Deed Of Trust/Section 1717: Borrowers’ Fraudulent Inducement Claim Was Not “On The Contract” So As To Allow Recovery Under Deed Of Trust Fees Clause

Characterization Of Borrowers’ Claim Was Determinative.

            In Aniel v. American Home Mortgage Servicing, Inc., Case Nos. A141462/A142729 (1^st Dist., Div. 4 July 21, 2017) (unpublished), borrowers challenged the nonjudicial foreclosure of rental property by alleging, but losing, a claim that lenders/related servicing entities fraudulently induced them to let the loan go into default so that they could profit from the subsequent foreclosure.  The trial judge then awarded defendants $75,500 in attorney’s fees out of a requested $190,939.60 based on a fees clause in the pertinent deed of trust.

            Borrowers did well to challenge fee entitlement on appeal because they obtained a reversal.

         The reason was that their claim was not “on the contract” under Civil Code section 1717 given that this statutory provision does not apply to fraud claims.  Even if a contract is in the backdrop of a case, it is the gravamen of the action which is key—with borrowers’ claim not being one to enforce the note or deed of trust.  (Hyduke’s Valley Motors v. Lobel Financial Corp., 189 Cal.App.4^th 430, 436 (2010).)