"Courts have held that there is no duty on a lender to
ensure that a loan is suitable for a borrower," wrote Judge
Jones in a recent case dismissing a fraud and misrepresentation
claim brought by a home owner against the lender. In this
case, the plaintiffs alleged that the loan officer told them that
their income qualified them for the loans they were seeking, when
in fact plaintiffs' income was not high enough to meet debt to
income ratio utilized by mortgage lenders. The Court found
that these allegations were not sufficiently specific to meet the
heightened pleading standards of Rule 9. "Without more,
plaintiffs' allegations essentially amount to an assertion that
the lender convinced them to take out a loan they couldn't
afford," which is not a basis for fraud.
The Court cited several cases stating that lenders do not act on
behalf of borrowers, do not have a duty to determine a
borrower's ability to repay a loan, and that borrowers have to
"rely on their own judgment and risk assessment to determine
whether or not to accept the loan." Alternatively, the
Court found that the claims were barred by the statute of
limitations. The case, Muncy v. Centex Home Equity Company,
LLC, was pending in the Abingdon division of the Western
District of Virginia.
This case is another example of the steady stream of cases brought
by borrowers against lenders related to lending or foreclosure
practices. Most of the cases, like this one, are dismissed in
the preliminary stages of litigation. However, there is still
a significant cost to lenders in having to defend all cases brought
against them, even the most frivolous.
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