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Jatras v. Bank of America Corp.

2010 WL 5418912 (U.S. Dist. Ct. D. N.J. 2010) (Unpublished)

MORTGAGES; APPRAISALS — Absent circumstances proving that a borrower has relied upon a property appraisal obtained by its lender, a borrower cannot complain that the property acquired was worth far less than the lender’s appraisal indicated.

Homeowners purchased property using a bank mortgage. The bank asked the homeowners for information concerning their assets, income, and liabilities, and the homeowners provided this information along with a copy of their purchase contract. After review, the bank told the homeowners that it was prepared to offer them a loan for eighty percent of the purchase price of the property with a fixed interest rate of 6.5 percent for thirty years. The homeowners accepted the offer pending verification of all final qualification data. Between the bank’s offer and the closing, the bank requested additional income and asset information from the homeowners. The homeowners revealed that they rented property in another state and intended to remain tenants at their current location following the purchase.

At closing, the bank presented the homeowners with a standard form used to detail the homeowners’ financial position. It was already filled in. The homeowners raised no objections to the form’s content and they signed it. Later, the homeowners noted that the bank did not include their monthly rental expense in calculating their debt-to-income ratio.

In addition to discovering the error on the financial statements they had signed at closing, the homeowners later began to question to the valuation that the bank had used when approving the loan. Specifically, after examining some documents provided by the bank, the homeowners alleged that the bank had used stale comparable sales figures and did not adjust those figures with a “Date of Time/Sale value adjustment.” In addition, the homeowners complained that the bank had “improperly compared [their] property to ‘harbor view’ residences in order to inflate the value of [their] property.” Specifically, the homeowners alleged that such a comparison was improper because their property was listed as “residential,” and not as “harbor view.” Lastly, the homeowners alleged that the bank had “improperly compared [their] one-story property to a three-story property.” Relying on those allegations, the homeowners believed that there were induced to buy the property and take the loan based upon these alleged “‘gross violations of underwriting standards’ artificially inflat[ing] the value of [their] property.” To supplement their complaints, the homeowners alleged that the lender had engaged in “criminogenic ‘corporate culture’” and defined a ‘‘criminogenic environment’ as an environment ‘that contributes to or supports the formation of predatory criminal morals, thinking, and behavior, and where actors in such environment not only do not guard against or thwart criminal activity, but are rewarded for it.” According to the homeowners, the lender’s criminogenic environment “involving intentional inflation of collateral.”

The homeowners also alleged common law fraud, arguing that the bank set the value of the property they had bought and that the bank had a better measure of whether or not the homeowners could afford the property. The Court, however, found that the homeowners did not rely on the bank’s valuation. In fact, the homeowners had contracted to buy the house even before the bank obtained a value for the property. Further, the homeowners had a more thorough understanding of their own financial situation than the bank had.

Next, the homeowners claimed fraud under the New Jersey Consumer Fraud Act because of the difference between what was then the current value of their home and its purchase price, and also alleged harm to their finances and credit-rating caused by the bank’s misrepresentations and/or omissions. However, the Court noted that the bank merely lent the homeowners money to pay for the property. Thus, the proximate cause of any financial problems was the homeowners’ own imprudence. Besides, the homeowners independently decided to pay the purchase price for the property. The homeowners also alleged that the bank had violated the implied covenant of good faith and fair dealing by acting in bad faith and with criminal intent. Similarly, because there was no causation between the bank’s alleged misconduct and damage to the homeowners, the Court found no breach.

The homeowners also sued various individual corporate officers and corporate defendants. However, none of the claims survived in light of a failure to plead with particularity any participation in an allegedly fraudulent activity directed towards the homeowners. Also, because the homeowners failed to state a cognizable claim for any cause of action, the claims against the individual defendants were dismissed.

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