Mortgage Companies And Good-Faith Dealing

In a decision that strikes a blow to the rights of homeowners, the Illinois Supreme Court refused to impose a duty of good faith and fair dealing on a lender.

The case began when a homeowner took out a mortgage and bought a house in Springfield. The homeowner then moved upstate and rented out her home, and the tenant agreed to make the mortgage payments directly. The lender later claimed that the property taxes had increased so much that there was not enough money in escrow, so it increased the monthly payment. The tenant did not make the higher payments, and the lender rejected payments made in the old, lesser amount. The lender started to foreclose, but the homeowner eventually paid the lender and the foreclosure never happened.

Meanwhile, the homeowner was refinancing her new home. The bank considering her loan request pulled her credit information, and the homeowner claimed that the first lender had reported false information. When she was denied a loan to refinance her new house, she sued the first lender for breach of its duty of good faith and fair dealing.

Ultimately, the lender won because no such duty was found to exist. The decision was based on the fact that the relationship between the homeowner and her lender was contractual. Because the homeowner had remedies under both the contract and other law (such as a claim for slander), there was no need to recognize a duty to deal with homeowners in good faith. Such a duty would "add little to this or any plaintiff's remedial repertoire."

Many other observers disagree. Imposing a duty of good faith on lenders could make them more careful in dealing with borrowers. In the absence of such a duty, borrowers who are subject to arbitrary, outrageous, and just plain dumb acts often have no option but to "grin and bear it," unless the lender happens to violate some other law. This lack of a duty of good faith and fair dealing may deprive homeowners of a needed layer of protection from unscrupulous or incompetent lenders.

This website is not intended to constitute legal advice or the provision of legal services. By posting and/or maintaining the website and its contents, Lucas Law does not intend to solicit business from clients located in states or jurisdictions outside of Illinois wherein Lucas Law or its individual attorney(s) are not licensed or authorized to practice law.