Banking and Finance Law Daily BB&T acted appropriately in collecting debts acquired from failed bank
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Tuesday, September 12, 2017

BB&T acted appropriately in collecting debts acquired from failed bank

By Annie J. Matonis, J.D.

The Ninth Circuit Court of Appeals affirmed the district court’s judgments in three actions against debtors who failed to repay loans acquired by Branch Banking and Trust Company (BB&T). BB&T acquired a portfolio of Colonial Bank loans in 2009 through agreements with the FDIC, who had been appointed receiver of the failed bank (Branch Banking and Trust Co. v. D.M.S.I., LLC, Sept. 11, 2017, Tashima, A.).

Standing. The panel rejected defendants’ contention that BB&T lacked standing to bring the instant actions because it did not have the right to enforce the loans at the time it filed its complaints.

The panel rejected defendants’ argument that the Bulk Assignment documentation transferring two of the loans was invalid for not describing the loans with particularity because the respective Deeds of Trust, referenced in the loan documents being transferred, did describe the property with particularity.

Defendants’ attack on the Purchase and Assumption Agreement (PAA) was a similar failure. The PAA assigned "all right, title, and interest" of the failed bank’s assets to BB&T. The PAA referred to attached schedules, which referred to another list—a list which was never included with the PAA. Nevertheless, the court found other evidence that the parties intended to transfer the loans at issue. For example, BB&T also entered into a loss sharing agreement with the FDIC at the same time, applicable to loans and other assets transferred to BB&T, which did list all three loans.

The panel also denied defendants’ argument of issue preclusion, determining that a lower court ruling that BB&T could not rely on the PAA to show assignment of a loan did not preclude this suit, as the loan in the former case was not one of the loans at issue in the instant case. Furthermore, the other case was not about whether BB&T lacked standing, but another issue altogether. The validity of the Bulk Assignment was never litigated in state court, and BB&T is not precluded from relying on it.

Federal preemption. The panel held that Nev. Rev. Stat. §40.459(1)(c)—which limited the ability of a third party to profit by purchasing real estate debt at a discount and foreclosing at full price—was preempted by federal law, at least as applied to transferees of the FDIC.

Because of an undisputed lack of consideration paid for two of the loans, defendants argued that BB&T had failed to prove each element of its deficiency actions as required by subsection (1)(c) of the Nevada statute. BB&T countered that Subsection (1)(c) is unconstitutional as applied in these cases under the Supremacy Clause and the Contracts Clause of the U.S. Constitution. The court agreed.

The purpose of Subsection (1)(c) was to "reduce foreclosures in favor of alternatives by eliminating the ability of a third party to profit by purchasing real estate debt at a discount and foreclosing at full price." However, in Munoz, the Nevada Supreme Court determined that Subsection (1)(c) is preempted by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA) to the extent that it would limit recovery on loans transferred by the FDIC. Munoz v. Branch Banking & Tr. Co., 348 P.3d 689 (Nev. 2015).

Subsection (1)(c) would frustrate the purpose of FIRREA by making it more difficult for the FDIC to dispose of the assets of failed banks, as transferees like BB&T would likely never purchase loans on which they could not turn a profit.

Affirmative Defenses. The panel also summarily rejected affirmative defenses under Nevada law that were asserted by defendants based on alleged work-out agreements with BB&T.

Defendants contended that BB&T violated the covenant of good faith and fair dealing applicable in contract law. The panel determined the work-out agreements were not contracts because there was no consideration. Defendants’ estoppel argument did not apply either because defendants failed to satisfy a required element of promissory estoppel: that they were ignorant of the true state of the facts. Defendants had even signed an acknowledgment in 2010 stating that the work-out discussions were "without any prejudice to [BB&T] in the exercise of its rights and remedies with respect to the Loans."

The panel further reasoned that no oral work-out agreement could have modified the loans or operated to waive BB&T’s rights because the Loan Documents specifically provided they could only be modified by written agreement.

The panel also found that the doctrine of laches did not apply and that BB&T owed no duty to defendants to mitigate defendants’ deficiency by the timing of the foreclosure proceedings.

Other issues. The panel found there was no abuse of discretion in denying defendants’ late-filed motion to amend pleadings because defendants demonstrated neither good cause nor excusable neglect, nor were defendants entitled to a jury trial on the fair market value of the property. Finally, BB&T did not violate Nevada law regarding notice to trust beneficiaries.

The case is No. 15-16933.

Companies: Branch Banking and Trust Company; Colonial Bank

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