California Supreme Court Permits Foreclosure Lawsuits Over Ownership of Loans

ABA Journal | March 2, 2016       A ruling from the California Supreme Court could enable lawsuits from thousands of people who may have been wrongfully foreclosed, the Los Angeles Times reported today.

The court ruled unanimously Feb. 18 that foreclosed homeowner Tsvetana Yvanova of Los Angeles may amend her lawsuit with a wrongful foreclosure count based on the claim that an assignment of her loan was invalid. In so ruling, the court said Yvanova is not barred from suing because she was in default on the loan, or because she wasn’t a party to the assignment.

A lower court will decide whether the facts in Yvanova’s case support her contention that the company that foreclosed on her home didn’t have the legal right to foreclose. But the ruling will open the courthouse doors to people in Yvanova’s situation, according to University of California at Irvine law professor Katherine Porter.

That’s because lower courts often rule that borrowers have no standing to sue when they are in default on their loans and when they are challenging contracts to which they are not a party.

Justice Kathryn Werdegar wrote that mortgage borrowers like Yvanova have standing to challenge assignments when they are demonstrably void, which would remove the foreclosing party’s authority to foreclose, Bloomberg BNA reports.

“The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security,” Werdegar wrote.  Read more here