Saucedo Case Found to Support Fee Recovery.
Saucedo v. Mercury Sav. & Loan Assn., 111 Cal.App.3d 309, 315 (1980) is an interesting section 1717 decision where plaintiffs (nonassuming grantees) of a property subject to a note/trust deed beat the lender under loan documents with a fees clause. Plaintiffs were allowed fee recovery because, under the note/trust deed, the lender was entitled to having fees added as part of the debt secured by the trust deed. In order to prevent foreclosure, plaintiffs would have had to pay the debt (if they lost), inclusive of fees, so that this “practical liability” triggered the section 1717 mutuality remedy even though they were not in technical privity with the lenders due to acquiring the property from privity-related borrowers.
Well, Saucedo’s rationale was dispositive over 30 years later in Vineyard Bank, NA v. DFI Funding, Inc., Case No. B224656 (2d Dist., Div. 6 May 24, 2012) (unpublished).
There, Vineyard made a secured loan of money to borrower through a first priority trust deed even though another lender loaned money secured by a more limited interest in certain real property through a second trust deed. Vineyard then loaned additional money, with a title search not picking up on the second trust deed, with first lienholder recording a full reconveyance of the first trust deed and arguably moving second lienholder ahead from a priority perspective. Vineyard foreclosed through a non-judicial foreclosure, second lienholder initiated its own non-judicial foreclosure, and Vineyard filed suit to enjoin the second lienholder foreclosure, with the lower court issuing an injunction in favor of Vineyard. Jurors found that the second lienholder trust deed was ambiguous and did not create a lien against a property, but a much more narrower interest that did not reach the property. Subsequently, the lower court awarded $376,466.45 in fees based on the second lienholder’s trust deed fees clause, as well as $12,122.90 in litigation costs, to Vineyard, prompting an appeal by the losing lender.
Fee/costs awards affirmed on appeal, based on Saucedo. The “practical liability” section 1717 doctrine was determinative, because second lienholder had a fees clause that would have added its fees as prevailing party to the debt and first lienholder (now owner of the property) would have had to pay off this enriched indebtedness.
Losing party argued that this was nothing more than a competing lienholder dispute not triggering fee exposure, but the appellate court found that this was an improper characterization–the dispute was by a property owner (former foreclosing first lienholder) against a second lienholder attempting to enforce an interest akin to that involved in Saucedo. Simply put, “[t]his distinction has a difference.”