Sheen v. Wells Fargo Bank, N.A.

Sheen v. Wells Fargo Bank, N.A.

Opinion

CANTIL-SAKAUYE, C. J.—Several years after purchasing his house, plaintiff Kwang K. Sheen used the home as collateral for two loans he took from defendant Wells Fargo Bank, N.A. (Wells Fargo). Plaintiff subsequently suffered financial setbacks and missed payments on these junior loans. He submitted applications to Wells Fargo to modify the loans, but Wells Fargo did not respond. Instead, it sent plaintiff letters informing him of the actions it might take because of the delinquency of his accounts. The letters did not specifically mention foreclosure. Plaintiff [**3]  alleges that because “Wells Fargo did not provide [him] with a written determination regarding his eligibility for modification” of the loans prior to sending him the letters, plaintiff “believed the letters meant that the … Loans had been modified such that [*915]  they were unsecured loans” and his house “would never be sold at a foreclosure auction.” Eventually, Wells Fargo sold plaintiff's debt. Four years later, the owner of the debt foreclosed on plaintiff's home. Plaintiff sued Wells Fargo.

Specifically, plaintiff asserted a negligence claim against Wells Fargo, alleging that the bank “owed Plaintiff a duty of care to process, review and respond carefully and completely to the loan modification applications Plaintiff submitted.” Plaintiff alleged that Wells Fargo breached this duty, causing him to “forgo alternatives to foreclosure,” and hence Wells Fargo is liable for monetary damages relating to the loss of his house, including the value of the home, the hotel and storage costs plaintiff incurred when he had to vacate the property, and the damage to his credit rating. Wells Fargo demurred, arguing that it owed plaintiff no such duty. The Court of Appeal affirmed the lower court‘s [**4]  decision to sustain the demurrer but noted that “[t]he issue of whether a tort duty exists for mortgage modification has divided California courts for years.” (Sheen v. Wells Fargo Bank, N.A. (2019) 38 Cal.App.5th 346, 348 [250 Cal. Rptr. 3d 677] (Sheen).)

In this case, we address the issue dividing the lower courts: Does a lender owe the borrower a tort duty sounding in general negligence principles to (in plaintiff's words) “process, review and respond carefully and completely to [a borrower's] loan modification application,” such that upon a breach of this duty the lender may be liable for the borrower's economic losses—i.e., pecuniary losses unaccompanied by property damage or personal injury? (See, e.g., Southern California Gas Leak Cases (2019) 7 Cal.5th 391, 398 [247 Cal. Rptr. 3d 632, 441 P.3d 881] (Gas Leak Cases).) We conclude that there is no such duty, and thus Wells Fargo's demurrer to plaintiff's negligence claim was properly sustained.

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