Lenox Mortgage IX LLC v. San Francisco Care Center, L.P.: Ninth Circuit BAP Limits Lender's Fee Recovery Under Old HUD Loan Documents After Assisted-Living Facility Sale

On October 9, 2026, the Ninth Circuit Bankruptcy Appellate Panel ruled on a fee dispute that followed the bankruptcy sale of a San Francisco assisted-living and memory-care facility. Lender Lenox Mortgage IX LLC had demanded $419,266.94 in attorneys' fees on top of its payoff. The panel agreed with the bankruptcy court that the old HUD-era loan documents did not allow Lenox to recover fees from the earlier defaults and state-court litigation. It reversed as to the fees Lenox incurred in the bankruptcy case itself and the payoff fight, and it vacated the borrower's prevailing-party fee award for reconsideration.

Why it matters

The ruling is a warning to lenders holding older or acquired loan paper: whether fees can be added to the secured debt under Bankruptcy Code section 506(b) depends entirely on the exact wording of the documents. If the clause ties fee recovery to a court award or to foreclosure-sale proceeds, a lender that never got a court award and whose collateral was sold under section 363 instead of at foreclosure may recover nothing for years of accrued legal costs. California's reciprocal-fee statute can also turn a failed fee claim into a fee award against the lender.

Case timeline · 8 entries Latest: October 9, 2026 — Ninth Circuit BAP affirms in part, reverses on bankruptcy fees, vacates the fee award

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