Result Was That Trial Court’s Award Of $175,000 In Fees Went POOF!
The lender in HSBC Bank, USA v. Wells Fargo Bank, N.A., Case No. B266405 (2d Dist., Div. 6 May 16, 2016) (unpublished) likely was surprised by the result in this case, but it also shows you how powerful the one action rule can be as a defense in the area of secured real estate law.
In this one, residential borrower obtained a loan secured by a deed of trust, but got into a scuffle amidst loan modification discussions. Lender apparently conditioned loan modification on borrower providing documentation to reform the trust deed’s incomplete legal description, something borrower refused to do until the modification occurred. The lender terminated the modification program, with the lender bringing an action to reform the trust deed’s legal description and borrower cross-complaining based on lender refusal to modify the loan. The lower court found for lender on both actions. Lender then brought suit upon a trust deed attorney’s fees clause, containing the language that any amounts disbursed by Lender shall become additional debt secured by the trust deed.
Borrower argued that the one action rule prohibited a direct action against him for fees and costs, with the lender having to add them to the secured debt and enforce its rights through foreclosure. The lower court rejected the one action defense and awarded lender $175,000 in fees plus costs.
Surprise! The 2/6 DCA reversed.
The appellate court found that the one action rule did apply to the award of attorney’s fees. Because of the wording of the fees clause, the reviewing court believed that the lender really only had an option to add the fees clause to the secured debt and then foreclosure under the trust deed. What it could not do is argue that the fees were unsecured and could be pursued independently of the security. In doing so, the 2/6 panel disagreed with the reasoning of Passanisi v. Merit-McBride Realtors, Inc., 190 Cal.App.3d 1496, 1506-1507 (1987); however, the fees clause did make this additional secured debt, so the wording of the fees clause is what gored lender on appeal.
BLOG OBSERVATION—Lenders likely will not like this decision, but it does indicate the power of the one action rule defense. Will lenders now think about rewording trust deed standard language as far as how attorney’s fees are treated under deeds of trust to potentially lead to a different result?
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