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SACRAMENTO, Sept. 18, 2020 – California Attorney General Xavier Becerra today filed an amicus brief in support of the rights of homeowners in Sheen v. Wells Fargo Bank, a case under review by the California Supreme Court. The Court granted review in this case to determine whether mortgage loan servicers owe struggling homeowners a duty to act with reasonable care when handling their requests for mortgage modification. Mortgage modification, which involves adjusting one or more terms of a mortgage loan to make the payments more affordable, is one of the most important avenues available for homeowners who have fallen behind on their payments to avoid foreclosure and stay in their homes. In the brief, Attorney General Becerra urges the California Supreme Court to recognize a duty of care and make clear that mortgage servicers can be sued for negligence when the companies mishandle a homeowner’s request for mortgage modification.
“As families continue to grapple with the financial impact of the coronavirus pandemic, many will turn to their mortgage servicers for help to avoid foreclosure,” said Attorney General Becerra. “With today’s brief, we urge the California Supreme Court to recognize that mortgage servicers owe their borrowers a duty of care in handling requests for modification from individuals facing financial hardship.”
The case stems from a 2016 lawsuit filed by an individual consumer seeking a mortgage modification. The plaintiff, Kwang Sheen, alleges Wells Fargo acted negligently and violated California’s Unfair Competition Law in its communications about his requests for mortgage modification. In the lawsuit, Sheen alleges that after submitting his applications for modification, Wells Fargo sent him confusing and misleading correspondence that led him to believe that his loans were modified and that Wells Fargo falsely informed his wife that the home would not be foreclosed on. Sheen also alleges that due to Wells Fargo’s negligence, he was unable to take steps to prevent the foreclosure sale of his home. The trial court granted Wells Fargo’s motion to dismiss the case, and the court of appeal affirmed, holding that “a lender does not owe a borrower a tort duty of care during a loan modification negotiation.” The California Supreme Court has agreed to review the case to resolve conflicting decisions as to whether mortgage servicers owe homeowners a duty of care.
After the last financial crisis, extensive federal and state investigations found that mortgage servicers contributed to the crisis—in some cases, even precipitating foreclosures that could have been avoided—by failing to train their staff to handle modification requests, giving homeowners inaccurate and inconsistent information, losing their modification paperwork, and denying modifications to qualified homeowners. At the mercy of the loan servicing market, homeowners cannot accurately evaluate or guard against the risk that their mortgage will be subjected to subpar or predatory servicing practices. In today’s brief, Attorney General Becerra emphasizes the need to hold mortgage servicers accountable and urges the California Supreme Court to recognize that servicers owe their borrowers a duty of care when handling mortgage modification requests.
Attorney General Becerra is committed to protecting the rights of homeowners and renters in California and across the country. Throughout the year, Attorney General Becerra has issued updated guidance to California tenants, encouraging them to learn about their rights in light of the COVID-19 pandemic. He has also made information and resources available to consumers regarding updates to tenant, mortgage, and foreclosure protections that have been enacted through both the state and federal governments. In March, he led a coalition of 22 attorneys general in filing a comment letter slamming US Department of Housing and Urban Development’s (HUD) proposed rule that would gut the current Affirmatively Furthering Fair Housing rule and replace it with a drastically scaled back rule that lacks meaningful guidance to address segregation and promote integration within our communities. In April, he also joined a coalition of 35 attorneys general in sending letters to HUD Secretary Ben Carson and Federal Housing Finance Agency Director Mark Calabria requesting action to better protect homeowners from the economic toll of the COVID-19 pandemic. And in May, he joined a coalition of 26 attorneys general in sending a letter to HUD Secretary Ben Carson requesting further action to protect senior homeowners during the COVID-19 public health emergency. Prior to the pandemic, Attorney General Becerra filed a motion to intervene in a lawsuit to protect California’s Affordable Housing Act, which provides people with the right to accessible and affordable housing.
A copy of the brief can be found here.