On March 7, the California Supreme Court settled the issue of whether a mortgage servicer owes a duty of care to a borrower in the context of loan modification review, holding that negligence claims related to loan modification were barred by the economic loss doctrine and that there is no special relationship between a lender and borrower that would give rise to a duty.
In California, the general rule has historically been that a "financial institution owes no duty of care to a borrower when the institution's involvement in the loan transaction does not exceed the scope of its conventional role as a mere lender of money."1 For several years, courts interpreted that rule to include loan modification review activities, as those were within the scope of a typical lender-borrower relationship.
In 2013, the First Appellate District cast doubt on the application of the Nymark rule in the context of a residential construction loan transaction.2 While acknowledging that Nymark has been the...
