Under California’s Homeowner Bill of Rights (HBOR), if a borrower obtains injunctive relief or is awarded damages pursuant to Civil Code Section 2924.12(h), the court may award the prevailing borrower reasonable attorney’s fees and costs.

In cases where the court ultimately determines that the mortgage lender or servicer violated the provision of the HBOR outlined in Civ. Code Section 2924.12(a)(1) and (b), the borrower would undoubtedly be entitled to recover attorney’s fees and costs.  However, HBOR does not make clear whether the borrower would be entitled to attorney’s fees and costs in cases where the borrower applies for injunctive relief before the court makes an ultimate decision on the merits of the case. Specifically, the statute does not clarify when (i.e., in what phase of the litigation) the borrower is entitled to an award of fees and costs, nor does it distinguish between permanent and preliminary injunctions. And in the few iterations of the HBOR since it became effective in 2013, Civil Code Section 2924.12 has remained largely unaltered, substantively, on attorney fee and costs rewards for injunctive relief.

As a result, interpretations have largely fallen to courts. In 2015, the Third District ruled that a borrower need not wait until it prevails in the lawsuit but may recover attorney’s fees and costs for a favorable preliminary injunction. Monterossa v. Superior Court, 237 Cal. App. 4th 747, 751 (2015). In 2019, that court took its decision one step further, finding that the statute also authorizes attorney’s fees and costs to a borrower who obtains a temporary restraining order (TRO), even if the court later dissolves that order after determining that the borrower is unlikely to prevail in the action. That case, Bustos v. Wells Fargo Bank, N.A., 39 Cal. App. 5th 369 (2019), highlights the need for quick responses to temporary applications.

The borrower in Bustos sued her loan servicer for dual tracking, among other HBOR violations. At the start of the lawsuit, the borrower moved ex parte for a temporary restraining order and an order to show cause regarding a preliminary injunction. Perhaps due to the short notice afforded for TRO ex parte actions, the servicer did not contest the application on paper or at the hearing. The judge granted the borrower’s request and temporarily restrained the sale. The servicer, thereafter, filed a response to the borrower’s request for preliminary injunction, and after a hearing, the court determined that the borrower was unlikely to prevail on the merits of any of her HBOR claims. The court then vacated the TRO and refused to issue a preliminary injunction. Although the trial court determined that a preliminary injunction was not warranted, it nevertheless ordered the servicer to pay the borrower’s attorney’s fees incurred for obtaining the TRO that the court later dissolved.

California’s Third District Court of Appeal agreed, finding that the borrower who obtained a TRO to enjoin the servicer’s alleged “dual tracking” activities (the practice of proceeding with a foreclosure while the borrower is under loan modification review) was entitled to a discretionary award of attorney’s fees and costs, even though the borrower could not ultimately prove she was entitled to a preliminary injunction. Relying on the reasoning in Monterossa, the Court of Appeal determined that because Section 2924.12 does not distinguish between the specific kind of injunctive relief—temporary, preliminary, or permanent—requiring fee and cost reward, a borrower who prevails in obtaining any of the foregoing injunctive relief may be entitled to attorney’s fees even if the borrower is later determined unlikely to succeed on the HBOR claims. Id. at 377-78, 380.

Part and parcel with this ruling is the court’s note that Civil Code Section 2924.12 permits a servicer to remedy any HBOR violation after an injunction is in place and, thus, avoid liability for monetary damages. The court theorizes, therefore, that because a servicer may correct any material violation post-injunction, a borrower who credibly obtains a temporary or preliminary injunction at the start of the case may be unsuccessful in proving the lender or servicer violated the HBOR at the conclusion of this case. Id. at 378-79. Those facts were not present in Bustos, however.

Given this ruling, any lender who receives sufficient notice of an impending application for a restraining order must take care, where it can, to expediently obtain counsel once notified, or, at least, challenge such applications. Bustos highlights the danger of uncontested emergency applications because such hearings at the case’s onset may be a lender or servicer’s only opportunity to exercise its right to protect itself from fee and cost awards sought by borrowers. Perhaps the most judicious plan is to get in touch with the borrower and negotiate a postponement of the sale, agreeing, in exchange, to set out the hearing until both parties can brief and appear.