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Joining a Growing Trend, California District Court Refuses To Follow Glaski

On November 13, 2013 by Schnader in Finance

By Stephen J. Shapiro

In Glaski v. Bank of America, a California Court of Appeal held that a borrower has standing to challenge the validity of an assignment of his mortgage to an MBS trust if he alleges that the assignment violated the terms of the instrument creating the trust. A recent decision joins a growing body of case law suggesting that the district courts in California will not follow Glaski.

In Glaski, the plaintiff homeowner, Thomas Glaski, obtained a mortgage loan from Washington Mutual Bank (WaMu), and WaMu assigned the mortgage to an MBS trust. When Glaski defaulted on his mortgage, Bank of America, the successor trustee of the MBS trust, initiated a nonjudicial foreclosure. Glaski sued Bank of America and others defendants for, among other claims, wrongful foreclosure. Glaski alleged that WaMu transferred his loan into the MBS trust after the last date on which the pooling and servicing agreement (PSA), the document that created and governed the trust, permitted the trust to accept new mortgages. As a result, Glaski argued, the assignment to the trust was void, the trust did not hold his mortgage, and Bank of America, as trustee, had no right to foreclose on it. The trial court dismissed Glaski’s claims, holding that Glaski had no basis to challenge the trustee’s authority to foreclose under California precedent.

On appeal, the Court of Appeal first noted that, because Glaski alleged that the MBS trust was formed under New York law, New York law governed. Next, the court looked to the New York Estates, Powers & Trusts Law (EPTL), which provides that any action taken by a trustee in contravention of the instrument that created the trust is void. The court then concluded that, because the MBS trust “was created by the pooling and servicing agreement and that agreement establishes a closing date after which the trust may no longer accept loans, [the EPTL] provides a legal basis for concluding that the trustee’s attempt to accept a loan after the closing date would be void as an act in contravention of the trust document.” Therefore, the Court of Appeal held that Glaski had stated a viable claim for wrongful foreclosure.

In the few months since the Court of Appeal issued the Glaski decision, California’s district courts have shown that they are disinclined to adopt the Glaski court’s rationale. Last week, in Dahnken v. Wells Fargo, the United States District Court for the Northern District of California refused to follow the lead of the California Court of Appeal. Rather, citing to several pre-Glaski cases, the Dahnken court chose to adopt what it described as the “majority position” that “‘plaintiffs lack standing to challenge noncompliance with a PSA in securitization unless they are parties to the PSA or third party beneficiaries of the PSA.’”

Dahnken joined a growing line of California federal trial courts that have rejected the Glaski court’s analysis. For instance, the United States District Court for the Southern District of California expressly refused to follow Glaski in Diunugala v. JP Morgan Chase. There, after stating that it found “the reasoning in the [pre-Glaski] case law to be more persuasive than that in Glaski,” the court held that the plaintiff borrower lacked standing to challenge the defendants’ compliance with the terms of a PSA.

Likewise, after noting that “no courts have yet followed Glaski and Glaski is in a clear minority on the issue,” the United States District Court for the Eastern District of California in Newman v. Bank of New York Mellon decided that “[u]ntil either the California Supreme Court, the Ninth Circuit, or other appellate courts follow Glaski, this Court will continue to follow the majority rule.”  See also Subramani v. Wells Fargo (declining to follow Glaski in favor of the majority rule). In short, Glaski is meeting resistance in California’s federal trial courts.

UPDATE:  On February 26, 2014, the California Supreme Court denied a request to depublish Glaski. 

Category: Finance
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