We sue banks for a living but its not an easy job. The laws are stacked in favor of the banks. And because most loan documents specify where suits must be brought, the banks can pick the states with the most favorable laws and bank friendly courts. Twice in recent weeks we wrote about cases in North Carolina, home of Bank of America and other big banks. Guess who won those cases?
A recent case in West Virginia offers some hope for borrowers. Although a residential mortgage case, the court’s ruling offers hope for all borrowers.
Philip McFarland is a West Virginia homeowner. Like many in that state, his mortgage was underwater. He owed more than the house was worth. He blamed Wells Fargo and argued that his house was only worth $120,000 when the bank approved a loan for $181,800. Had he known the real value of the house, he would not have paid that much nor borrowed that much money. McFarland argued that the loan was “unconscionable” at the time it was made and that he was “unconscionably induced into the loan.
The trial court ruled against McFarland on both claims. The court reasoned that a bad loan hurt Wells Fargo just as much as McFarland. They believed that the disparity between the loan amount and property value made it difficult for the bank to collect. Both parties were able to get appraisals and there was nothing to suggest that Wells Fargo knew this was a bad loan.
That wasn’t the end of the case, however. McFarland appealed the dismissal of his claims. Recently the United States Circuit of Appeals heard McFarland’s appeal and partially reversed the trial court. In doing so, a three judge appeals panel said that McFarland’s claims of “unconscionable inducement” should go forward.
The opinion didn’t offer much guidance on what constitutes “unconscionable inducement” except to say it could be determined from “affirmative misrepresentations or active deceits.” In other words if your lender tells you lies, you may be able to sue.
The differences are subtle but important. Just because the amount borrowed or the terms of the loan are unfavorable does not mean an automatic lawsuit. But depending on how you were persuaded into taking that loan, there may be grounds to sue.
What does this mean for businesses with underwater loans? Borrowers who owe more than their collateral is worth may be able to sue their lender if they can prove they were fraudulently induced into taking the loan.
Banks often do poorly in front of juries; especially when jurors hear the grossly one-sided terms of most commercial loans. Getting past the bank’s motions to dismiss means there is a much better chance of getting to a jury. And borrowers can win in front of a jury.
Pardon the oversimplification but banks win before judges on pretrial maneuvering. Borrowers and depositors win in front of jurors. It is the job of your lender liability lawyer to take your lawsuit against the bank and get it to the jury.
McFarland’s case is far from over but Wells Fargo’s easy win was tossed by an appeals court. It looks like McFarland will have his day in court after all. There is hope.
Interested in suing your bank? Call us. We don’t represent banks. We represent borrowers and depositors and help you level the playing field. For more information, contact attorney Chris Katers at [hidden email] or the author of this post, attorney Brian Mahany, at [hidden email] or by telephone at (414) 704-6731 (direct).
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