Cases featuring “dual tracking” claims under California’s Homeowner Bill of Rights seem to be all the rage these days.
My last post, Tender Not Required for a “Dual Tracking” Claim, highlighted a recent Court of Appeal opinion holding that a borrower need not tender the loan amount in order to allege a dual tracking claim — a claim based on the lender foreclosing while negotiating a modification with the borrower.
Another recent decision illustrates why lenders should not want to be on the wrong side of a dual tracking claim: the dreaded award of attorney fees. In Monterossa v. Superior Court, the California Court of Appeal (Third District in Sacramento) held that a borrower who obtains a preliminary injunction at the outset of the case can recover attorney fees against the lender.
The pleadings alleged the following facts: The borrowers obtained a loan of $359,650 from PNC Mortgage, a division of PNC Bank, and used the funds to purchase their home in Folsom in 2005. By June 2013, borrowers stopped making their mortgage payments.
PNC wrote to the borrowers twice, asking them to call for help with foreclosure prevention alternatives. The borrowers called PNC several times and requested PNC’s “hardship assistance package,” but PNC failed to send them one.
PNC then notified the borrowers that their request for hardship was denied — because PNC did not receive a completed hardship assistance package from them. PNC recorded a notice of default.
In November 2013, the borrowers submitted a loan modification agreement to PNC, and PNC’s “single point of contact” informed borrowers that they needed to submit some missing documents. The borrowers submitted those documents on December 5, 2013, and PNC confirmed that the package was then completed.
But on January 24, 2014, PNC recorded a notice of trustee’s sale, and told the borrowers that their loan modification was denied — due to missing documents.
(As an aside, anyone reading these facts can probably already tell that the case will not end well for PNC. Before spending money on litigation — whether offensively or defensively — any lender or borrower would be well-advised to examine whether their position passes the “smell test.”)
The trial court issues a preliminary injunction stopping the trustee’s sale, but denies attorney fees
The borrowers requested a preliminary injunction stopping the trustee’s sale of their home, relying on the prohibition against dual tracking in California Civil Code section 2923.6. Borrowers claimed PNC engaged in dual tracking by recording notice of trustee’s sale while simultaneously negotiating with the borrowers for a loan modification.
The trial court granted the motion and entered a preliminary injunction.
The borrowers then filed a motion seeking recovery of their attorney fees pursuant to Civil Code section 2923.12(i). The trial court denied the motion, holding that fees could be awarded to a borrower only after “prevailing” at the conclusion of the action. The borrowers challenged that ruling in the Court of Appeal.
The Court of Appeal reverses, and awards attorney fees to the borrowers
The Court of Appeal reversed the trial court’s order, and held the borrowers were entitled to attorney fees.
The Court began its opinion by emphasizing the public policy concerns underlying the prohibition of dual tracking:
“Dual tracking refers to a common bank tactic. When a borrower in default seeks a loan modification, the institution often continues to pursue foreclosure at the same time. … The result is that the borrower does not know where he or she stands, and by the time foreclosure becomes the lender’s clear choice, it is too late for the borrower to find options to avoid it. Mortgage lenders call it ‘dual tracking,’ but for homeowners struggling to avoid foreclosure, it might go by another name: the double-cross.” (Emphasis added.)
The Court then outlined the “teeth” (the remedies) of the statute prohibiting dual tracking. If a trustee’s deed upon sale has not yet been recorded, the statute allows the borrower to obtain injunctive relief to halt any ongoing violations and prevent an impending trustee’s sale. If a trustee’s deed has already been recorded, the statute provides for actual economic damages, and potentially also treble damages.
Finally, the Court turned to the attorney fee recovery provisions of section 2924.12(i), which states: “A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.” (Emphasis added.)
While most “prevailing party” determinations cannot be made until a case is over, the Court held that the statute here allowed for an award of fees at an interim stage if the borrower succeeded in obtaining a preliminary injunction. The phrase “injunctive relief,” the Court held, included not only permanent injunctions but also preliminary injunctions.
Aside from the statutory language, the Court also emphasized the public policy objectives underlying the statute. The Court noted that “in many cases the best a plaintiff can hope to achieve is a preliminary injunction” because after a preliminary injunction the lender can “expeditiously correct and remedy the violation[.]” Once the lender corrects the violation, the trial court can dissolve the preliminary injunction, and the lawsuit, having served its main purpose, may not go forward. Under these circumstances, the Court held, the preliminary injunction represents a victory for the borrower and provides a basis for awarding attorney fees under the statute.
Under the Monterossa decision, a borrower who obtains a preliminary injunction halting a lender’s “dual tracking” violation will be entitled to recover attorney fees. Lenders would be wise to address dual tracking issues proactively and quickly correct any violations before the borrower turns to the courts.