The petitioners then filed for a temporary restraining order and a preliminary injunction to prevent the trustee’s sale of their residence. The superior court granted the same. Under California law, the practice of “dual tracking,” whereby a lender pursues foreclosure at the same time that a borrower is seeking loan modification, is prohibited.
Subsequently, the petitioners filed a motion for attorney fees and costs pursuant to California Civil Code 2924.12, which provides for such fees and costs to “a prevailing borrower” if he or she “obtained injunctive relief or was awarded damages pursuant to this section.” When the lower court denied the motion, the petitioners filed a petition for a writ of mandate, arguing that the statute does permit such recovery. The appellate court issued the writ of mandate, finding that the language of the statute was broad enough to encompass preliminary injunctive relief, especially in light of the statute’s legislative history. The appellate court directed the respondent court to vacate its order denying the motion for fees and costs and consider the motion on the merits.
Awarding Attorney Fees Following Non-Dispositive Motion Is Unique
At first glance, the California appellate court’s decision may appear to be a departure from long-standing legal tradition that forces a prevailing party to wait until the conclusion of the proceedings to obtain attorney fees. By definition, a preliminary injunction is for the purpose of determining whether a party is likely to succeed and connotes an interim solution that awaits a permanent injunction or other permanent relief, thereby arguably making the award of attorney fees and costs premature.
Section leaders, however, agree that this outcome comports with recent changes in California law. The California legislature passed a series of bills in 2012, at the height of the mortgage crisis, to protect over-zealous borrowers from less-than-forthright lenders trying to take advantage of a mortgage issue. In allowing non-judicial foreclosures of owner-occupied residential properties under California law, the state legislature foresaw that some people may find themselves without a home and with little money to pursue legal remedies.
“Borrowers were placed in loans that they had no business being in with mortgages that made no sense. This statute reflects an attempt to even the playing field,” says Mark A. Neubauer, Los Angeles, CA, the ABA Section of Litigation’s Publications and Content Officer and real estate litigator for more than a quarter of a century. “A preliminary award of attorney fees on a non-dispositive motion is clearly unique by specific statute. The legislature is dealing with balancing the scales of justice with a non-judicial foreclosure that allows a lender to avoid the court-sanctioned process by using a public sale without a trustee, which can lead to mischief.”
“This is totally shifting the normal order of things but because of its limited application, there is no cause for concern of eviscerating common law. This is a creature of statute, not common law,” Neubauer says. As the court states, “These provisions address more pointedly the foreclosure crisis in our state through even greater encouragement to lenders and loan servicers to engage in good faith loan modification efforts.”
“It’s rather narrow in application because of this particular statutory scheme, where the borrower may get no further than the preliminary injunction stage. Once the lender is forced into compliance with injunctive relief, the borrower could be left holding the bag despite winning. It doesn’t have a far-reaching effect,” says Jeffrey S. Tibbals, Charleston, SC, cochair of the Section of Litigation’s Real Estate, Condemnation, and Trust Litigation Committee.
No Cause for Concern—Balancing Interests under Statutory Scheme
Under the statutory scheme, perhaps the best a borrower can do is to obtain a preliminary injunction given the short statutory time constraints involving non-judicial foreclosures, Neubauer says. The lender may be able to correct the issue and then have the preliminary injunction dissolved. That means that a preliminary injunction may be the end of the road; without this legislation, the borrower would be unable to obtain attorney fees, Neubauer explains.
“Sometimes from the borrowers’ own greed or through people being cornered into the loan and terms not being explained, it’s clear that truth in lending was not going on in all cases,” Neubauer points out. “The court’s decision correctly applied the statute. The lender may be writing a check for attorney fees when instead he thought he was going to be getting one, and the borrower has to beware because of the possibility of a non-judicial sale.”
Advice to Lenders in California
Although every state dealt with the mortgage crisis in its own way, Neubauer advises lenders in California “to be careful in non-judicial foreclosures of residences because you have to make sure all of your t’s are crossed and your i’s are dotted. It is a great and powerful remedy, but you must use it carefully and correctly.”
“Don’t be alarmed. This decision must be viewed in the context of the California statute intended to protect borrowers. It’s not abrogating a fundamental principle of law on awards of attorney fees,” adds Tibbals.
Pamela Sakowicz Menaker is an associate editor for Litigation News..