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Attorneys representing both borrowers and lenders were quick to respond to the Court’s decision, alternatively praising or decrying the effort as the foundation for a new war against secured lending.The simple fact, however, is that the Court’s decision endangers only a special (and soon-to-be dwindling) class of lenders: Those too lazy, cheap, or sloppy to properly document a simple contractual assignment.Deutsche Bank, as trustee of the Morgan Stanley investment trust – the purported beneficiary of Yvanova’s deed of trust by way of the 2011 assignment – sold Yvanova’s property in September 2012 pursuant to the deed of trust’s power of sale.In her complaint for wrongful foreclosure, Yvanova alleged that the 2011 assignment of her deed of trust was “void” for two reasons: (1) New Century transferred its assets, including Yvanova’s loan, to its bankruptcy trustee in 2008; and, (2) the Morgan Stanley investment trust “closed” to new loans in 2007 – almost four years before the purported assignment.“The borrower owes money not to the world at large,” the Court noted, “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.” In other words, proving you own the debt is just as important as proving you haven’t been paid.Which brings us to the second group that ought to be concerned about the decision: Those successor lenders and loan servicers that, while paying lip service to proper loan documentation, are too lazy, cheap or sloppy to do the job right.Since only the actual owner of a secured debt can foreclose on the security, however, the Court permitted Yvanova to challenge the validity of the assignment of the secured debt – e.g., whether the assignee actually received assignment of the debt.
The latter describes a contract that, because of some error, either party can choose to affirm or reject (e.g., an express misrepresentation about the condition of a property for sale).
Post-Yvanova, in an almost Darwinian culling of the herd, less-prudent lenders (or those who fail to appreciate that you can pay your lawyers now or you can pay them more later), will find themselves embroiled in litigation that is as expensive as it was avoidable.
In the end, while not particularly “groundbreaking,” this is the only real take-away from the Yvanova decision.
In 2006, New Century loaned 3,000 to plaintiff Yvanova, secured by a deed of trust on Yvanova’s Woodland Hills’ home.
New Century filed for bankruptcy in 2007 and transferred its assets into a liquidation trust in 2008.
Yes, Yvanova failed to make her note payments to New Century’s successor – whoever that successor may be.