Of ECOA and the FDCPA – A Tie in the Supreme Court and A Fourth Circuit Win for Debt Collection

It was a busy week in the fabled halls of justice last week as judges undoubtedly worked to get out a few more opinions before Easter break. Two opinions, one from the Supreme Court and one from the Fourth Circuit Court of Appeals, were particularly noteworthy. So carry on, dear reader, and find out the latest on ECOA and the FDCPA.

ECOA and the Supreme Court

As readers of my updates will recall, it has been a little over a year since the Supreme Court agreed to hear a case from the Eighth Circuit (Hawkins v. Community Bank of Raymore) dealing with whether guarantors were “applicants” entitled to sue for ECOA violations, or whether only borrowers could sue. (You can find my prior post on the topic here) On March 22, 2016, we got an answer from the Court, although it was not the clarifying answer we expected.  In fact, the opinion was all of a whopping nine-words long: “The judgment is affirmed by an equally divided Court.” Continue Reading

North Carolina Supreme Court Confirms That Lenders Do Not Owe Fiduciary Duties To Borrowers

On Friday, December 18, 2015, the North Carolina Supreme Court issued an opinion affirming the dismissal of a lender, and its appraiser, from a lawsuit alleging breach of fiduciary duty, fraud, violation of North Carolina’s Mortgage Lending Act, and other causes of action. Arnesen, et al. v. Rivers Edge Golf Club & Plantation, Inc., et al. The case arises out of several developments located on North Carolina’s coast, in which individuals purchased undeveloped lots prior to the recession. BB&T was the primary lender for the purchasers, and BB&T obtained appraisals for several of the lots. The homeowners alleged that BB&T and the appraiser failed to disclose that the appraisals allegedly overstated the value of the lots and that the bank had a duty to discover and disclose this information.

The Court began by stating the existing rule that a lender generally does not owe its borrower any duty beyond its contractual obligations. The purchasers in this case did not rely on the bank or appraiser for any information and obligated themselves to purchase the lots independent of the loan process. In short, the Court found that the purchasers alleged nothing more than a typical debtor-creditor relationship and, as a result, the bank has no duties outside of the contract. Continue Reading

Tough News for Lenders – Major NC Supreme Court Decision on Collection of Post-Foreclosure Deficiencies

Fall is football time. And as every football fan knows, not every player on the line of scrimmage is an eligible receiver. Imagine how dramatically it would change the game if the entire offensive line were eligible to catch forward passes.

Well, on Friday (9/25/15), the NC Supreme Court made a change which is every bit as dramatic and signals a brave new world for lenders seeking to recover on post-foreclosure deficiencies. In High Point Bank & Trust Co. v. Highmark Properties, LLC, the Court instituted a major change to the lender/guarantor relationship. The Court overruled at least 35 years of Court of Appeals decisions in holding that guarantors can seek an offset of the deficiency amount by contesting the fair market value of the property sold at foreclosure. Lenders beware! That offensive tackle just got a whole new section in the playbook. Continue Reading

It Just Got Harder to Get a Deficiency Judgment in North Carolina

Y’all. (I’m in the South so it’s OK to say “y’all” even in a legal update). It shouldn’t be that hard to get a deficiency judgment in North Carolina. To start with, unlike some other states, North Carolina does not have a “one-action” rule and allows lenders to recover deficiencies on almost all commercial and residential loans. And the facts are typically straightforward for suit– the lender acquired the property at a public foreclosure sale and now the borrower owes the remaining balance of the debt. It should be simple to get a judgment, right?

Not so fast, says the North Carolina Court of Appeals. In a decision issued on July 7, 2015 (United Community Bank v. Wolfe), the Court handed borrowers with North Carolina loans a powerful tool to ensure that, absent advance planning, lenders will almost always have to go through a full jury trial in order to obtain a deficiency judgment. And that thought can be a mighty strong deterrent for a lender pursuing an otherwise collectible deficiency. Continue Reading

A Duty to Negotiate in Good Faith – A New Lender Liability Claim in North Carolina?

