Daily Development for
Monday, January 5, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

MORTGAGES; ATTORNEY'S FEES: Where lender has voluntarily dismissed foreclosure action, borrower may not collect attorney's fees under statute providing that court may set attorney's fees in foreclosure actions, "any stipulation to the contrary in the mortgage notwithstanding."

Chase Manhattan Mortg. Corp. v. Lessel, 64 Cal. Rptr. 2d 113 (Cal. App. 1997)

Defendant note holder was the successor in interest to an original lender that apparently had failed during the 80's. The note had passed to Resolution Trust Corporation and the new holder, possibly a purchaser of the note in a bulk assets purchase, was looking to scrounge something from the bottom of the barrel.

In fact, it appears in this case that the barrel was lined with gold, but, as is often the case with gold, defendant experienced considerable difficulty getting to it. When defendant finally surrendered, the owners of the gold fired back and sought attorney's fees incurred in fighting off the defendant.

The borrowers originally had signed the $450,000 note and deed of trust to refinance the cost of construction of their new home. Soon after completing the refinancing deal, the borrowers experienced soil movement under their home and their home was damaged. In the good old California spirit, borrowers sued their soils engineer, seller's broker and contractor and soon thereafter stopped making payments on the deed of trust.

Five years later, the borrowers prevailed in their liability claim for the soils problem and were awarded a judgment of $462,000. The original lender had joined in that action to impose an equitable lien on these proceeds, but its claim was dismissed for want of prosecution. The editor speculates that the original lender was otherwise occupied in regulatory matters at the time, because the next action to collect was brought by the Resolution Trust Corporation. It filed a new action following the dismissal of the first claim, but RTC voluntarily dismissed that suit two years later. Then the defendant, present holder of the note, also brought an action, and sufferred a series of procedural defeats, apparently on questions of preclusion resulting from the earlier dismissals.

Ultimately, defendant surrendered and voluntarily dismissed its claim. Back came the borrowers, now seeking $136,600 in attorney's fees to defend the action.

Here, the lender's FNMA/FHLMC mortgage had provided, in classic lender-oriented fashion, that the lender could collect attorney's fees incurred in pursuing the remedies available to it under the mortgage. A California statute makes such provisions automatically reciprocal, but the statute applies only to "prevailing parties," and everyone apparently acknowledged that the "reciprocal attorney's fee" statute by its terms would not apply in the event of a voluntary dismissal.

But the borrowers then argued that a separate California statute provided an additional option. The applicable statute, CCC 730, reads as follows:

"In all cases of foreclosure of mortgage the attorney's fee shall be fixed by the court in which the proceeedings are had, any stipulation in the mortgage to the contrary notwithstanding."

The court here, however, concluded that this language authorizes a court to make a determination of attorney's fees only where some other legal authority, statutory or contract, permits a party to collect them. The court actually says that the statute basically is superfluous. In its words: "[S]ection 730 is somewhat like a person's appendix; it's not necessary."

Comment 1: The editor concurs that the probable intent of the statute is to build upon authority provided elsewhere permitting a party to collect attorney's fees. But the statute may be slightly more valuable than an appendix. It does expressly preclude the parties from stipulating to a set attorney's fee determination by contract, a device that is quite popular in other jurisdictions. Whether California courts would need such a statute in order to ignore contract language is another issue, of course.

Comment 2: Although the statutory language may be sui generis, the editor suspects that similar statutory language is lurking in the books in other jurisdictions, and lender's lawyers may find this a useful precedent for their files.

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