Fourth District, Division Two Holds Successor Bound By Fee Clause in Loan Documents.
In this interesting time of economic woes, there are many persons who “assume” loans from borrowers without lender consent. Not only can this practice likely trigger “due on sale” clauses, it also may expose the successor borrower to exposure for attorney’s fees award under the fee clauses in the trust deeds. The next decision proves that this result does indeed happen.
Haynes v. First Federal Bank of Cal., Case No. E044500 (4th Dist., Div. 2 Sept. 17, 2008) (unpublished) involved a home purchaser who “took over” a borrower’s loan with First Federal, but without the lender’s consent. Plaintiff filed a lawsuit seeking to enjoin a foreclosure of the home. In the complaint, plaintiff claimed First Federal had allowed him to assume the loan, he was the borrower under the trust deed, he had the right to cure the default, and First Federal had breached contractual obligations to him. First Federal won summary judgment. After the trial court determined that First Federal was the prevailing party, First Federal moved for and obtained an award of $141,173 in attorney’s fees and $4,027.80 in costs. Plaintiff appealed.
On appeal, plaintiff argued that he was a nonsignatory to the trust deed containing the fees clause such that First Federal could not be a prevailing party.
Justice McKinster—writing for a 3-0 panel of the Fourth District, Division Two—dispatched this contention on appeal. Plaintiff’s own allegations in the complaint were damning, because he took the position that he “stood in the shoes of the rightful borrower, with all the rights attendant thereto.” Given this stance, he would have claimed to be the prevailing party had he won, which means he faced exposure under the fee clause as a nonsignatory. (See Real Property Services Corp. v. City of Pasadena, 25 Cal.App.4th 375, 382 (1994), also discussed in our September 14, 2008 post on Aluisi v. Kolkka.)
Plaintiff tried to shift course on appeal, arguing that his claim was really based on First Federal’s breach of an “oral agreement” to assume the loan—with no fee exposure based on the absence of a fees clause. Unavailing, said the appellate panel. It observed that this new theory would not stop the foreclosure. Justice McKinster concluded: “Such a suit would have been useless and impractical. We decline to attribute such a futile and frivolous intention to plaintiff’s underlying suit. Substantively, he sought to enforce the original loan agreement and deed of trust terms, which did contain the attorney fees clause.”
End result: the fee award was affirmed and First Federal was awarded costs on appeal (which likely means an additional fee award for the bank’s win at the appellate level).