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First Circuit BAP Upholds Dismissal of Adversary Complaint Alleging Predatory Lending - Frykberg v. JP Morgan Chase

May 9, 2013

Vincent Howard and our Riverside County predatory lending attorneys were interested to see a case alleging Massachusetts state law causes of action against a mortgage. The case, Frykberg v. JP Morgan Chase, arose out of the bankruptcy of Jon Frykberg of Massachusetts. After filing his Chapter 13 bankruptcy, Frykberg alleged in his adversary complaint that during his 2004 mortgage, the originator failed to provide documents required by Massachusetts law, provided incorrect information on another document and did not provide credit counseling as required by state law for high-cost loans. The bankruptcy judge dismissed, agreeing with a variety of Chase arguments centering on federal preemption and failure to state a claim. On appeal, the Bankruptcy Appellate Panel of the First U.S. Circuit Court of Appeals upheld that ruling.

Frykenberg and his wife took out the $269,500 loan in 2004, and Frykenberg alone filed the bankruptcy in 2010. The originator was Washington Mutual, which later went into FDIC receivership and whose assets were ultimately purchased by Chase. In his original adversary complaint, Frykenberg alleged that WaMu never provided the notice of right to cancel required by Massachusetts law and provided an inaccurate Truth in Lending Act statement. He also alleged that the loan was a high-cost loan as defined by Massachusetts law, and that he did not receive the required credit counseling. He asked for an order declaring the loan unenforceable and that he and his wife owned the home free of the mortgage. Chase amended its summary judgment motion later to include arguments that the Massachusetts laws were preempted by state laws; that Frykenberg failed to state a claim; and that the FDIC retained liability for WaMu loans.

The bankruptcy court granted summary judgment to Chase, agreeing with every argument but one saying TILA violations are "technical." On appeal, both sides renewed their arguments. The BAP for the First Circuit started by reviewing the Home Owners Loan Act, one of the federal laws at issue, and concluded that it expressly preempts the Massachusetts laws named by Frykenberg. It then reviewed the Truth in Lending Act preemption caselaw, and found that both Massachusetts laws at issue are also preempted by TILA. And the transaction at issue here is not exempt from TILA, it noted. Because these preemption decisions affect all of Frykenberg's claims, the BAP found that it didn't need to address the arguments about failure to state a claim or FDIC liability. Thus, it upheld the bankruptcy court.

It's disappointing that this homeowner won't have his day in court. Vincent Howard and our Santa Ana predatory lending lawyers represent many clients in Frykenberg's position, who took out expensive loans during the "bubble" and often didn't get full disclosure of the terms of the loan. Some loans made in the last decade even involved outright deception. When that's the case, federal laws like TILA and some state laws here in California should apply. TILA allows borrowers to rescind the predatory loan; other laws might do the same, require repayment of loan payments created by fraud, or allow you to seek financial damages. Vincent Howard and our Rancho Cucamonga predatory lending attorneys review each new case as it comes in to see whether any of these laws could apply.

If you believe you were deceived by a lender or loan servicer and you'd like to fight back, call Howard Law, P.C. We represent clients across California who are victims of predatory lending or unreasonable behavior during a loan modification. You can reach us online or call toll-free at 1-800-872-5925.

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