Fact that Trust Deed Holder Might Have to Pay Fees Assessed Against Homeowners Did Not Trigger 1717 Fee Recovery.
Diamond Heights Village Assn., Inc. v. Financial Freedom Services Funding Corp., Case Nos. A126145 et al. (1st Dist., Div. 4 June 7, 2011) (certified for publication) is a good addition to Civil Code section 1717 jurisprudence, rejecting a “practical liability” approach when it comes to triggering 1717 recovery.
There, HOA had a plea of attorney’s fees against homeowners of a condominium unit based on CC&Rs, but did not sue Financial Freedom (holder of a trust deed on the unit based on a reverse mortgage) under CC&Rs. Instead, HOA disputed that FF’s lien was senior in nature. FF prevailed in the lien foreclosure action, and unsuccessfully requested attorney’s fees under various CC&Rs fees clauses–prompting an appeal.
The fee denial was affirmed because HOA never sued FF under the CC&Rs. However, relying on Saucedo v. Mercury Sav. & Loan Assn., 111 Cal.App.3d 307 (1980), FF argued that if HOA had prevailed against the homeowners, it would have been entitled to fees and FF would have to pay off this debt eventually out of sale proceeds. The appellate court was not impressed by this “practical liability” approach towards 1717 fee recovery, finding the situation closer to Clar v. Cacciola, 193 Cal.App.3d 1032, 1037-39 (1987) where 1717 fees were denied in a trust deed priority dispute. The “practical liability” approach was rejected as too speculative in nature for fee recovery purposes.