North Carolina courts have long held that a lender does not owe a fiduciary duty to its borrowers. But what about a “Duty to Negotiate in Good Faith?” In a recent opinion (RREF BB Acquisitions, LLC v. MAS Properties, June 9, 2015), the North Carolina Business Court held that such a claim may be viable in North Carolina. While the Business Court is not an appellate court with binding precedent, its opinions are still closely followed and have been characterized as “highly persuasive” by the federal courts. Thus, its recent ruling is worth noting as it could signal the opening of a door for a brand new lender liability claim in North Carolina. Continue Reading

The “Two Dismissal” Rule and NC Foreclosures – Another Victory for Lenders

Defaulting borrowers sure do keep trying hard to get foreclosures kicked out on any procedural grounds possible. In our last go around, dear readers, you’ll recall the North Carolina Court of Appeals weighed in on the NC foreclosure statute of limitations and held that there is a very long shelf life for NC foreclosures (sometimes up to 40 years). In this latest edition, we review a brand new Court of Appeals opinion (In re Beasley, June 2, 2015) which also came out in favor of lenders – this time involving whether a third foreclosure can be barred by the “two dismissal” rule. Not to spoil the punch line, but it turns out that, at least in North Carolina, you are rarely “out” with just two strikes. Continue Reading

NC Foreclosure Statute of Limitations – A Tale of “Zombie” Deeds of Trust?

Let’s face it. Zombies are everywhere. I can’t seem to pass a movie theater or flip a TV channel without seeing or hearing something about them. So of course they were top of mind when I read the North Carolina Court of Appeals’ new opinion yesterday (April 21, 2015) on foreclosure statutes of limitation (In re Brown, 14-937). Particularly because it turns out that the NC right to foreclose has a shelf life which may be the envy of even the “living dead.” Continue Reading

No Déjà Vu – Lender Liability Claims Barred by Res Judicata Effect of Bankruptcy Sale Order

Put down your remotes for just a minute and let’s talk about res judicata. You remember that lovely Latin legal concept don’t you? Or maybe you prefer the more modern English version of “claim preclusion”? Either way it means that once a party has gotten a final judgment on the merits regarding a particular matter, it is barred from suing on that same issue (or on related issues that could have been raised the first time). (Just think of it as the “You only get to bat once, so make it a good one” rule).

Well, on Friday (March 11, 2016), the Fourth Circuit in Providence Hall Associates Limited Partnership v. Wells Fargo Bank, N.A. held that bankruptcy sale orders have res judicata effect. Which is good news for lenders, particularly Wells Fargo which saw the lender liability claims against it dismissed. (This is where your imagination needs to insert the judge clad in the umpire uniform yelling “You’re outta here!”) Continue Reading

An “Applicant” By Any Other Name – The U.S. Supreme Court Jumps in on ECOA and Guarantors

As the Bard’s Juliet famously mused, “What’s in a name? That which we call a rose by any other name would smell as sweet.” One might similarly wonder at the U.S. Supreme Court’s decision yesterday (March 2, 2015) to grant certiorari in a case from the Eighth Circuit (Hawkins v. Community Bank of Raymore – August, 2014). After all, the Eighth Circuit’s opinion dealt with what many would consider a dry topic, i.e. whether a guarantor falls within the definition of an “applicant” under the Equal Credit Opportunity Act (“ECOA”). And yet, that question of a name can make all the difference between a successful guarantor claim and one in which (dare I say it?) the bloom is off the rose. Continue Reading

A Cautionary Tale – The Need for Bank Oversight on Collateral Releases

Beware!! The story brought to us today courtesy of the Second Circuit Court of Appeals (In re: Motor Liquidation Co., 13-2187) is one that should strike fear into the hearts of all bankers and lawyers. It is a cautionary tale of how lack of attention to detail may lead to huge potential losses when dealing with bank releases of collateral.

The Facts

1.  The 2001 Financing. In 2001, JP Morgan acted as the agent on a $300 million financing to General Motors. The 2001 Financing was secured by both real and personal property, and the personal property security interest was perfected by the filing of UCC-1 financing statements in Delaware.

2.  The 2008 Financing. In 2008, JP Morgan again served as agent on a financing to GM, although this time for $1.5 billion and with a different lender pool. The 2008 Financing was secured by equipment and fixtures, and JP Morgan’s security interest was also perfected by the filing of a UCC-1 financing statement in Delaware. Continue Reading