West Virginia Federal Court Dismisses Lender Liability Claims Rejecting Plaintiff’s Inflated Appraisal Theory

West Virginia Federal Court Dismisses Lender Liability Claims Rejecting Plaintiff’s Inflated Appraisal Theory

By John C. Lynch, Jason E. Manning, and Elizabeth "Liz" S. Flowers.

On May 7, 2014, the United States District Court for the Southern District of West Virginia granted summary judgment in favor of a national bank on a consumer complaint that he was induced into an unconscionable loan based on an alleged inflated appraisal, [enhanced version available to lexis.com subscribers]. The Court rejected the borrower’s claims: (1) that a loan in an amount that exceeds the market value of the property at origination is unconscionable; and (2) that a loan must provide a net tangible benefit under West Virginia law. The Court emphasized that “neither West Virginia law nor cases outside of this state support the notion that lending too much money is unfair.”

This ruling undermines complaints frequently filed by the plaintiff bar under state law, such as the West Virginia Consumer Credit and Protection Act (“WVCCPA”), for alleged improprieties during mortgage origination. Significantly, the Court held that a “loan exceeding the value of a home is not evidence of substantive unconscionability” and found that “[t]he notion that the plaintiff was harmed by this fact is ridiculous.” The Court stated that “[i]f any party is disadvantaged here, it is the lender. When a lender makes a loan with inadequate security, the lender cannot recover the loan principal by foreclosing on the home”; thus, “receiving extra financing is not one-sided against the borrower.”

Further, the Court held that “[t]here is no requirement that a contract provide a ‘net tangible benefit’ to either party,” and unconscionability is not determined by whether the borrower receives a net tangible benefit on the loan. The Court dismissed borrower’s unconscionable contract claim against the bank with prejudice.

The Court also granted summary judgment in favor of the national bank on borrower’s claim that it charged illegal property inspection fees in violation of the WVCCPA. The Court held that § 46A-2-115, [enhanced version available to lexis.com subscribers], expressly permits a lender to charge “reasonable expenses” incurred in “realizing on the security interest,” including a monthly property inspection fee for work actually performed as a result of the borrower’s default.

John Lynch and Jason Manning have represented national banks, investors, and servicers in hundreds of individual and class cases across the country, obtaining dispositive rulings for their clients on motions, at trial, and through appeal. The Financial Servicing Litigation team at Troutman Sanders has a national practice representing financial institutions in class action litigation and regulatory compliance.

A copy of the Court’s Memorandum Opinion and Order is attached here. McFarland v. Wells Fargo Bank, N.A., Civil Action No. 2:12-cv-07997, Memorandum Opinion and Order (S.D. W.Va. May 7, 2014). Please do not hesitate to contact John Lynch, Jason Manning, or Liz Flowers if you have questions.

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