assingmment please?? 2932.5 with a side of Veal

15 Jul

The brief below as circulated by the California Bar’s: Insolvency Law Committee:
Herrera vs. Deutsche Bank National  Trust Co.,  2011 Westlaw 2547979 (Cal.App.)

 

Facts: A married couple  (“the homeowners”) purchased a home at a foreclosure sale.  Supposedly,  unbeknownst to them, their interest in the home was subject to a prior (and  perhaps unrecorded) deed of trust that never appeared in their title  search.  After a series of assignments, a lending institution conducted  a non-judicial foreclosure sale under that prior unrecorded deed of  trust.  Supposedly, the homeowners never received notice of the sale.  The lender entered a successful credit bid; the trustee issued a trustee’s  deed in favor of the lender.  When the lender later asserted its title,  the homeowners brought suit, seeking to set aside the sale on the ground that  the lender never owned the underlying note or the trust deed and therefore  could not conduct a proper sale.

 

The lender and the trustee brought a motion for summary judgment, claiming  that properly-recorded documents showed that the trust deed had been assigned  to the lender.  The trial court granted summary judgment for the lender.

 

Reasoning:  The appellate  court reversed, holding that the lender had not made a competent evidentiary  showing in opposition to the homeowners’ motion for summary judgment.   The lender argued that the trial court properly took judicial notice of the  recorded assignment.  But the court distinguished between judicial  notice of the recorded document and its contents, holding that the lender  could not show that it was really the beneficiary under that deed of  trust.

 

The lender claimed that a declaration filed by an employee of the trustee had  established the truth of the facts contained in that assignment, which were  thus covered by the “business records” exception to the hearsay  rule.  The court disagreed:  “The records used to generate the  information in the Assignment . . . were undoubtedly records not prepared by [the  trustee] but records prepared by [the lender’s predecessors in interest.]  [The lender has] not shown how [the employee] could have provided information  about the source of that information or how those documents were  prepared.”

 

For the moment, let’s disregard the strange factual predicate, where someone  buys a property subject to an undisclosed deed of trust and gets no notice of  a subsequent foreclosure.  (That doesn’t happen very often.)  The  really alarming part of this opinion is the disqualification of the remote  assignee’s employee as a party who can properly authenticate the business  records that were generated by remote assignors.  If that rule is  universally true, how can the subsequent transferees ever establish a chain  of title, especially where the remote assignors are defunct entities (and  their former employees are scattered to the winds)?  And if that chain  can’t be competently established, does that mean that a homeowner threatened  by foreclosure can now bring a timely action for injunctive relief, on the  theory that the foreclosing creditor lacks the authority to do so? A fortiori, if such a claim can be  brought to overturn a completed sale, it ought to be cognizable in order to  halt a pending sale.

 

Note that the issue in this case (the lack of an evidentiary foundation for  the assignment of the deed of trust) is subtly different from the one in the  Ninth Circuit BAP’s recent opinion in In  re Veal, — B.R. —-, 2011 WL 2304200, (9th Cir. BAP (Ariz.)).   That case dealt with the problem of the assignment of a mortgage without the  assignment of the underlying note.  (For a complete discussion of Veal, see 2011 Comm. Fin. News. 52, Purported Assignee  of Mortgage Lacks Standing to Obtain Relief from Automatic Stay Because  Assignment Transferred Mortgage Without Underlying Note.)

 

More significantly, I think that the holding in Herrera, a California state appellate opinion, may  conflict with or undermine such cases as Ferguson  v. Avelo Mortg., LLC, 2011 WL 2139143 (Cal. App. 2d Dist. 2011),  opinion modified, 2011 WL 2438948 (Cal. App.), and Gomes v. Countrywide Home Loans, Inc., 192 Cal. App. 4th  1149, 121 Cal. Rptr. 3d 819 (4th Dist. 2011), review denied, (May 18, 2011).  (For a discussion of Gomes, see  2011 Comm. Fin. News. 18,  Borrower Cannot File Suit to Determine Whether MERS Has Authority to Commence  Foreclosure, and Trust Deed Expressly Authorized MERS to Do So.)  After  all, if the recorded assignment can no longer be taken at face value under Herrera, how can we simply assume that  the nominal assignee is really the proper party to pursue the foreclosure?

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