Bank Negligence

By Jeffrey Ogorek, Attorney - January 10, 2017

Until very recently, borrowers had no way to hold banks accountable for their most common complaint - lost documents, missing documents, losing the same documents over and over, and failing to communicate with borrowers. This common fact pattern is called negligence and applies to a variety of situations in different areas of the law, but did not apply in the loan modification review context because lenders owed no duty of care to borrowers. A claim for negligence requires that the defendant (in this case a lender or loan servicer): (1) owe a duty of care to the plaintiff (here, the borrower), (2) that the lender did not act with the required amount of care, and (3) that the lender's failure to exercise due care caused the borrower harm.

Previously, borrowers could not state claims for negligence against their lenders for errors and mistakes in loan modification review because the banks owed no duty of care to the borrower. Essentially, the banks could lose documents, ask for the same documents over and over, fail to communicate with the borrower, and provide misinformation without any consequences.

But in a case called Alvarez v BAC Home Loans Servicing LP decided in August 2014, a California court first held that a bank did owe a duty to review loan modifications with at least some level of care. Consumer Litigation Law Center pioneered applying this new law of due care in federal court in California for the first time. In Segura v Wells Fargo Bank NA, CLLC's attorneys successfully argued that the bank was negligent in failing to review our client's loan modification application with any degree of due care. Wells Fargo attempted to argue that it owed our client no duty of care whatsoever in the loan modification review process but the federal court sided with CLLC and its client by allowing the negligence claim to move forward.

CLLC's successful advocacy has opened up a new forum for homeowners' rights in federal court. In the past, banks would try to get borrowers' lawsuits out of state court and into federal court, thinking that federal court would be more favorable. But now, thanks to CLLC's zealous advocacy, thorough research, and innovative arguments, homeowners can now state claims for negligence in the loan modification review process for the first time in federal courts in California.