Volume Five, Number One ------------------------------------------ March of 2002

A LENDER AVOIDS TORT EXPOSURE FOR THE WRONGFUL DEATH OF A CHILD ON ITS FORECLOSED - UPON PROPERTY BASED UPON LACK OF NOTICE AND CONTROL

A lender whose loan is secured by a deed of trust typically instructs the trustee to start a foreclosure once the loan goes into default. Assuming there are no third parties at the foreclosure sale, the lender acquires title to the subject real property through its credit bid and its subsequent recordation of the Trustee's Deed Upon Sale.

The lender's acquisition of title, however does not automatically entitle the lender to possession of the property. Assuming the trustor or the trustor's tenant refuses to vacate the premises, the lender must institute an unlawful detainer action to gain lawful possession of the property.

Query: After the lender acquires title, but before it gains possession, is the lender liable for injuries occurring on the property?

This was the issue raised in the decision of Martinez v. Bank of America (2000) 82 Cal.App.4th 883 [ 98 Cal.Rptr.2d 576 ].

In Martinez, after the lender foreclosed, it served a three (3) day notice to quit upon its former trustors. The trustors refused to vacate and the lender accordingly filed an unlawful detainer action.

Unfortunately, after the action was filed but before it was set for trial, the young child who lived next door entered the gated property and was mauled to death by the trustors' guard dogs.

The parents of the child then sued the trustors and the lender for negligence, wrongful death, premises liability and strict liability.

The lender successfully moved for summary judgment and the parents appealed. On appeal, the Court of Appeals for the Second Appellate District, Division Three, affirmed the trial court's decision.

In reaching its decision, the Court of Appeal first analogized the position of Bank of America therein to the one existing between a landlord and his tenant.

The Court of Appeals reasoned that if a landlord would not be liable in the situation therein, then Bank of American should not be held liable as well for the child's death.

In this respect the respective case law has held a landlord liable for dog injuries on his property (1) if he had actual knowledge that the dog was vicious and (2) if he had the ability to prevent foreseeable harm.

Given this test, the Court and Appeals concluded that since Bank of America had no knowledge whatsoever regarding the vicious propensities of the dogs, the first factor above could not be satisfied.

Nor could the second factor be satisfied since Bank of America had no control over the property given the status of the unlawful detainer proceeding.

Consequently, insofar as the landlord/tenant situation applied therein, the Court of Appeals concluded that Bank of America could not be found liable.

It should be noted that the landlord/tenant cases reviewed by the Court of Appeals required the satisfaction of both factors before liability would be imposed.

Apparently, even assuming a lender is aware of the vicious propensities of the dogs on the secured property, liability would still not be imposed unless the lender also had the ability to control this condition on the property. And this control does not exist until the lender can gain lawful possession of the property.

The Court of Appeals further analysed the situation therein under the factors set forth in Rowland v. Christian (1968) 69 Cal.2d 108. Rowland sets forth certain analytical factors which courts have used to determine whether a duty of care should be imposed under a given set of circumstances.

As such, the Court of Appeals reviewed the foreseeability factor in Rowland in determining whether Bank of America owned a duty of care to the child.

Again, Bank of America's lack of knowledge regarding the propensities of the dogs prevented liability under this factor.

Moreover, Bank of America's lack of control over the property precluded the lender from correcting any defects on the property to prevent harm.

Ultimately, the Court of Appeals concluded, based upon the factors set forth in Rowland, that liability could not be imposed upon Bank of America for this unfortunate accident.

Although the child in Martinez suffered an unfortunate fate, the trial court and the Court of Appeals did not lose sight of the fact that the trustors, who were still in control and possession of their former property, were the ones exclusively liable for this accident.

The above tests indicate, however, that once a lender gains lawful possession of its property and becomes aware of a dangerous condition therein, it should move quickly in remedying the situation therein to prevent foreseeable harm to third parties.

V.R.