California’s nonjudicial foreclosure system is designed to move efficiently, allowing lenders to enforce their security interests without the delays and costs of litigation. But borrowers facing default have repeatedly attempted to disrupt this process by filing preemptive lawsuits challenging the lender’s authority to foreclose before any sale takes place. In a significant 2020 ruling that continues to shape foreclosure litigation in 2025, the Ninth Circuit Court of Appeals firmly closed the door on this strategy.
The Ruling: Perez v. Mortgage Electronic Registration Systems, Inc.
On May 11, 2020, the United States Court of Appeals for the Ninth Circuit issued its decision in Perez v. Mortgage Electronic Registration Systems, Inc., holding that California law does not permit borrowers to file judicial actions challenging a lender’s foreclosure authority before the nonjudicial foreclosure sale has occurred. The decision resolved a question that had generated considerable uncertainty among both lenders and borrowers in the years following the California Supreme Court’s 2016 opinion in Yvanova v. New Century Mortgage Corp., 62 Cal.4th 919.
The Facts Behind the Case
The dispute arose from two separate properties owned by the Perez borrowers. On each property, the borrowers had fallen behind on mortgage payments. The lender recorded a Notice of Default and a Notice of Trustee’s Sale against one of the properties, though the scheduled foreclosure sale was never carried out. No foreclosure proceedings had been initiated on the second property at all.
Rather than waiting for any foreclosure to proceed, the borrowers filed suit against MERS and the lending entities, seeking declaratory relief, cancellation of instruments, and quiet title. The core of their argument was that purported defects in the assignments of the deeds of trust meant that the lenders and MERS held no valid beneficial interest in the notes or deeds of trust, and therefore lacked authority to foreclose.
Both cases were removed to federal court based on diversity jurisdiction and were dismissed at the trial level for failure to state a plausible claim under California law. The borrowers appealed, arguing they had standing to bring a preemptive challenge to the lenders’ foreclosure power.
Why the Yvanova Decision Does Not Help Borrowers Here
The borrowers’ appeal relied heavily on the California Supreme Court’s 2016 holding in Yvanova. That decision established that a borrower who has already lost property through a completed foreclosure sale has standing to challenge the validity of prior assignments of the deed of trust in a wrongful foreclosure action, at least where the borrower alleges the assignment was void rather than merely voidable.
The Ninth Circuit acknowledged the significance of Yvanova but emphasized the narrow scope of its holding. The California Supreme Court had been explicit that its ruling applied only to post-foreclosure wrongful foreclosure claims. The Yvanova opinion itself stated that the court was not addressing the rights of borrowers who attempt to prevent a nonjudicial foreclosure through preemptive litigation.
The Court’s Reasoning
The Ninth Circuit identified several grounds for rejecting the borrowers’ position:
Consistent California Appellate Authority
The court surveyed California appellate decisions addressing preemptive foreclosure challenges and found a uniform pattern of rejection. No California appellate court had recognized a borrower’s right to bring a preemptive action challenging a lender’s foreclosure authority prior to an actual sale. The Ninth Circuit concluded there was no persuasive basis to predict that the California Supreme Court would break from this established trajectory.
Protecting the Nonjudicial Foreclosure Framework
California’s nonjudicial foreclosure statutes, codified primarily in Civil Code Sections 2924 through 2924k, establish a comprehensive extrajudicial process specifically designed to avoid court involvement. The Ninth Circuit observed that allowing borrowers to initiate judicial proceedings before a foreclosure sale would fundamentally undermine the legislative purpose of the nonjudicial system.
Risk of Abusive Delay Tactics
The court also noted a practical concern: permitting preemptive judicial challenges would open the floodgates to litigation filed solely for the purpose of delaying legitimate foreclosure proceedings. Borrowers in default could use the filing of a lawsuit as a tactical tool to stall enforcement, forcing lenders to litigate their authority to foreclose even in cases where no legitimate dispute exists.
What This Means for Private Lenders in 2025
The Perez decision provides important protections for lenders operating in states within the Ninth Circuit, including California, Arizona, Nevada, Oregon, and Washington. Several practical implications deserve attention:
Confidence in the Nonjudicial Process
Lenders can proceed with nonjudicial foreclosures with greater assurance that borrowers cannot derail the process through preemptive litigation challenging assignment validity or lender authority. The procedural framework established by statute remains the governing mechanism for enforcement of deed of trust remedies.
Assignment Documentation Remains Critical
While borrowers cannot preemptively challenge assignments, the Perez ruling does not eliminate the importance of maintaining clean assignment chains. A completed foreclosure may still be challenged after the fact under Yvanova if the borrower can demonstrate that an assignment in the chain was void. Lenders should continue to ensure that all assignments are properly documented, recorded, and legally effective.
Post-Sale Litigation Risk Persists
The door to post-foreclosure wrongful foreclosure actions remains open under Yvanova. Lenders should anticipate that borrowers who lose property through nonjudicial foreclosure may still file suit after the sale, particularly where there are questions about the validity of prior assignments. Proper documentation and compliance with all statutory notice requirements provide the strongest defense against these claims.
Monitor Evolving State Law
While the Ninth Circuit’s interpretation of California law is authoritative in federal courts, California state courts are not bound by federal circuit opinions. Lenders should monitor California Supreme Court developments for any future rulings that might revisit the scope of Yvanova or address preemptive challenges directly.
Strengthening Your Foreclosure Position
Geraci LLP represents private lenders throughout California in all aspects of foreclosure and loss mitigation, from initial default through completed sale and post-sale litigation defense. Our attorneys stay current on the evolving case law that affects lender rights and can help ensure your foreclosure procedures comply with all statutory and judicial requirements. Contact Geraci LLP at (949) 403-3488 or visit us at 90 Discovery, Irvine, CA 92618 to discuss your foreclosure strategy.
