Fourth District, Division Two Finds Borrower’s Post-Foreclosure Unsuccessful Challenge Required Award of Fees to Foreclosing Lender.
The next case should be of interest to lenders in these days where borrowers are “pulling out” all the stops after a foreclosure to regain possession of the foreclosed property. The lender in the next case was denied full attorney’s fees under Civil Code section 1717; but, on appeal, lender obtained a reversal and an opportunity to recover a substantial fee award from the foreclosed-out borrowers.
Chandra Family Trust 851 v. Countrywide Home Loans, Case Nos. E042200 & E043578 (4th Dist., Div. 2 Nov. 10, 2008) (unpublished) involves a recurrent set of facts in these precarious financial times that Americans are now facing. Borrowers defaulted, and Countrywide began foreclosure proceedings that were suspended when borrowers entered into a “repayment agreement” whose terms had to be strictly followed under penalty of Countrywide foreclosing without further notice. Because borrowers tried to pay via third party checks rather than by other agreed-upon modes of payment, Countrywide foreclosed without further notice. Borrowers then filed an action against Countrywide sounding in contract, tort, and statutory violations. Countrywide successfully moved for summary judgment on the ground that the third party check tender breached the repayment agreement so that the foreclosure was justified—a merits determination affirmed on appeal. However, the lower court did not award Countrywide requested fees of $175,683 under Civil Code section 1717, even though a pertinent trust deed provision provided that the lender would be entitled to “reasonable counsel fees” in “any action … purporting to affect” either “the security hereof” or “the rights or the powers of Beneficiary ….”
Lender appealed the failure to award fees under section 1717 and prevailed.
The issue on appeal was one for independent contractual interpretation given the lack of conflicting extrinsic evidence.
The Fourth District, Division Two, in a 3-0 opinion by Justice Richli, observed that similarly worded trust deed provisions had been held to authorize the recovery of attorney’s fees in an action to enjoin a foreclosure. (See, e.g., Buck v. Barb, 147 Cal.App.3d 920, 924-925 (1983); Valley Bible Center v. Western Title Ins. Co., 138 Cal.App.3d 931, 932-933 (1983); Gudel v. Ellis, 200 Cal.App.2d 849, 853, 855-857 (1962); Johns v. Moore, 168 Cal.App.2d 709, 712, 714-715 (1959); see also Smith v. Krueger, 150 Cal.App.3d 752, 755-758 (1983) [declaratory relief action concerning beneficiary’s right to foreclose].) Because borrowers’ core position was that the foreclosure constituted a breach of the repayment agreement, this certainly concerned Countrywide’s entitlement to the benefit of the security of the trust deed by foreclosing or called into question Countrywide’s rights and powers under the trust deed as being limited by the repayment agreement.
The upshot is that the borrowers’ action was within the scope of the trust deed fee provision, meaning the trial court erred by refusing to grant Countrywide’s fees under section 1717. The appellate court remanded for fixing by the lower court.
BLOG OBSERVATION NO. 1—In an interesting footnote, the appellate court did note that borrowers never argued that, because the attorney’s fees were to be secured by a trust deed, an award of attorney’s fees would be tantamount to a deficiency judgment and barred under Code of Civil Procedure section 580b and/or 580d.
BLOG OBSERVATION NO. 2—Contrast the result here with the different ending reached in Lenett v. World Savings Bank, a Second District unpublished decision reviewed in our May 12, 2008 post. There, the Second District refused to award fees under a trust deed provision to a bona fide purchaser at a nonjudicial foreclosure sale, where the BFP defeated a borrower’s post-foreclosure challenges after the property had sold to the BFP. Here, unlike Lenett, the lender was not a BFP and much closer to the trust deed than the BFP simply purchasing at the trustee’s sale—with the BFP not having the benefit of security and trust deed beneficiary rights.