diff --git a/lib/observer.js b/lib/observer.js
index b10612d0..30327909 100644
--- a/lib/observer.js
+++ b/lib/observer.js
@@ -7,6 +7,7 @@
 
 const async = require('async');
 const utils = require('./utils');
+const debug = require('debug')('loopback:observer');
 
 module.exports = ObserverMixin;
 
@@ -232,7 +233,24 @@ ObserverMixin.notifyObserversAround = function(operation, context, fn, callback)
 
       function cbForWork(err) {
         const args = [].slice.call(arguments, 0);
-        if (err) return callback.apply(null, args);
+        if (err) {
+          // call observer in case of error to hook response
+          context.error = err;
+          self.notifyObserversOf('after ' + operation + ' error', context,
+            function(_err, context) {
+              if (_err && err) {
+                debug(
+                  'Operation %j failed and "after %s error" hook returned an error too. ' +
+                    'Calling back with the hook error only.' +
+                    '\nOriginal error: %s\nHook error: %s\n',
+                  err.stack || err,
+                  _err.stack || _err
+                );
+              }
+              callback.call(null, _err || err, context);
+            });
+          return;
+        }
         // Find the list of params from the callback in addition to err
         const returnedArgs = args.slice(1);
         // Set up the array of results
diff --git a/test/async-observer.test.js b/test/async-observer.test.js
index b4c02b36..04301f81 100644
--- a/test/async-observer.test.js
+++ b/test/async-observer.test.js
@@ -325,6 +325,86 @@ describe('async observer', function() {
       }
     );
   });
+
+  it('should call after operation hook on error', function(done) {
+    const context = {
+      req: {},
+    };
+    const operationError = new Error('The operation failed without result');
+    let callCount = 0;
+
+    function fail(context, done) {
+      process.nextTick(() => {
+        done(operationError);
+      });
+    }
+
+    TestModel.observe('after execute error', function(ctx, next) {
+      callCount++;
+      next();
+    });
+
+    TestModel.notifyObserversAround('execute', context, fail, (err, ctx) => {
+      callCount.should.eql(1);
+      err.message.should.eql(operationError.message);
+      ctx.error.message.should.eql(operationError.message);
+      done();
+    });
+  });
+
+  it('should call after operation hook on error while overwriting error', function(done) {
+    const context = {
+      req: {},
+    };
+    const operationError = new Error('The operation failed without result');
+    const overwriteError = new Error('Overwriting the original error');
+    let callCount = 0;
+
+    function fail(context, done) {
+      process.nextTick(() => {
+        done(operationError);
+      });
+    }
+
+    TestModel.observe('after execute error', function(ctx, next) {
+      callCount++;
+      next(overwriteError);
+    });
+
+    TestModel.notifyObserversAround('execute', context, fail, (err, ctx) => {
+      callCount.should.eql(1);
+      err.message.should.eql(overwriteError.message);
+      ctx.error.message.should.eql(operationError.message);
+      done();
+    });
+  });
+
+  it('should call after operation hook on error while allowing to change err', function(done) {
+    const context = {
+      req: {},
+    };
+    const operationError = new Error('The operation failed without result');
+    let callCount = 0;
+
+    function fail(context, done) {
+      process.nextTick(() => {
+        done(operationError);
+      });
+    }
+
+    TestModel.observe('after execute error', function(ctx, next) {
+      callCount++;
+      const err = ctx.error;
+      next(err, ctx);
+    });
+
+    TestModel.notifyObserversAround('execute', context, fail, (err, ctx) => {
+      callCount.should.eql(1);
+      err.message.should.eql(operationError.message);
+      ctx.error.message.should.eql(operationError.message);
+      done();
+    });
+  });
 });
 
 function pushAndNext(array, value) {