WRONGFUL FORECLOSURE SUCCESS!!! YOU DON"T HAVE TO FULLY TENDER BALANCE DUE TO CHALLENGE FORECLOSURE

Cheung v. Wells Fargo Bank, N.A., 2013 Westlaw 6017497 (N.D. Cal.).

Facts:  Following a nonjudicial foreclosure, the defaulting borrower brought suit against the foreclosing creditor, claiming that the foreclosure itself had been wrongful because the original lender had improperly transferred the mortgage to a securitization trust after the deadline contained in the securitization agreement itself. As a result, the mortgage was never owned by the party that conducted the foreclosure sale.  The creditor moved to dismiss the action on the ground that the borrower had not tendered the balance due.

            Reasoning:  Citing Fleming vs. Kagan, 189 Cal.App.2d 791, 11 Cal. Rptr. 737 (1961), the court held that tender is not required when the transaction itself is void due to fraud. Therefore, the wrongful foreclosure cause of action was properly brought. For the same reason, the court held that the mortgagor could seek cancellation of the written instruments, since the title documents themselves were void.

            Author’s Comment:  I think that Fleming is distinguishable.  In that case, the underlying debt had already been paid off, and there was evidence of fraudulent behavior.  Here, the underlying debt was never paid, and there is no evidence that the borrower in this case was defrauded by anyone.

            But the larger issue – the tardy assignment of the mortgage to the trust after the deadline – is terribly troubling because there are thousands of mortgages that fall into the same category. A few other courts have validated the theory that a borrower can challenge a completed foreclosure on the ground that the mortgage securitization trust had no standing to foreclose. See, e.g., Glaski v. Bank of America, N.A., 218 Cal.App.4th 1079, 160 Cal.Rptr.3d 449 (2013).  Surprisingly, the court in Cheung did not cite Glaski, a California state court decision, even though the result in Cheung was purportedly governed by California law.

            For a complete discussion of Glaski, see 2013-32 Comm. Fin. News. NL 66, Commercial Finance Newsletter Borrower May Sue for Wrongful Foreclosure When Assignment of Mortgage to Securitized Trust Occurs After Trust's Closing Date.