Lender Cannot Add Or Change Loan Terms Through Internal Company Policy

In Federal Deposit Ins. Corp. v. Traversari, 2010-Ohio-2406 the Eleventh Circuit Court of Appeals sided with the mortgagor in overruling the trial court’s granting of summary judgment.

Defendant Traversari signed a note and mortgage with Loan American Financial Corporation for $190,000 in 1994. Subsequently, the note and mortgage were assigned to Federal Deposit Insurance Corporation (“Federal Deposit”). Traversari alleged that in 2006 he sent a personal check to pay off the entire balance of the loan. After he thought he had paid the loan off, Traversari alleged that he received a letter from Federal Deposit stating that Traversari owed approximately $5,000 still. Traversari allegedly called Federal Deposit to discuss the issue but never received a response. Then Federal Deposit sent Traversari a notice of default. Traversari again sent a personal check for the remaining balance of the loan. Federal Deposit returned the check stating that it only accepted certified checks for loan payoffs. Traversari allegedly attempted a third time to pay off the balance of the loan with a personal check, but the check was returned as insufficient because the loan was in foreclosure. In addition, Federal Deposit alleged it never received the first check from Traversari. Federal Deposit filed its complaint in January 2007 seeking foreclosure of the property.

The trial court granted summary judgment in favor of Federal Deposit finding that Federal Deposit was within its rights to refuse to accept personal checks. The Eleventh Circuit, in reversing the trial court, focused on the payment terms of the mortgage, which did not require any loan payment to be in the form of a certified check. Rather, Federal Deposit had an internal policy to not accept personal checks for the payoff of loans. Basically, the Eleventh Circuit found the mortgagor cannot add terms that are not explicitly in the mortgage. Since the mortgage was silent on what form the payments must be received in, Federal Deposit could not apply its internal policy to require certified checks.

Based on the Eleventh Circuit’s decision in Traversari, when a lender receives an assignment of a mortgage, it should pay attention to the terms of the original mortgage. A lender will not be able to apply its internal policies to the disadvantage of a mortgagor if the terms are inconsistent with the language in the original mortgage.

Posted by: Maureen A. Bickley

Categories: Bankruptcy & Banking Law