Recent Court of Appeal Decision Expands Banks’ Negligence Liability
June 3, 2013
The California Supreme Court declined to review Jolley v. Chase Home Finance LLC, which allowed the lender to be sued on negligence grounds in connection with its decision not to modify a delinquent construction loan secured by residential rental property. The court declined to follow the well-established principle that a lender owes no duty of care to a borrower other than as set forth by agreement as long as it does not actively participate in the borrower’s transaction.
The court also cited the California Legislature’s recent enactment of the Homeowner Bill of Rights, which applies only to loans secured by owner-occupied residential property, for support of the existence of a duty. See CBA’s Regulatory Compliance Bulletin for more information.