On April 29, 2015, California’s Fourth District Court of Appeal ruled in Miles v. Deutsche Bank National Trust Co. that a plaintiff who prevails in a wrongful foreclosure suit may recover tort damages from the defendant.
In 2005, John Miles obtained a $815,000 mortgage loan. When he failed to pay property taxes in 2005-2006, the mortgage servicer, HomEq, paid the taxes and then increased Miles’ monthly payments. Miles applied for a loan modification in August 2007 and was told he had to make a $12,000 lump sum payment as a modification processing fee, which he paid. The loan modification was granted in March 2008, lowering his interest rate to 5.9% from 7.5% but increasing his loan balance to $834,000.
Miles made a payment under the new agreement, but the following month received a notice from HomEq that the loan balance had increased to $870,767, with no explanation. Miles continued making payments under the March 2008 agreement. In June 2008, HomEq sent Miles another loan modification agreement increasing the loan balance to $895,117, again with no explanation.
In July 2008, HomEq sent Miles a letter demanding payment of $35,684 to process a new loan modification. HomEq refused Miles’ payments under the March 2008 agreement, instead insisting he pay the amount demanded under the July 2008 agreement. When Miles refused, HomEq recorded a notice of default and a notice of trustee’s sale. HomEq then offered to provide Miles with a new loan modification if he paid $14,000, which he paid. Instead of sending Miles a new loan modification agreement, HomEq sent a forbearance agreement and demanded a payment of $1,450 before it would send the new loan modification agreement.
After several additional back-and-forths with the same results, Miles obtained a temporary restraining order against the sale of his home and sued HomEq and the owner of the loan, Deutsche Bank National Trust Co., for breach of contract, fraud and negligent misrepresentation in Riverside Superior Court. That court dismissed Miles’ causes of actions and granted summary judgment to the defendants. Miles then appealed.
In its April 29 decision, the appeals court laid out the three necessary elements for a wrongful foreclosure claim:
1) That the defendants caused an “illegal, fraudulent, or willfully oppressive sale of real property” pursuant to a power of sale in a mortgage or deed of trust;
2) That the plaintiff was “prejudiced or harmed”; and
3) That the plaintiff “tendered the amount of the secured indebtedness or was excused from tendering.”
As to what kind of damages may be recovered for a wrongful foreclosure claim, the defendants argued that since the balance owed on the loan was more than the value of the home, the plaintiff suffered no damages. The appeals court disagreed, instead applying a tort measure of damages under Civil Code § 3333:
“The court granted summary judgment on the sole basis that plaintiff could not prove damages because he did not have any equity in the home when it was sold at a nonjudicial foreclosure sale. Wrongful foreclosure is a tort, however, and thus plaintiff may recover any damages proximately caused by defendants’ wrongdoing.”
The appellate court reversed the trial court’s granting of summary judgment to the defendants and remanded the case back to the trial court for resolution.
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