[Spoiler Alert – There is hope for borrowers fighting banks who failed to deliver on a promised refinancing.]
The failure of banks to deliver on a promised modification or refinancing is one of the most frequent complaints we hear from commercial borrowers. In the typical scenario, the borrower says that the lender promised to refinance a note or modify the terms of the loan. Invariably, the bank doesn’t deliver leaving the borrower insolvent or facing steep losses.
One would think that banks should be held accountable for failing to deliver on a promised refinancing or modification. Sadly, in most cases the lender gets off scot free. In this post, we examine a recent case where the borrower was successfully able to beat back repeated motions from the bank seeking to dismiss the complaint.
Hetzel v. JPMorgan Chase
Paul Hetzel owned three properties, all financed with JPMorgan Chase. In 2009, he was current with his mortgage payments and had a good credit score. Hetzel wanted to lower his rate; at the time, he was paying 6% while some lenders were offering rates that were less than 3%. When Chase wouldn’t refinance, Hetzel decided to refinance with Merrill Lynch.
First on his list to refinance was a property in Annapolis, Maryland. Something went terribly wrong during the refinancing, however. The loan closed but Chase applied the monies to a property owned by Hetzel in North Carolina. In other words, they paid off the wrong note.
Hetzel notified the bank that the money had been misapplied but the bank took no corrective action. At this point, he had two loans on the Annapolis property, even though would should have been paid off. Under the impression that the Chase loan had been satisfied and the bank had corrected its error, Hetzel stopped paying Chase on that property and began paying Merrill Lynch.
You guessed it, Chase declared the loan in default and started foreclosure.
Ultimately, Chase realized the error but by then, Hetzel’s credit score was destroyed and he was unable to refinance the other two properties for lower rates. Things were so bad that no one would give him a loan. The default caused him to also lose his insurance.
For several years, Hetzel says Chase promised to fix the problem but nothing ever happened. When the three year statute of limitations (time period to sue the bank) had expired, Hetzel says Chase stopped offering to fix the problem.
Hetzel then sued Chase.
Chase Attempts to Dismiss the Lawsuit
The bank first tried to have the lawsuit dismissed because Hetzel waited too long before filing suit. The court found, however, that Hetzel had a right to bring his case against the bank. The time period in which to sue a bank can be extended if a borrower reasonably relied on promises made by the bank. Assuming that Chase constantly offered to “make things right,” the court said Hetzel should have his day in court despite waiting more than three years to sue.
The bank wasn’t done, however.
JPMorgan Chase next asked the court to dismiss because borrowers can’t bring claims for promised refinancing. While the court agreed that the bank had no duty to refinance a loan, the bank still let Hetzel’s claim move forward.
No General Duty to Modify or Complete Promised Refinancing
The bank argued its case to the court last fall. During its arguments, the bank properly noted that “[I]n an ordinary debtor-creditor transaction, the lender’s duties are defined by the loan agreement and do not extend beyond its terms.” They also noted that borrowers “may not bring negligence claims based on loan modification decisions that are not to their liking.”
This was no ordinary banking transaction, however. Hetzel argued that even if there is no duty to modify, the banks actions in repeatedly promising to make things right gave rise to claims against the bank. Making promises that they no intention of keeping was negligence or fraud.
In late February, the court ruled that Hetzel’s claims could proceed. Days later, the case settled.
As is common in many lawsuits against banks, the settlement is not public. Banks don’t like others to know when they lose!
Summary
There are several takeaways from this case.
First, never wait in the hopes that you can work something out with the bank. Hetzel was lucky to survive the motion to dismiss. Some judges would have simply said that he waited too long.
States pass so-called “statutes of limitations” as a way of keeping old claims from being brought to court. As time passes, memories fade, witnesses disappear and evidence is destroyed in the normal course of business. Recognizing there may be a valid reason to delay in filing suit, the court in this case allowed Hetzel to sue even though he waited more than 3 years after the initial default.
It is not uncommon for a bank to make promises to a borrower simply so they can allow the statute of limitations to expire. If you have been wronged by a bank, contact us immediately.
According to Paul Hetzel, Chase promised refinancing for years. They never delivered. Rather than waiting for three years, he should have filed suit much earlier.
Second, banks don’t always win. For years, we have built our practice around representing borrowers in lawsuits against banks. With good lawyering, borrowers can beat banks. (Paul Hetzel’s case was brought in North Carolina, a state with some of the most pro-bank laws in the nation. If a borrower can win in North Carolina, they can likely win anywhere.)
This case followed a familiar pattern. First, banks often string along borrowers for as long as possible. Once a lawsuit is filed, they will file motion after motion hoping to use procedural tricks to avoid answering for their misdeeds.
Once they lose all the motions, however, banks will often settle. Most banks don’t want to answer for their conduct in front of a jury. Since the financial meltdown and bailouts of 2008, lay juries aren’t very impressed with banks. (That is why in many commercial loan transactions we now see jury waiver provisions.)
MahanyLaw and Judge, Lang & Katers – We Sue Banks
The lender liability lawyers at MahanyLaw and Judge, Lang & Katers have joined forces to sue banks, lenders, mortgage companies and loan servicers. If you have been denied a promised refinancing, you may have legal rights and claims against the bank.
We offer Midwest services and prices but with a national reach. We take cases across the United States. Working with your local lawyer, we can offer even greater savings.
For more information, contact attorney Chris Katers at 414-777-0778 or by email at [hidden email]. The author of this post, attorney Brian Mahany, can be reached at [hidden email]. All inquiries kept strictly confidential.
[Please note we do not represent consumers facing foreclosures. Also, we rarely take cases on an hourly basis. Our minimum case size (out-of-pocket) losses is $5 million. We offer plenty of consumer resources on our website as a matter of general information.]