A California appellate court ruled it was OK for the party initiating a foreclosure to do so without being in possession of the mortgage note.
The decision shows attorneys how foreclosure contests can play out in nonjudicial foreclosure states when specific foreclosure processing provisions are already in place.
The Sixth District Court of Appeals of California held that state statutes "do not require that the mortgage note be in the possession of the party initiating the foreclosure."
Ultimately, the court rejected a plaintiff's petition for a quiet title to property and declaratory judgment on the grounds that the foreclosing parties did not have physical possession or ownership rights to the promissory note.
The appellate court disagreed with this claim, holding that Section 2924 of the California Civil Code does not require a party initiating foreclosure to actually be in possession of a note.
The decision is tied to a lawsuit originally filed by Stephen George Debrunner against Deutsche Bank National Trust Co., the foreclosure trustee Old Republic Default Management and the servicer Saxon.
The case and its outcome highlight the differences that surface when working in nonjudicial foreclosure states as opposed to judicial foreclosure systems.
Judicial foreclosure states require foreclosures to pass through the court system, while nonjudicial foreclosure states, such as California, move proceedings through the foreclosure process using state-specific real estate laws. These differences state-by-state are likely to create varying outcomes as in the Debrunner case where the plaintiff's claims are derailed by state law.