Justice Wiley authors an extremely well-written (and relatively concise) opinion today. One that admittedly creates split in the Court of Appeal.
As Justice Wiley frames the issue (and its proper resolution):
"Homeowners in mortgage trouble may try to negotiate a
better deal. If mortgage modification negotiations fail and the
borrower falls behind, the lender may foreclose, sell the house, and
evict the homeowner. In a nutshell, this happened to borrower
Kwang Sheen with his lender Wells Fargo Bank, N.A. (Wells).
Sheen sued Wells in tort for negligent mortgage modification and
other claims. The trial court sustained Wells’s demurrer, partly
because Wells did not owe Sheen a duty in tort during contract
negotiation.
The issue of whether a tort duty exists for mortgage
modification has divided California courts for years. The California
Supreme Court has yet to resolve this division. We must take sides.
We join with the old rule: no tort duty during contract
negotiations. Our small contribution to this extensive debate is to
use the general approach of the recent Supreme Court decision in
Southern California Gas Leak Cases (2019) 7 Cal.5th 391 (Gas Leak
Cases). The Gas Leak Cases decision was not about mortgage
modifications, but it gives us guiding sources of law about whether
to extend tort duties when, as here, there is no personal injury or
property damage. Seeking wisdom, the Supreme Court considered
decisions from other states as well as the Restatement of Torts. We
do likewise.
These sources of law decisively weigh against extending tort
duties into mortgage modification negotiations. The majority of
other states are against it, and the most recent Restatement
counsels against this extension because other bodies of law—breach
of contract, negligent misrepresentation, promissory estoppel,
fraud, and so forth—are better suited to handle contract negotiation
issues. We therefore affirm."
That's an important, and recurring, issue. I don't have a definitive view as to what the right rule should be, though Justice Wiley's opinion does an outstanding job of arguing for the "old rule."
I'm nonetheless confident that whether you have a valid lawsuit shouldn't depend on the vagaries of which appellate panel you draw. So the California Supreme Court should grant review of this opinion and settle the matter once and for all.
