United States District Court, N.D. California
ORDER REGARDING DEFENDANTS’ MOTION FOR SUMMARY
JUDGMENT REGARDING DOCKET NO. 67
KIM United States Magistrate Judge.
before the Court, on remand, is the motion for summary
judgment filed by Defendants U.S Bank N.A., Wells Fargo Bank,
N.A., Homeward Residential, Inc., Power Default Services,
Inc. and Mortgage Electronic Registration Systems, Inc.
(collectively, “Defendants”). In an order dated
August 6, 2014, the Court granted Defendants’ motion
for summary judgment on the grounds that Plaintiffs Asvini
and Pravina Patel (collectively, “Plaintiffs”)
lacked standing to bring their wrongful foreclosure claim.
The Ninth Circuit remanded this action for the Court to
reconsider the order granting summary judgment in light of
the California Supreme Court’s ruling in Yvanova v.
New Century Mortgage Corporation, 62 Cal.4th 919 (2016).
Yanova, the California Supreme Court held that
“[a] borrower who has suffered a nonjudicial
foreclosure does not lack standing to sue for wrongful
foreclosure based on an allegedly void assignment
merely because he or she was in default on the loan and was
not a party to the challenged assignment.” Id.
at 924 (emphasis added). However, if the alleged defect
rendered the assignment merely voidable, a borrower
would not have standing to sue. Id. Upon remand, the
Court requested supplemental briefing from the party on the
issue of whether Plaintiffs’ alleged defects rendered
the assignments void or voidable. The Court noted that, since
Yvanova, courts held that if the pooling and
servicing agreement (“PSA”) for investment loan
trusts is governed by New York law, as the PSA is here, the
alleged defect renders the assignment merely voidable and not
void. See, e.g. Saterbak v. JPMorgan
Chase Bank, N.A., 245 Cal.App.4th 808 (2016); Morgan
v. Aurora Loan Services, LLC, ___Fed Appx.___, 2016 WL
1179733, *2 (9th Cir. March 28, 2016) (finding that plaintiff
lacked standing “because an act in violation of a trust
agreement is voidable - not void - under New York law, which
governs the [PSA] at issue[.]”); Reed v. Wilmington
Trust, N.A., 2016 WL 3124611, *5 (N.D. Cal. June 3,
2016); Croskrey v. Ocwen Loan Servicing, LLC, 2016
WL 3135643 (C.D. Cal. June 2, 2016); Hard v. Bank of New
York Mellon, 2016 WL 2593911, *12 (E.D. Cal. May 5,
Second Circuit thoughtfully analyzed this issue and
determined that, under New York law, a borrower does not have
standing to challenge an assignment that was purportedly made
in violation of the PSA. See Rajamin v. Deutsche Bank
Nat’l Trust Co., 757 F.3d 79, 87-89 (2d Cir.
2014). Because, “[u]nder New York law, unauthorized
acts by trustees are generally subject to ratification by the
trust beneficiaries[, ]” the court held that only trust
beneficiaries have standing to claim a breach of trust.
Id. at 89-90. The court noted that void acts are not
subject to ratification. Therefore, unauthorized acts by a
trustee are “merely voidable by the beneficiary.”
Id. at 90.
court examined a New York statute, New York Estates, Powers
& Trusts Law (“EPTL”) § 7-2.4. This
statute states: “[i]f the trust is expressed in the
instrument creating the estate of the trustee, every sale,
conveyance or other act of the trustee in contravention of
the trust, except as authorized by this article and by any
other provision of law, is void.” N.Y. Estates, Powers
and Trusts Law § 7-2.4. However, because, as noted
above, beneficiaries may ratify unauthorized acts by
trustees, the court found that ultra vires acts were
merely voidable, not void. Rajamin, 757 F.3d at 88.
The court found that “the weight of New York authority
is contrary to [the] contention that any failure to comply
with the terms of the PSAs rendered defendants’
acquisition of plaintiffs’ loans and mortgages void as
a matter of law.” Id. The court noted that no
New York appellate decision has applied EPTL § 7-2.4 to
hold that actions taken in violation of PSAs are
void, as opposed to voidable.
Rajamin, 757 F.3d at 90.
has been cited with approval by several New York state
appellate courts. See U.S. Bank Nat. Ass’n v.
