Vincent Howard and our Ontario foreclosure defense attorneys were interested to see a foreclosure case involving a challenge to the due diligence performed by the bank that issued the loan. The case is also interesting because the borrower did not appear on his own behalf, but gave power of attorney to a local lawyer who closed it for him. In Savannah Bank v Stalliard, attorney Sally Gardocki was closing the loan for an out-of-state investor who couldn't be present, Alphonse Stalliard. Stalliard took out a loan in 2007 in order to build a house on property in Hilton Head, South Carolina. The house later failed to sell in 2008, causing Stalliard to be unable to pay the mortgage. When his foreclosure case went to court, Stalliard argued that Savannah Bank didn't reasonably verify his ability to pay, but the trial court granted summary judgment for the bank and the high court affirmed.
Stalliard, 26 at the time, was convinced by a friend of a friend that he could make a profit by building a house in Hilton Head. The acquaintance helped him hire Gardocki, who executed a written promissory note to help him borrow $1.6 million. He acknowledged in writing that she would proceed with the closing and reviewed the closing documents after the purchase. Stalliard then used the proceeds to build a house (using another vendor introduced by this acquaintance), but the house failed to sell. In 2008, Stalliard executed a loan modification, but he was unable to make the modified payments either, and the bank began foreclosure in August of 2009. The property was sold at foreclosure auction, but the default judgment against Stalliard was bifurcated. A month after the discovery deadline, the bank moved for summary judgment; two months after that, Stalliard moved for more time. The court denied this and granted summary judgment to the bank.
Stalliard appealed both the continuance and the summary judgment, arguing that the bank negligently failed to investigate the false information about his income allegedly presented on his loan application. Negligence is a breach of a duty of care, the South Carolina Supreme Court noted--but it found that the bank did not owe Stalliard such a duty. Past cases have decided that banks owe loan recipients no duty to explain documents the recipients can read for themselves, it said, and both Stalliard and Gardocki testified that Stalliard had received the loan documents. Stalliard also had a chance to object to the loan when it was modified, the court said, but his failure to do so "ratified" the loan. Thus, there was no duty of care and the summary judgment order was correct. The Supreme Court went on to rule against Stalliard's discovery motion, saying he waited far too long to make it and provided no explanation for why he needed it.
Vincent Howard and our Garden Grove foreclosure defense lawyers believe this case demonstrates the importance of paying close attention to loan documents. It could be that Stalliard is right that the bank failed to investigate his financial situation. During the housing boom, it was not unusual to find lenders issuing this kind of "liar loan," and his youth does suggest relative lack of wealth. However, the case was not decided on the merits of that argument. Because he had a chance to review the documents, the court deemed him adequately protected. Vincent Howard and our Norco foreclosure defense attorneys disagree. Loan documents are numerous, written in legalese and frequently rushed through; borrowers should read them carefully and courts should be aware that they're beyond the expertise of many.
If you're in default or expect to be soon, and you believe the loan was made in a less than ethical way, you should call Howard Law, P.C., to discuss a predatory lending lawsuit or other foreclosure defense. To learn more, you can send us an email or call toll-free at 1-800-872-5925.