Thursday, January 9, 2020

Wrongful Death of Mortgage Borrower

We were hit with a wrongful death claim after we foreclosed. Our bank, which is located in California, goes out of its way to try to help our borrowers in their time of distress; nevertheless, there comes a point where we have to foreclose. After we foreclosed, the borrower died and her son, who lived with her in the property, alleged that we caused his mother’s death because of the way we treated her during the foreclosure and eviction process. But we believe we bent over backward to help the borrower transition through the foreclosure and eviction requirements. We genuinely regret that the borrower died, but we do not think there’s anything we did (or did not do) to cause it. Can you shed some light on how we should view our situation in terms of our obligations under the circumstances?

I would need many more facts to go on than you have provided to offer a response to your specific situation. However, broadly speaking, there are some thoughts I would like you to consider.

As a general rule, a lender does not owe a duty of care to a borrower if the lender’s involvement in a loan transaction does not exceed the scope of its conventional role as a lender of money. However, if a borrower dies after alleged mistreatment by a lender, the borrower’s heirs may find a reason to question this general rule. I am reminded of a case recently adjudicated by the U.S. Court of Appeals for the 9th Circuit recently considered such a challenge. [Noble v. Wells Fargo Bank, 2019 U.S. App. (9th Cir. May 29, 2019)]

A daughter, Noble, and her mother, Kilgore, lived in a condominium owned by Kilgore. The condominium was subject to a mortgage held by Wells Fargo Bank. Kilgore suffered from various health issues and fell behind on her mortgage payments. The bank foreclosed, took title to the property, and evicted Kilgore and Noble.

During the eviction, a bank agent allowed Noble and Kilgore additional time in the property to pack their belongings, after which the agent returned and directed them to vacate the premises and remove their belongings. Kilgore’s health deteriorated and she died about five months later.

The bank had a policy of offering financial assistance to occupants of foreclosed properties in exchange for their voluntary surrender of the property, but the bank had not offered any financial assistance to Noble or Kilgore prior to their eviction. This suggests the bank did not follow its financial assistance policy and acted in a way that caused a substantial increase in stress to the borrower, which led to her death.

Noble sued the bank for the wrongful death of Kilgore, negligent infliction of emotional distress, and intentional infliction of emotional distress. To support her case, Noble asserted two wrongful or negligent acts: the failure of the bank to offer financial assistance and the agent’s conduct in removing Kilgore from the home.

The district court granted summary judgment for Wells Fargo. The 9th Circuit affirmed.

The bank had no obligation to offer financial assistance to Kilgore and had conferred a benefit upon her by allowing her extra time to pack her belongings. Noble had presented no evidence that the agent had touched Kilgore or her belongings. The parties agreed that the agent had simply told Kilgore it was time to leave. Noble also did not explain how this conduct amounted to a wrongful or negligent act. The bank’s conduct did not rise to the standard required to support a claim of intentional infliction of emotional distress that was so “extreme as to exceed all bounds of that [conduct] usually tolerated in a civilized community.”

California’s wrongful death statute (the statute in this case) allows the child of a decedent to assert a cause of action for the death of a person caused by the wrongful act or neglect of another. The statute defines “wrongful act” as any kind of tortious act, including acts of negligence and acts of intentional or willful misconduct. Accordingly, Noble needed to allege a wrongful or negligent act, which she failed to do.

The way to understand this ruling is to see that there were at least three factors that needed to establish intentional infliction of emotional distress in this instance which, given the court’s decision, Noble needed to show: (1) extreme and outrageous conduct by the bank with the intention of causing, or reckless disregard of the probability of causing, emotional distress; (2) Noble’s suffering severe or extreme emotional distress; and (3) actual and proximate causation of the emotional distress by the outrageous conduct.

Briefly put, I think the bank might have avoided litigation altogether if it had followed its own policy, which presumably would have removed its actions from even being considered in the realm of what might be construed as 'outrageous.'

Jonathan Foxx, Ph.D., MBA
Chairman & Managing Director
Lenders Compliance Group