Mortgage Qualification Determinations: Fraudulent Misrepresentations

Perlas v. GMAC Mortgage, LLC, (First District, August 11, 2010) 187 Cal.App.4th 429, 113 Cal.Rptr.3d 790, 10 Cal. Daily Op. Serv. 10,254, 2010 Daily Journal D.A.R. 12,466

A man and a woman whose property was foreclosed upon when they were unable to make the payments on their property loan and a home equity line of credit filed suit against GMAC Mortgage, LLC, a commercial mortgage lender, asserting causes of action for fraudulent misrepresentation and fraudulent concealment. The plaintiffs alleged that at the time the defendant prepared and tendered documents for the loan and credit line, it was not possible for them to make the payments called for, but by preparing and tendering the documents to the plaintiffs, the defendant represented that they could in fact make the payments. The plaintiffs further alleged that the defendants failed to disclose to them that they could not possibly afford the payments called for in the loans, and that the qualification for the loans was based upon a fabricated inflated income.

The trial court sustained the defendants demurrer without leave to amend and the court of appeal affirmed, holding that the plaintiffs could not amend to state a cause of action for fraudulent misrepresentation or fraudulent concealment:

“Neither the FAC nor appellants’ proposed amendments allege that GMAC expressly represented to appellants that they had the ability to make the loan payments specified in the loan documents. Appellants appear to conflate loan qualification and loan affordability. In effect, appellants argue that they were entitled to rely upon GMAC’s determination that they qualified for the loans in order to decide if they could afford the loans. Appellants cite no authority for this proposition, and it ignores the nature of the lender-borrower relationship. “[A]bsent special circumstances … a loan transaction is at arm’s length and there is no fiduciary relationship between the borrower and lender. [Citations.]” (Oaks Management Corporation v. Superior Court (2006) 145 Cal.App.4th 453, 466, 51 Cal.Rptr.3d 561.) A commercial lender pursues its own economic interests in lending money. (Nymark v. Heart Fed. Savings & Loan Assn. (1991) 231 Cal.App.3d 1089, 1096, 283 Cal.Rptr. 53.) A lender “owes no duty of care to the [borrowers] in approving their loan.” (Wagner v. Benson (1980) 101 Cal.App.3d 27, 35, 161 Cal.Rptr. 516.) A lender is under no duty “to determine the borrower’s ability to repay the loan…. The lender’s efforts to determine the creditworthiness and ability to repay by a borrower are for the lender’s protection, not the borrower’s.” (Renteria v. U.S. (D.Ariz.2006) 452 F.Supp.2d 910, 922-923 [borrowers rely on their own judgment and risk assessment in deciding whether to accept the loan]; accord, Cross v. Downey Savings and Loan Association (C.D.Cal., Feb. 23, 2009, CV09-317 CAS(SSx)) 2009 WL 481482 [nonpub. opn.].) Thus, appellants fail to demonstrate they can sufficiently amend the FAC to state a cause of action for fraudulent misrepresentation.”

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