The California Supreme Court delivered a major victory to mortgage lenders and managers on March 7, 2022, when it issued a decision in Sheen c. Wells Fargo Bank, National Association et al., No. S258019, 2022 WL 664722, at*1 (Cal. Supreme Ct. Mar. 7, 2022), holding that lenders owe no tort liability generally sounding principles of negligence to borrowers when considering claims for loan modification. Going forward, this decision will impact negligence claim litigation against mortgage lenders and managers in California, as it demystifies the negligence claim often asserted based on allegations that the loan manager “negligently” handled a loan modification request.
In the shine case, the borrower sued a lender alleging various claims, including negligence, on the premise that the lender failed to exercise sufficient care in handling the borrower’s loan modification request. The Supreme Court concluded that “[n]either the plaintiff’s assertion of a “special relationship” between himself and [the lender] nor his invocation of the factors articulated in Biakanja v. Irving (1958) 49 Cal.2d 647, 650 provides a compelling basis for recognizing such an obligation. shine, at 2 o’clock. The Court found that the plaintiff’s claims arising from the mortgage contract at issue fell within the doctrine of economic loss, which prohibits recovery for negligence of pure economic loss where such claims would disrupt the parties’ private order, render the contracts less trustworthy as a means of organizing commercial relations and stifling the development of contract law. Identifier.
While mortgage lenders and managers can expect to escape negligence claims brought in similar facts in the future, it should be noted that the Court specifically declined to rule on negligent misrepresentations. and promissory estoppel claims. Plaintiffs’ attorneys are expected to continue pursuing these negligence-adjacent claims when they argue that lenders and servicers failed to carefully and completely handle loan modification applications.