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Damages for Wrongful Foreclosure Not Necessarily Limited to Lost Equity

The recent case of Miles v. Deutsche Bank involves the measure of damages for wrongful foreclosure. In 2005, plaintiff refinanced the loan on his home in Riverside with an adjustable rate mortgage serviced by HomeEq. Plaintiff made regular payments until the rate increased in 2007 and then sought a loan modification. In early 2008, HomeEq agreed to modify the loan terms in exchange for a lump sum payment. Both parties signed the modification agreement and plaintiff made the first payment, but HomeEq then refused to honor the agreement.

 

Plaintiff continued for a time to make monthly payments but HomeEq kept revising the agreement terms and demanding more lump sum payments to modify the loan. When plaintiff insisted on the terms of the original agreement, HomeEq recorded a notice of default and then a notice of trustee’s sale. Plaintiff obtained a court order temporarily preventing the sale of the home in 2009, but defendants proceeded with the sale and evicted plaintiff.

 

Plaintiff sued HomeEq and Deutsche Bank, which owned the loan. The trial court in Riverside County without explanation sustained defendants’ demurrer to causes of action for breach of contract, fraud and negligent misrepresentation. The court also granted defendants’ motion for summary judgment on the remaining cause of action for wrongful foreclosure, finding that plaintiff had no equity in the property and thus could not prove damages. The Court of Appeal, Fourth Appellate District, reversed both rulings.

 

The court first rejected the argument that plaintiff’s failure to attach a copy of the contract or plead its terms verbatim was fatal to the breach of contract claim. The correct rule is that a plaintiff may plead the legal effect of the contract rather than its precise language.

 

On the fraud and negligent misrepresentation claims, defendants argued they could not lie where, as here, the representations pertained to future events and thus there could be no prior knowledge that assertions were untrue. The court rejected the argument, finding that such claims could be based on making promises, here to modify the loan, but having no intent to actually perform. The court also rejected the argument that the claims lacked specificity for failing to identify the specific misrepresentations and the persons who made them, finding that such information was more likely in the possession of defendants.

 

With regard to the wrongful foreclosure claim, which requires “an illegal, fraudulent or willfully oppressive sale”, the court disagreed with the trial court’s conclusion that a plaintiff with no equity in the home cannot prove damages. Because wrongful foreclosure is a tort, the measure of damages includes “all the detriment proximately caused thereby” (see Civil Code § 3333), which in addition to lost equity the court noted might also include moving expenses, damage to credit, loss of rental income, personal injury including emotional distress, property damage and, upon a proper showing, punitive damages. The court made clear, however, that it was not suggesting any of these damages would be actually recoverable in the case, and noted that plaintiff’s damages, if any, might be entirely offset by the benefit of being free of an underwater loan.

 

After the events giving rise to this lawsuit, the legislature enacted a statutory cause of action to recover damages for wrongful foreclosure, codified at Civil Code sections 2924.12(b) and 2923.6(c)(3), but the court took no position on whether this impacts the common law tort action.

 

Plaintiffs’ Bar may attempt to rely on this case to seek broad damages in all real estate tort actions, but given other applicable case law, the scope of this particular ruling is arguably limited to instances where a party illegally, fraudulently or with willful oppression exercises a right to foreclose on property, evict an occupant, or both.

 

Miles v. Deutsche Bank Nat’l Trust Co. (2015) 236 Cal.App.4th 394

(06/15)