Carnivale, 138 A.D.3d 1220, 1222 (N.Y.App.Div. 2016)
(finding that the homeowner lacked standing to challenge the
foreclosure based on the purported noncompliance with the
PSA); Wells Fargo Bank, N.A. v. Erobobo, 127 A.D.3d
1176 (N.Y.App.Div. 2015) (“a mortgagor whose loan is
owned by a trust does not have standing to challenge the
[bank’s] … status as an assignee of the note and
mortgage based on purported noncompliance with certain
provisions of the PSA”); Bank of Am. Nat.
Ass’n v. Patino, 128 A.D.3d 994, 994-95
(N.Y.App.Div. 2015) (same); Bank of New York Mellon v.
Gales, 116 A.D.3d 723, 725 (N.Y.App.Div. 2014) (same).
Similarly, New York trial courts have followed
Rajamin as well. See U.S. Bank Nat. Ass’n
v. Duthie, 35 Misc.3d 1218(A), 3 N.Y.S 3d 287 (2014)
(citing Rajamin and holding that the borrower did
not have standing to assert noncompliance with the PSA
because “acts may be ratified by the trust’s
beneficiaries and are voidable only at the instance of a
trust beneficiary or a person acting on his behalf”)
(internal quotation marks and citation omitted). Notably, the
Court did not locate any New York state court rejecting the
holding of Rajamin.
in their supplemental brief, Plaintiffs urge the Court not to
follow the Second Circuit’s order in Rajamin.
Instead, Plaintiffs contend that the Court is bound by the
literal language of EPTL § 7-2.4. However, “this
provision has not been applied literally by New York
courts.” Berezovskaya v. Deutsche Bank Nat. Trust
Co., 2014 WL 441560, *6 (E.D.N.Y. Aug. 1, 2014); see
also Calderon v. Bank of Am. N.A., 941 F.Supp.2d 753,
766 (W.D. Tex. 2013) (“New York case law . . . makes
clear that [EPTL] section 7-2.4 is not applied literally in
New York.”) (internal quotation marks and citation
omitted). Instead, despite the term “void, ”
courts interpreting this provision have found that trust
beneficiaries may consent to and ratify acts that violate the
terms of the trust. See, e.g. Duthie, 35
Misc.3d 1218(A), 3 N.Y.S 3d 287; see also Feldman v.
Torres, 34 Misc.3d 47, 939 N.Y.S.2d 221, 224 (N.Y. App.
Term 2011) (rejecting argument that a loan that violated the
terms of the trust was void under EPTL § 7-2.4 because
the because the borrower had not demonstrated as a matter of
law that the trustee, who had executed the promissory note
for the loan, lacked actual or apparent authority to bind the
trust to the note); In re Jepson, 816 F.3d 942, 947
(7th Cir. 2016); Berezovskaya, 2014 WL 441560 at *6;
Tran v. Bank of New York, 2014 WL 1225575, at *4-5
(S.D.N.Y. Mar. 24, 2014). If a beneficiary may ratify an
ultra vires act, then the act is merely voidable,
and not void. See Tran, 2014 WL 1225575 at *5
(citing Hackett v. Hackett, 2012 WL669525, at *20
(N.Y. Sup. Ct. Feb. 21, 2012) (“A void contract cannot
be ratified; it binds no one and is a nullity. However, an
agreement that is merely voidable by one party leaves both
parties at liberty to ratify the transaction and insist upon
its performance.”) (internal citation omitted)).
cite several cases that have applied EPTL § 7-2.4 to
hold that actions by trustees are void. See Mater of
Newlin, 119 Misc.2d 815, 820 (1982); Matter of
Pepi, 268 AD 2d 477, 478 (2000); Aurora Loan Servs.
LLC v. Scheller, 2014 NY Slip Op 31416; Dye v.
Lewis, 67 Misc.2d 426, 428 (1971). However, none of
these cases address the New York case law regarding
ratification. See Rajamin, 757 F.3d at 89-90
(finding authority relying on EPTL § 7-2.4 to void acts
were unpersuasive due to the failure to discuss the New York
authorities holding that beneficiaries may ratify otherwise
unauthorized acts of the trustee); Berezovskaya v.
Deutsche Bank Nat Trust Co., 2014 WL 441560 (E.D. NY
Aug. 1, 2014) (discounting cases that apply EPTL § 7-2.4
to void transactions without considering the
“well-settled rule that a beneficiary may ratify a
trustee’s ultra vires act, thus making such an
act voidable, rather than void”). Therefore, these
cases are not persuasive.
Court finds that the weight of the authority demonstrates
that an assignment done in violation of the PSA is merely
voidable, not void, under New York law. Therefore, Plaintiffs
lack standing to challenge the assignments ...