Court Holds that a Borrower Who Lost a Property Due to a Wrongful Foreclosure Claim May Assert Claims Against the Lender Even if They Had No Equity

In Miles v. Deutsche Bank, Plaintiff owned Property and was engaged in loan modification negotiations with his lender and loan servicer. However, the lender ultimately foreclosed on the Property. Plaintiff filed suit and the lender demurred to the causes of action for breach of contract, negligent misrepresentation, and fraud. The court sustained the demurrer, with leave to amend, but did not give any indication of the basis of its ruling. Defendants then moved for summary judgment on the lone remaining cause of action for wrongful foreclosure. The court granted the motion, finding that because there was no equity in the Property, Plaintiff had no damages. The trial court concluded that the only permissible damages in a wrongful foreclosure suit is lost equity, and that because there was no equity in the Property, Plaintiff necessarily had no damages. Plaintiff appealed both trial court rulings.

The Court of Appeal reviewed the causes of action that were addressed by the demurrer. The Court reversed the dismissal of the breach of contract claim on the basis that Plaintiff had pleaded the legal effect of the contract and that he had alleged the elements of breach of contract. With respect to fraud and misrepresentation, the Court reversed the trial court, finding that Plaintiff had alleged promissory fraud and that particularity in pleading was not required because the defendants, not Plaintiff, possessed full information regarding the facts.

With respect to the summary judgment motion, the Court disagreed that lost equity is the only form of damages available for a wrongful foreclosure claim. The Court reasoned that wrongful foreclosure is a tort and that the measure of damages includes all proximately caused damages. Such additional damages could include moving expenses, lost rental income, damage to credit, and emotional distress. The Court also explained that allowing only lost equity as damages would run afoul of public policy and would allow lenders to “foreclose on underwater homes with impunity.” Thus, the Court reversed the summary judgment as well.

Hannah M. Shafsky hms@sbj-law.com