By: Micaela L. Neal

Hart v. Clear Recon Corp., No. B283221, 2018 WL 4443242 (Cal. Ct. App. Sept. 18, 2018); Chacker v. JPMorgan Chase Bank, N.A., No. B281874, 2018 WL 4474732(Cal. Ct. App. Sept. 19, 2018).

In a pair of recent decisions, a California Court of Appeal clarified a prior dispute in California law regarding certain attorneys’ fees provisions in California’s standard form Deed of Trust.  The court decided that while the attorneys’ fees provisions in the standard form do provide for attorneys’ fees to be added to the loan balance in the event the lender must retain legal counsel to protect its rights with respect to the Deed of Trust, they do not allow for a separate fee award to the lender in a subsequent lawsuit.

The deeds of trust at issue provided that the lender “may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including…paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under the Security Instrument.”  One section of the deed of trust specifically provided that any amounts disbursed by the Lender for this purpose “shall become additional debt of Borrower secured by this Security Instrument.”

Another section of the deed of trust provided that “Lender may charge Borrower fees for services performed in connection with Borrower’s default, for the purpose of protecting Lender’s interest in the Property and rights under this Security Instrument, including, but not limited to, attorney fees…”

The court found that even the second provision – which did not specifically state that the fees would become additional debt – did not provide for a separate award of attorneys’ fees, because it did not specifically state that a separate fee award was appropriate.  Instead, the word “charge” was determined to “naturally” mean an addition of such fees to the outstanding amount due on the loan. In reaching this conclusion, the court adopted the reasoning of several federal courts that have examined the same issue.

Importantly, the Court noted that a deed of trust is like any other contract and that parties are free to limit or expand how attorneys’ fees may be obtained.  To the extent lenders wish to receive a separate attorneys’ fees award, as opposed to an additional amount added to the loan balance, they must ensure that the Deed of Trust they utilize includes language specifically crafted to provide for a separate award.  Lenders may be well-advised to seek legal counsel in drafting lender-specific deeds of trust, rather than utilizing a standard form.

Micaela L. Neal is an attorney with Wanger Jones Helsley PC and practices in Fresno and Sacramento.  Her practice includes frequent lender representation, with an emphasis on disputes involving contracts, debt collection, creditor’s rights, bankruptcy, partnership dissolution, breach of fiduciary duty, and indemnity.  This article is intended to notify our clients and friends of changes and updates to the law and provide general information. It is not intended, nor should it be used, as legal advice, and it does not create an attorney-client relationship between the author and the reader.