Alvarez v. Bag Home Loans Servicing, L.P.
228 Cal. App. 4th 941
| Cal. Ct. App. | 2014Background
- Plaintiffs Amulfo and Consuelo Alvarez and Enrique and Ofelia De Haro sue BAC Home Loans Servicing, Bank of America, N.A., and ReconTrust Company, N.A. for fraud, unfair competition, and negligence related to loan origination and servicing, including review of loan modification applications.
- The trial court sustained the defendants’ demurrer to the second amended complaint without leave to amend and entered judgment for defendants.
- The appellate court reverses the judgment as to the fraud, unfair competition, and negligence claims and remands for clarification and further proceedings on viable claims.
- The central issue is whether a lender owes a duty of care in reviewing a borrower’s loan modification application, under Biakanja factors and evolving statutory policy, including HBOR considerations.
- The court discusses Lueras and Jolley to determine that a duty can exist when a lender undertakes to review a modification application, and notes dual tracking and misrepresentation concerns as basis for duty and potential liability.
- The court emphasizes timely processing, accurate handling of documents, and compliance with evolving rules (HBOR) as part of the duty in processing loan modifications.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether lender owes a duty of care in reviewing loan modification applications | Alvarez/De Haro allege duty to exercise reasonable care in review | Bank of America rejects duty beyond ordinary lending | Duty to review with reasonable care; Biakanja factors weigh in favor |
| Whether mishandling/modification review supports negligence or misrepresentation | Misprocessing and misstatements harmed borrowers | No duty to modify or misrepresentation claims resolved on other grounds | Sufficient facts alleged to support negligent handling and potential misrepresentation |
| Whether Biakanja factors and HBOR support recognizing a duty at the time of modification review | Factors favor duty due to foreseeability and policy aims | HBOR is prospective and did not exist at time of action; no duty | Biakanja factors and policy considerations support recognizing a duty of care in loan-mod review |
Key Cases Cited
- Lueras v. BAC Home Loans Servicing, LP, 221 Cal.App.4th 49 (Cal.App.4th 2013) (lender may owe duty for misrepresentation in loan modification context; not for offering modification)
- Jolley v. Chase Home Finance, LLC, 213 Cal.App.4th 872 (Cal.App.4th 2013) (duty analysis under Biakanja factors; lenders may owe duty in modification processing)
- Nymark v. Heart Fed. Savings & Loan Assn., 231 Cal.App.3d 1089 (Cal.App.3d 1991) (Biakanja factors govern duty; lender-borrower context)
- Beacon Residential Community Ass’n v. Skidmore, Owings & Merrill LLP, 59 Cal.4th 568 (Cal. 2014) (recents scope of duty factors in professional relationships; stability of duty tests)