In Addie v. JP Morgan Chase Bank, N.A., CIV. 12-281 PAM/TNL, 2013 WL 1760446 (D. Minn. Apr. 24, 2013), a Minnesota federal court held that a straw buyer who fraudulently received a loan could not maintain a Fair Credit Reporting Act (FCRA) action against a lender who conducted a per se reasonable investigation as required by 15 U.S.C. § 1681s-2(b)(1). In the case, plaintiff contracted with third parties to act as a straw buyer and obtain nine mortgages on six rental properties. Plaintiff then received two loans from Defendant JP Morgan Chase Bank, N.A. (“Chase”). Plaintiff falsely represented on the loan applications that he occupied one of the properties, did not have other mortgages, and exaggerated his monthly income. Chase did not know plaintiff was a straw buyer. A few months after closing, plaintiff defaulted on the loans when the third parties did not make payments to plaintiff. Plaintiff sent Chase a letter explaining that he had been defrauded because of the third parties’ fraud and requested a deed in lieu of foreclosure. Plaintiff did not ask the loans be withheld from the Credit Reporting Agencies (“CRAs”). Chase responded and asked plaintiff to provide information related to his claim and complete a fraud questionnaire. Plaintiff did not respond or make another attempt to correct Chase’s misapprehension of the facts. Plaintiff commenced suit against the third parties, receiving a default judgment against some of them. In 2010, plaintiff contacted the CRAs to dispute Chase’s debt and request it be removed. The CRAs sent debt verification inquiries to Chase, which investigated and responded that plaintiff took out the loans, foreclosure had been completed, and Chase’s credit reporting was accurate.
Plaintiff commenced this FCRA suit against Chase, claiming it failed to comply with its duty to reasonably investigate the disputed mortgage debt and it failed to instruct the CRAs to remove the debt the reports. 15 U.S.C. § 1681s-2(b)(1). On Chase’s motion for summary judgment, the court dismissed Plaintiff’s claims. The court held plaintiff’s failure to show that Chase’s investigation was unreasonable or incorrect precludes recourse under FCPA, 15 U.S.C. § 1681s-2(b)(1). Moreover, the court held that plaintiff has no recourse under the FCPA for his damages related to the third parties’ fraud. Their fraud may explain why he defaulted, but it did not extinguish plaintiff’s obligations under those loans. In short, Plaintiff’s status as a straw buyer does not operate to extinguish his debt obligations, precluding any FCPA claim.
We will continue to monitor decisions impacting FCPA defense. If you have any questions about this, or any other matter, please contact Bob Kuderer or Matt Johnson.