if
property is transferred into the trust after the closing date, that action can
jeopardize the trusts tax exempt status. Oppenheim, et al., Deconstructing
the Black Magic of Securitized Trusts, 41 Stetson.L.Rev. at 757-758.
Investors in the trust also could face increased tax liabilities and possible
IRS audits. (Ibid.)
19
mentions prejudice; Yvanova did not say she agreed with the prejudice test.
She does not, for several reasons.
First, the prejudice test cannot be applied when a borrower alleges
a foreclosure is void because the lender or servicer has no power to
foreclose:
The second elementprejudiceis met when an irregularity
in the proceeding adversely affects the trustors ability to
protect their interest in the property. Prejudice however, is
not presumed from mere irregularities in the process. . . .
[] A sale is not rendered void merely because of minor or
technical defects. . . . A sale is rendered void when the defects
are substantial. . . . Similarly, a sale is rendered void when the
foreclosure sale is conducted by an entity that lacks the
authority to do so. Ram v. OneWest Bank, 234 Cal.App.4th at
8, quoting Fontenot v. Wells Fargo Bank, N.A., 198
Cal.App.4th at 272 (italics added).
Yvanova, of course, argues that the investment trust claiming to own
her loan has no power to foreclose because it is acting pursuant to an
invalid assignment. Since she attacks its very power to foreclose, she need
not allege prejudice.
Second, the prejudice rule should apply only to cases where the
borrower alleges procedural defects in the foreclosure process. The early
cases that created the prejudice rule relied on the observation that mere
procedural problems in a foreclosure sale should not be enough to overturn
the sale without prejudice. For example, collusion in the foreclosure sale
bidding process was the basis for the claim in Lo v. Jensen, 88 Cal.App.4th
1093 (2001). In Angell v. Superior Court, 73 Cal.App.4th 691 (1999), the
21
notice of default and the notice of trustees sale contained errors in the
amounts due under the loan. Both were procedural errors and the courts
held the plaintiffs had to allege prejudice. Fontenot v. Wells Fargo Bank,
N.A., 198 Cal.App.4th at 272, relied on both cases to create a prejudice rule
it applied to all wrongful foreclosure claims. The Fontenot court stressed
that Prejudice is not presumed from mere irregularities in the process.
Ibid.
But, Yvanova does not rely on procedural errors or mere
irregularities in the process. She does not say the notices she received
were late, or were not delivered. She argues an error of substancethe
investment trust authorized the foreclosure, the entities that started the
process, had no power to foreclose because they had no interest in her loan.
This error makes the foreclosure on Yvanovas home void.
Ram v.
contract, you must allege a breach of duty or breach of contract, and that
the breach caused you damages. See, e.g., Reichert v. General Ins. Co., 68
Cal.2d 822, 830 (1968). There is no separate requirement that you charge
22
(Italics added.)
These
statutes now reflect a clear California public policy: foreclosures shall not
be initiated by a party unless it has the power to foreclose. A prejudice test
interferes with that policy because it makes it harder for borrowers to allege
and prove violations of the Homeowners Bill of Rights. If this Court
applies present California public policy as found in the Homeowners Bill of
Rights, it will see that the prejudice test has no place in this case.
This Court also cannot assume that every borrower who goes into
default will lose her home. If it does, it will confer on lenders and servicers
broad immunity, because no borrower will be able to sue for wrongful
foreclosure once she has defaulted. No California statute or public policy
justifies immunity.
because his own default on the loan led to the foreclosure and the loss of
his home. Respondents make that very argument. (Respondents brief, at
page 34.) Yet, causation is an issue of fact that courts cannot resolve on
demurrer in a foreclosure situation. Mirkin v. Wasseman, 5 Cal.4th 1082,
1093 (1993); Alliance Mortgage Co. v. Rothwell, 10 Cal.4th 1226, 1239
(1995).
F.
Borrowers like Yvanova did not draft the PSAs that govern investment
trusts, write the terms of deeds of trust that control foreclosures, or prepare
assignments that purported to transfer loans. If moral blame is a factor in
weakening the concepts of privity and standing under California law, it
surely works in favor of borrowers.
CONCLUSION
For these additional reasons, plaintiff and appellant TSVETANA
YVANOVA respectfully requests that this Court find she has standing and
that it reverse the judgment of the court of appeal.
Dated: March 19, 2015
LAW OFFICES OF
RICHARD L. ANTOGNINI
By:
________________________________
Richard L. Antognini
Attorneys for Plaintiff
and Appellant
TSEVETANA YVANOVA
27
LAW OFFICES OF
RICHARD L. ANTOGNINI
By:
________________________________
Richard L. Antognini
Attorneys for Plaintiff
and Appellant
TSEVETANA YVANOVA
28
meter date is more than one day after the date of deposit stated in the
mailing affidavit.
In addition, I sent a copy of the APPELLANTS REPLY BRIEF ON
THE MERITS to the following parties by email:
Charles Ward Cox
California Contract Paralegal
2705 Ravazza Road
Reno, Nevada
(Emailed to [email protected])
Mark F. Didak
Law Office of Mark F. Didak
6701 Center Drive West, 14th Floor
Los Angeles, California
(Emailed to [email protected])
I declare under penalty of perjury of the laws of the State of
California and the United States that the foregoing is true and correct.
Executed on March 19, 2015 at Lincoln, California.
__________________________________
Richard L. Antognini