Conroy v. Wells Fargo Bank, N.A.

Does a loan servicer owe a duty of care to borrowers?

After home mortgage borrowers sued Wells Fargo for negligence in handling their loan modification application, leading to the loss of their home, Wells Fargo persuaded the trial court to dismiss the case on the ground that Wells Fargo owed no duty of care to the borrowers. When the borrowers appealed, Public Good, along with other consumer and housing advocates and legal services providers, joined a brief, authored by the National Housing Law Project in support of the borrowers. The brief explained that California law imposes a general presumption in favor of a duty of care, unless public policy considerations clearly support finding an exception, and that policy considerations did not support an exception in this case. To the contrary, both federal and California law express a strong public policy of averting foreclosure when possible, and protecting homeowners from improper conduct by loan servicers. A judicially carved exception for lenders cited by Wells Fargo did not apply, because Wells Fargo neither originated nor held the loan. Consequently, unlike traditional lenders, Wells Fargo had no incentive to keep borrowers in their homes and making payments, and – unlike when a loan is initiated – the borrowers had no choice concerning who would service their loan. Upholding the trial court’s decision would place countless the homes of countless Californians homeowners at risk whenever they sought to modify their loans.

Cal. Court of Appeal (3rd Dist.) No. C078914 (2016).