Mendoza v. JPMorgan Bank
Facts: A homeowner obtains a mortgage secured by a trust deed on their property. The homeowner later defaults on their mortgage. The mortgage holder transfers the mortgage to a securitized trust after the closing date by which mortgages are to be transferred to the trust under its pooling and service agreement (PSA). The trust deed is assigned to a new beneficiary who substitutes the trustee. The substitute trustee then issues a notice of default (NOD) to the homeowner. The deficiency remains uncured and the substitute trustee nonjudicially forecloses.
Claim: The homeowner seeks a return of their property, claiming the foreclosure sale was void since the assignment and substitution occurred after the closing date of the mortgage holder’s securitized trust in the PSA and thus the trustee did not have authority to foreclose.
Counter claim: The mortgage holder claims the foreclosure is not void and the owner has no standing to challenge them due to the perceived irregularities in the assignment and substitution since the homeowner is an unrelated third party to the assignment and substitution.
Holding: A California court of appeals holds the foreclosure sale is not void since any procedural irregularities in the trust deed assignment and substitution of trustee make them voidable, though not void, only by the mortgage holder and the homeowner, as a nonparticipant, lacks standing to challenge them. [Mendoza v. JPMorgan Bank (December 13, 2016)_CA4th_]
Editor’s note — The California Supreme Court held in Yvanova v. New Century Mortgage Corporation homeowners may challenge void assignments after foreclosure has occurred. However, in Mendoza v. JPMorgan Bank, the defects in the assignment of the mortgage were merely voidable and, thus, the homeowner did not have standing to challenge it.
A void assignment has no legal effect; a voidable assignment is enforceable but may be ratified or extinguished by the participants to the transaction.