Yesterday, in Sheen v. Wells Fargo (S258019), the California Supreme Court resolved an important issue for the mortgage servicing industry. The court unanimously held that lenders owe no tort duty to process, review, and respond to a borrower’s loan modification application.
For almost a decade, California courts have been split over whether lenders and loan servicers owe a general tort duty to process, review, and respond to an application for a loan modification. Some borrowers have succeeded in alleging a negligence claim, even when the loan servicer did not breach the loan agreement or violate borrower-protection statutes.
The court’s decision is a big win for mortgage servicers.
Although this decision should not cause mortgage servicers to change their loan modification policies and procedures, it should go a long way toward preventing borrowers’ counsel from expanding the scope of their claims in the event of litigation.
While the state high court usually has the last word, there may be more to come on this issue. Both the majority opinion and Justice Liu’s concurring opinion suggest that the issue is ripe for legislative consideration. We’ll be monitoring legislative developments on this topic.