Dallaire Provides Guidance for Bankers and Creditors

15
Jun 2014
Dallaire Provides Guidance for Bankers and Creditors

The Supreme Court of North Carolina’s opinion in Dallaire v. Bank of America, released last week, carries several implications for banking and collections law in North Carolina.

 

Bankers will be interested in the bulk of the Dallaire opinion, which deals with determining whether a loan officer’s statements about lien priority are outside the scope of ordinary borrower-lender transactions, thereby creating a fiduciary duty on the part of the loan officer toward the borrowers. The Court rejects the argument that a fiduciary relationship exists. Citing the established characteristics of a fiduciary relationship, in which there is a “heightened level of trust” between the parties and “the duty of one fiduciary to act in the best interests” of the other party, the Court held that a loan officer’s statements about lien priority, mistaken or not, cannot transform the parties’ relationship from an ordinary “arms-length” borrower-lender transaction into a fiduciary relationship.

 

For creditors, the Dallaire opinion also contains the unusual factual situation where a refinance of the first and second deeds of trust changes priority, even where the personal obligations to repay have been discharged in bankruptcy. The third lien-holder, even where personal obligations were likewise discharged in bankruptcy, took first position on the property when the senior mortgages were refinanced. The maxim “he who is last may be made first” applies to liens: in the right circumstances, a junior lien may obtain priority over a senior lien.

 

Not all rights to collect are automatically extinguished in bankruptcy. It is important for creditors to maintain their legal rights by consulting with experienced attorneys. Dungan, Kilbourne & Stahl, P.A., is available to assist in complex, bankruptcy, and special asset collection matters.