California SC ruling compels greater lender diligence

by Ephraim Vecina08 Mar 2016
A recent ruling by the Supreme Court of California has increased the requirement of thorough diligence on the part of mortgage lenders.
In Tsvetana Yvanova vs. New Century Mortgage Corp., Case No. S218973, the court ruled that borrowers can challenge a foreclosure provided that the assignment of mortgage (i.e., from the initial lender to the foreclosing lender) was invalid.
The case involved the foreclosing lender disputing that the borrower “did not have standing to challenge the validity of the assignment,” as the borrower was not involved in the agreement between the two lending parties.
The court maintained that the verdict has set a precedent that would reduce the risk on borrowers, as the decision would limit the number of parties who can collect on the debt.
“In the case, the initial lender went bankrupt in 2007, and the mortgage was pooled into a mortgage-backed security in an assignment that was dated and recorded in December 2011. The plaintiff argued that the four-year delay in assigning the mortgage after the bankruptcy case ‘revealed a break in the chain of title,’ rendering the assignment invalid,” according to the March 2 edition of the Holland & Knight West Coast Real Estate Update, posted on the law firm’s site.
Full and satisfactory documentation would thus be a prerequisite for valid assignment procedures in California.
“The suit also increases the possibility that borrowers will file lawsuits claiming that their foreclosures were wrongfully brought by creditors that lacked the appropriate power to collect on the debt,” the Holland & Knight report added.


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