Servicer Claims for Mishandling Loan Modifications are Held to be the Obligations of the Lender
Court are upholding Negligence Claims against Servicers for Mishandling Loan Modification Applications and holding that the Lender/Investor can be liable under agency Principles.
A California appellate court has held that borrowers can assert claims for both misrepresentation and negligent loan administration against a loan servicer and against an indenture trustee (lender/investor), as the servicer’s principal, resulting from allegedly mishandling a loan modification application (See Daniels v. Select Portfolio Servicing, Inc., 246 Cal. App. 4th 1150, 201 Cal. Rptr. 3d 390 (2016)).
There is currently a split of authority under California law on whether there is a duty of care imposed by law on a servicer handling a loan modification application. The trend as evidenced by the Daniels case appears to be in favor of finding a duty of care under the law and permitting the borrower to assert a negligence claim against the loan servicer for mishandling the modification process (Note: There is contrary authority). What should concern all lender/investors is that the Court in this case allowed claims against the lender/investor for acts of the servicer, for both the negligence and intentional misrepresentation claims, based on agency theories
Copy of the opinion here…