On June 12, 2015, the California Court of Appeal, Third Appellate District, issued its decision in Monterossa v. Superior Court (PNC Bank), Case No. C077683, 2015 WL 3653319 (Jun. 12, 2015). The court decided an issue of first impression, that is, the scope of the provision in the California Homeowners Bill of Rights (HBOR) allowing a borrower who successfully obtains an injunction against foreclosure to recover attorneys’ fees from the defendant lender or loan servicer.

HBOR permits a court to award reasonable attorneys’ fees and costs to a “prevailing borrower,” stating, “A borrower shall be deemed to have prevailed for purposes of this subdivision if the borrower obtained injunctive relief or was awarded damages pursuant to this section.” Cal. Civ. Code, § 2924.12, subd. (i).

Since HBOR was enacted, practitioners have debated whether this section permits a borrower to receive a fee award if he or she successfully obtains a preliminary injunction, or whether this section merely mirrors other “prevailing party” statutes in California in allowing an award of attorneys’ fees to a litigant who ultimately receives a judgment in his favor, at the conclusion of litigation, which includes a permanent injunction. The statutory language is not clear, but it has been the belief of many attorneys practicing in this arena that the statute’s reference to an “injunction” must mean a permanent, not preliminary, injunction. After all, the standard for obtaining a preliminary injunction is relatively low, and a plaintiff/borrower could obtain a preliminary injunction and ultimately not prevail in the litigation.

The Court of Appeal, however, adopted an expansive reading of the statute and held that a borrower who obtains a preliminary injunction is entitled to an award of attorneys’ fees. It does not matter whether the borrower ultimately prevails on his HBOR claim; according to the decision, if the court issues a preliminary injunction, it is authorized to also award attorneys’ fees.

This decision has significant implications on litigated HBOR matters in California. It is likely to increase the plaintiffs’ bar’s incentive to seek preliminary injunctions because of the ability to also recover attorneys’ fees. It increases the defendant’s liability exposure, because the downside risk is no longer just a delay in the foreclosure sale, but also monetary liability. Because preliminary injunction motions are often set on shortened briefing schedules at the beginning of a case, before discovery has begun and before the pleadings are even settled, this decision means more investigation and work will be required at the outset of a case, before the court has even determined that the complaint will survive a pleadings challenge.

The lesson to be taken from this decision is to try to avoid preliminary injunction motions wherever possible, such as by agreeing to postpone a foreclosure sale if possible. If opposing a motion is necessary, the opposition will need to be supported by strong evidence demonstrating compliance with HBOR to increase the likelihood of a favorable result.