Landmark Decision from California’s Supreme Court Confirms Limitation on Ability to Assert Tort Claims Against Lenders

Mayer Brown

A recent, important decision from California’s Supreme Court clarifies lender liability in connection with servicing loans in default and limits a homeowner’s ability to assert tort claims against lenders and loan servicers. In Sheen, the California Supreme Court unanimously ruled that lenders and their servicers do not owe borrowers a duty to “review and respond carefully and completely” to a loan modification application. Since the decision is not necessarily limited to claims involving loan modifications, it potentially provides a forceful defense to negligence claims asserted against financial service providers in a variety of settings.

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