NEGLIGENCE Stays in lawsuit v. Chase bank…New Appellate Case

Consumer Rights Defenders Reports: New Case called  Jolley v. Chase Bank
…for the first time a  DUTY is established supporting Negligence claims against a lender…defeats Demurrer by banks.* 
Call us today at 818.453.3585  for more about your suit.
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In a decision that will significantly impact lender liability litigation,the California Court of Appeal (First District)recentlydecided in Jolley v. Chase Home Finance LLC that, under certain circumstances, a bank that has assumed the assets of another bank owes the predecessor’s borrower a duty of reasonable care with respect to investigating the history of the loan,reviewing any loan modifications in good faith, and conforming to industry standards of conduct to protect the borrower against losses associated with the loan.

In so doing,the Jolley court reversed the trial court’s summary judgment in favor of the acquiring bank,
JP Morgan Chase, which had acquired the subject loan from the original lender, Washington Mutual
Bank (WaMu).
Ultimately, instead of agreeing to a loan modification, Chase demanded payment of the loan in full.
Chase initiated foreclosure proceedingsshortly thereafter.Jolley filed suit and immediately enjoined the
scheduled foreclosure sale.Jolley’s suit named WaMu and Chase (as WaMu’s successor) and alleged
eight causes of action, including misrepresentation, violation ofthe UCL, breach of contract, and
negligence. Chase moved for summary judgment. The trial court granted summary judgment,finding
that Chase did not assume liability for borrowers’ claims related to any loan commitments, pursuant to the 2008 purchase and a “Drawing all inferences in favor of the non moving party, as we must… we
conclude that prolonged communication —perhaps more accurately,miscommunication —about a
possible loan modification raises a triable issue off act of intent by Chase to profit by misleading Jolley
about his loan modification prospects, a showing sufficient to withstand summary adjudication.”
The court noted that if Chase’s decision in advance not to further fund any WaMu loans(and
subsequently failing to review borrowers’ loan‐modification requests in good faith) was “made without
due care to avoid further injury to Jolley,then Chase is potentially liable for its own negligence.”
The court also found that, while Chase did not owe Jolley a fiduciary duty, it did owe him an ordinary
duty of reasonable care, despite the long‐standing notion that “lenders and borrowers operate at arm’s
length.” The Jolley court’s opinion thus carved out a powerful exception to the “general rule” articulated
in Nymark v. Heart Fed. Savings & Loan Assn.that financial institutions do not owe a duty of care to a
borrower “when the institution’s involvement in the loan transaction does not exceed the scope of its
conventional role as a mere lender of money.”
The court reasoned, “[w]hen considered in full context,the cases show the question is not subject to
black‐and‐white analysis —and not easily decided on the ‘general rule.’ We conclude here, where there
was an ongoing dispute about WaMu’s performance of the construction loan contract, where that
dispute appears to have bridged the FDIC’s receivership and Chase’s acquisition of the construction loan,
and where specific representations were made by a Chase representative as to the likelihood of a loan
modification, a cause of action for negligence has been stated that cannot be properly resolved based
on lack of duty alone.”
Observing that ours is “a world dramatically rocked in the past few years by lending practices perhaps
too much colored by short‐sighted self‐interest” and citing the recent slew of bank failures and the
“avalanche of foreclosures,” the court also indicated that policy considerations favored imposing a duty
of care on a lender in Chase’s position. “When a bank acquires from the FDIC a loan from a failed bank
part of what it acquires is the history of the loan. Even if acquiring banks are not liable for breaches,
fraud, or negligence of the failed bank under their purchase and assumption agreements—an issue we
do not decide—simple good business practices dictate that they take into account the position in which
the borrower has been placed prior to their acquisition of the loan. Where there is a long‐running
dispute whether the failed bank properly disbursed monies due under the loan,the acquiring bank owes
a duty of care to investigate the history of the loan and take that into account in negotiating with the
borrower for a loan modification.”
This is particularly the case in the context of construction loans,the court reasoned, as the relationship
between lender and borrower is ongoing, with disbursements being made throughout the construction
period depending upon the state of progress towards completion.

MEANING FOR HOMEOWNERS:
The Jolley opinion has thus created— or at least powerfully expanded— a duty of care owed by
financial institutions to their borrowers. Both borrowers and lenders, as well as the irrespective counsel,
should take note. In light of Jolley, borrowers who are embroiled in disputes with their lenders with
respect to the lenders’ performance under a construction loan agreement— especially where the bank
representatives make specific representations as to the likelihood of a loan modification — may be able
to state a cause of action for negligence,misrepresentation and/or promissory estoppel.Lenders should take great care to ensure that their loan officers avoid making cavalier statements or
predictions about the likelihood of the bank’s approving any loan modifications, which can be
misconstrued and detrimentally relied upon by the borrowers.Given the economic climate and the
abundance of alleged lender misconduct in the context of foreclosures since 2008, courts will likely
continue to scrutinize banks’ actions with respect to loans in default.

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