Banks have deep pockets and a tremendous amount of leverage. If you want to modify the terms of a loan, banks require borrowers to execute a loan modification agreement. Those agreements almost always contain language that says the borrowers waive all defenses they have against the bank. Is that language fair? Of course not but this winter the North Carolina Supreme Court upheld that boilerplate language and dismissed a lawsuit against BB&T Bank.
William Ussery and Wayne Barker started a chair making business in 1999. To help get started, the men asked BB&T for help in obtaining a Small Business Administration (SBA) loan. They didn’t get their SBA loan but BB&T did give them three separate commercial loans.
In 2002, the men asked to consolidate their loans. The bank had them execute a modification agreement. While current on the new consolidated loan, the men brought a lender liability lawsuit against the bank. They claimed that the bank had promised to help them obtain an SBA loan but failed to do so. Although we don’t know the terms of the loan, SBA loans often have lower interest rates than commercial loans.
We also know that the men claimed that the bank had never applied for the SBA loan despite assurances that they would do so. By the time the men learned of the bank’s failure to apply for the SBA loan, it was too late. The men were no longer eligible for the SBA program in part because they had taken on debt by borrowing from BB&T. They believe that the bank trapped them into a commercial loan and prevented them from obtaining an SBA loan.
The bank asked the court to dismiss the suit. They noted that the loan modification agreement signed by the borrowers had a boilerplate clause that said the borrowers “consent to the terms of the Agreement, waive any objection thereto, affirm any and all obligations to Bank and certify that there are no defenses or offsets against said obligations or the Bank.”
The trial judge sided with the bank and dismissed the borrower’s lawsuit. In a divided decision, the North Carolina Court of Appeals reversed the trial court’s dismissal and said the suit could go forward. A divided decision means that not all the judges hearing the appeal agreed.
The appeals court found that the bank’s actions could have lured the borrowers into a false sense of security.
Unfortunately, the North Carolina Supreme Court reversed the appeals court decision. That means the lawsuit against BB&T is dead. The borrowers cannot proceed on their lender liability claims.
In dismissing the suit, the Supreme Court said that the waiver language in the modification agreement was “clear and unambiguous.” The court needs only to look to the four corners of the agreement and nothing more. The men waived their rights and that ended the court’s inquiry.
This decision is terrible news for borrowers in North Carolina. An uneven playing field has now been made worse. The Supreme Court suggests that banks are free to mislead borrowers and then escape liability by having the borrower simply execute a loan modification agreement that contains a waiver of all defenses.
Is it legal for lawyers or doctors to have clients and patients sign waivers relieving themselves of any liability for malpractice? No. So why should banks be able to defeat lender liability claims for their own negligence and malfeasance?
Suing banks is not for the timid. Claims against banks can be won, however.
We suspect that a jury would have shown sympathy to the two men and their business. As this case points out, however, the court acts as gatekeeper. A case can’t get to a jury if it is dismissed by the judge.
Extreme care must be taken when signing loan modification agreements. Fortunately, not all states share the same harshness towards borrowers as North Carolina.
Have a case against a bank? Interested in knowing if you can successfully sue your bank? Give us a call.
For more information, contact attorney Chris Katers at (414) 777-0778 or the author of this post, attorney Brian Mahany at [hidden email] or by telephone at (414) 704-6731 (direct).
MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers. We Sue Banks.