Dallaire v. Bank of America, N.A.
2014 WL 2612658, 760 S.E.2d 263, 367 N.C. 363 (2014)
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Rule of Law:
An ordinary lender-borrower relationship is an arm's length transaction that does not give rise to a fiduciary duty, even when the lender makes assurances about lien priority. A borrower's claim of negligent misrepresentation will fail if the borrower does not make a reasonable inquiry into the validity of the lender's statements.
Facts:
- Jacques and Fernande Dallaire owned a home subject to three liens: a first and second lien with Bank of America, and a third lien with Branch Banking & Trust (BB&T) for a business loan.
- The Dallaires filed for Chapter 7 bankruptcy, which discharged their personal liability on the debts, but the liens remained attached to their property.
- A year later, the Dallaires responded to a refinancing offer from Bank of America.
- A Bank of America loan officer repeatedly assured Mr. Dallaire that the prior bankruptcy and the BB&T mortgage were not a problem and that the new loan would be secured by a first priority lien.
- Bank of America and its third-party title agents mistakenly believed the BB&T lien had been extinguished by the bankruptcy.
- The Dallaires closed on a new $166,000 loan, using the proceeds to pay off their previous Bank of America loans.
- Because the BB&T lien was not paid off or subordinated, it moved into the first priority position, making the new Bank of America loan a second lien.
- Three years later, while considering selling their home, the Dallaires contacted their bankruptcy attorney and discovered the BB&T lien had priority over the new Bank of America loan.
Procedural Posture:
- Jacques and Fernande Dallaire filed a complaint against Bank of America in Superior Court, Cabarrus County (a state trial court).
- Bank of America moved for summary judgment on all claims.
- The trial court granted summary judgment for Bank of America.
- The Dallaires (as appellants) appealed to the North Carolina Court of Appeals.
- The Court of Appeals reversed the trial court's summary judgment on the breach of fiduciary duty and negligent misrepresentation claims, finding a question of fact existed for a jury.
- Bank of America (as petitioner) sought discretionary review from the Supreme Court of North Carolina, which was granted.
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Issue:
Do a loan officer's assurances about securing a first lien position create a fiduciary duty or support a claim for negligent misrepresentation when the borrower fails to make an independent inquiry into those statements?
Opinions:
Majority - Newby, J.
No. A loan officer's statements regarding lien priority in an ordinary mortgage transaction are insufficient to create a fiduciary duty, and a borrower cannot claim justifiable reliance for negligent misrepresentation without making a reasonable inquiry into such statements. The court reasoned that ordinary borrower-lender transactions are arm's length and do not create fiduciary duties, which require 'special confidence reposed on one side, and resulting domination and influence on the other.' The loan officer's assurances were not an exceptional circumstance that would transform the relationship. For the negligent misrepresentation claim, the court held that justifiable reliance is a necessary element. Reliance is not justified if the party fails to make a reasonable inquiry. The Dallaires acknowledged the complexity of lien status after bankruptcy yet made no independent investigation, nor did they show that Bank of America prevented them from doing so. This failure to inquire is fatal to their claim.
Analysis:
This decision reinforces the traditional legal view of the debtor-creditor relationship as an arm's length transaction, resisting the argument that modern lending practices should impose fiduciary duties on lenders. It clarifies that even specific, reassuring statements from a loan officer about complex matters like lien priority do not, by themselves, create a special relationship of trust. The ruling places a significant burden of due diligence on borrowers, establishing that to succeed on a negligent misrepresentation claim, they must demonstrate they made a reasonable effort to verify the lender's information, especially in situations they know to be complex.
