The Court of Appeal of the State of California, Third District, recently vacated a trial court order denying two borrowers’ motion for attorney fees and costs pursuant to Cal. Civ. Code § 2924.12 after they obtained a preliminary injunction as to the trustee’s sale of their home due to alleged “dual tracking” violations.

A copy of the opinion is available at: Link to Opinion.

Two borrowers filed an ex parte application for a temporary restraining order (“TRO”) to prevent the trustee’s sale of their residence, as well as a civil complaint against the real parties in interest.  The trial court granted the TRO enjoining the trustee’s sale pending a hearing on the petitioners’ motion for a preliminary injunction.

The petitioners alleged that they repeatedly requested a hardship assistance package, but their servicer supposedly failed to send the package. Thereafter, the servicer purportedly denied the borrowers’ request for hardship assistance because a completed package was not received from them, and recorded a notice of default.

The borrowers allegedly submitted a mortgage loan modification application subsequently provided the missing documents, and the servicer allegedly confirmed it received a complete package.  However, the borrowers were allegedly informed the loan modification was denied due to missing documents, and the servicer recorded a notice of trustee’s sale on the subject property.

The trial court granted the borrowers’ motion for a preliminary injunction enjoining the trustee’s sale conditioned on the posting of a $20,000 bond or monthly payments to the real party in interest pending trial of the action.

After the preliminary injunction, the borrowers moved for attorney fees and costs (the “Motion”) pursuant to Cal. Civ. Code § 2924.12(i), due to alleged violation of the “dual tracking” provisions of the California Home Owner’s Bill of Rights, Cal. Civ. Code § 2923.6(c).  The trial court denied the Motion, stating that statutory fees were only awardable at the end of the case and not upon provisional relief, such as a preliminary injunction.

The borrowers filed a writ of mandate seeking an order directing the trial court to grant the Motion.

In its analysis of legislative intent, the Appellate Court acknowledged the legislature’s targeting of a practice known as “dual tracking,” which occurs when a servicer continues to pursue foreclosure at the same time a borrower in default seeks a loan modification.  The Court also noted that the prohibition against dual tracking at issue here is found in Cal. Civ. Code § 2923.6(c), the violation of which gives rise to various remedies including attorney’s fees set forth in Cal. Civ. Code § 2924.12(i).

Cal. Civ. Code § 2924.12(i) specifically provides:

“A court may award a prevailing borrower reasonable attorney’s fees and costs in an action brought pursuant to this section. 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.”

The Appellate Court stated that the statute refers to “injunctive relief,” which according to the Court incorporates preliminary and permanent injunctive relief.  Therefore, the Court held, a borrower who obtains a preliminary injunction has prevailed in obtaining “injunctive relief,” and Cal. Civ. Code § 2924.12(i) provides for attorney fees and costs to a borrower who obtains a preliminary injunction.

In addition, the Appellate Court held that even if the “prevailing borrower” language created an ambiguity, the language and purpose of the statutory scheme, and its legislative history, demonstrated legislative intent to award attorney fees and costs when a preliminary injunction issues when read in conjunction with related statutes and legislative reports.

The Appellate Court specifically rejected the position put forth by the trial court and the servicer that “interim” attorney fee awards may never be made in conjunction with provisional relief such as a preliminary injunction, as well as their reliance on a practice guide, which states the general rule that attorney fees are ordinarily awarded at the end of the case rather than when interim relief is granted.

The Court further held that, despite purpose of a preliminary injunction to maintain the status quo, the award of attorney fees was proper as the trial court was required to — and did in fact — determine that the borrowers were likely to prevail on the merits.

The Appellate Court also rejected the position that an attorney fees award would result in an absurd consequence if the borrower obtains preliminary injunction, but the servicer subsequently corrects the violation or the borrower fails to obtain a permanent injunction.

Thus, the Court held, a borrower who prevails in obtaining injunctive relief preventing the foreclosure of his or her home may recover attorney fees expended in obtaining the preliminary injunction.

The Court explained that a servicer’s correction of a violation and successful motion to dissolve the injunction will not entitle the servicer to recover the attorney fees.  According to the Court, if the servicer fails to correct the violation and to move to dissolve the preliminary injunction, as a practical matter, the borrower may have little incentive to set the matter for trial of a permanent injunction. But, the Court noted, in the scenario where the borrower has obtained a preliminary injunction and then pursues but fails to obtain a permanent injunction, the borrower will still have been entitled to seek the attorney fees he or she incurred in order to obtain the preliminary injunction.

Accordingly, the Court issued a peremptory writ of mandate issue directing the trial court to vacate its order denying the borrowers’ motion for attorney fees and costs, and to consider that motion on its merits. The Court also awarded the borrowers their costs in this writ of mandate proceeding.