Unpublished Second District Decision Denies Attorney’s Fees to Successful Lender in Wrongful Foreclosure Suit Where Trust Deed Provisions Are Narrowly Crafted.
Lenders beware! Even in the wake of subprime fallout, do not count on your trust deed provisions regarding attorney’s fees to guarantee success even where you prevail in wrongful foreclosure actions against desperate borrowers. An unpublished decision from the Second District Court of Appeal confirms this lesson with great clarity.
In Lenett v. World Savings Bank, FSB, Case No. B199292 (2d Dist., Div. 4 May 12, 2008), a unanimous panel of the Second District Court of Appeal affirmed the denial of a fee motion to a lender where a borrower lost a wrongful foreclosure action after the sale to a bona fide purchaser in a nonjudicial foreclosure proceeding—a common occurrence in these days of subprime foreclosures. Lender appealed, relying on several standard attorney’s fees provisions in the trust deed.
Guess what? On appeal, the borrower won; and, not surprisingly.
The Court of Appeal relied on a literal interpretation of trust deed provisions, obviously drafted by lenders, which did not apply under the circumstances. The trust deed provisions concerned fee allocations where the borrower impaired the lender’s rights in the property while actually secured or failed to pay property taxes/insurance premiums for the property before the loan was foreclosed out.
The appellate court would have none of it. These provisions, it reasoned, were narrow and only concerned rights in the property before it was foreclosed and not owned by the successful foreclosure bidder (such as the bona fide purchaser in this case). Because the fee provisions were much more tightly drawn that those encountered in other cases, lender lost—the trust deed provisions did not cover “[a]ttorney fees incurred in defending an action for wrongful foreclosure after the sale has been completed [that] do not fall within the parties’ agreement.” (Slip Opn. at p. 7.)
So, lenders, do not count on standard trust deed provisions allowing recoupment of fees in wrongful foreclosure actions. Better ask your counsel to review the deed fee provisions closely before getting your hopes up prematurely (even before addressing whether the borrower has the assets to make the fee chase worthwhile in the first place).