Mcfarland v. Wells Fargo Bank, N.A

810 F.3d 273 (4th Cir. 2016)

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Nature of the Case

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Facts

McFarland (P) purchased his home for $110,000. In two years, he was informed by a mortgage broker that his home's value had nearly doubled. P decided to use his home as an ATM and refinanced so that he could pay down other debt. P entered into discussions with Greentree Mortgage Corporation (Greentree), a third-party mortgage lender. Greentree arranged for an appraisal and P was informed that the market value of his home had jumped to $202,000 since its acquisition two years earlier. P entered into two secured loan agreements. The first was with D with a principal amount of $181,800 and an adjustable interest rate that started at 7.75 percent and could increase to 13.75 percent. The second was with Greentree, for an interest-only home equity line of credit of $20,000. P used the proceeds of those two loans to consolidate all of his debts. By late 2007, P began to fall behind on his mortgage payments and contacted Wells Fargo to ask for assistance. P and D entered into a loan modification in May 2010. The revised agreement reduced P's interest rate and extended the term of the loan in exchange for an increase in the principal amount outstanding. P remained unable to make his payments. In 2012, Wells Fargo initiated foreclosure on P's home. P sued Greentree and D alleging that the D Loan was an 'unconscionable contract' under the WVCCPA. P focused on the terms of the Loan and the size of the mortgage it provided. P argued that D loaned him too much money. P cited a retroactive appraisal finding that his home was worth only $120,000 in June 2006 - considerably less than the $202,000 valuation that preceded the P Loan. P claimed that D's excess loan tied him to an unaffordable mortgage that increased his housing burden by several hundred dollars a month and put his home at risk. P's second theory of unconscionability was that even if D's Loan was not unconscionable when made, the district court could invalidate it on the independent ground that it was 'unconscionably induced' - in other words, based solely on factors predating acceptance of the contract and relating to the bargaining process. P argued that the Loan was 'induced by misrepresentations,' focusing on what P alleged to be the vastly inflated appraisal of his home in 2006. P contends that kind of unconscionable inducement is, under the text of the WVCCPA, grounds for relief by itself, without regard to the loan agreement's substantive terms. The district court granted D's motion for summary judgment and dismissed P's unconscionable contract claim. The court held that just because a refinanced loan exceeds the value of a home, is not evidence of substantive unconscionability under West Virginia law. The court reasoned that absent unfairness in specific loan terms like the rate of interest charged or the timing of payments, the court concluded, there is nothing substantively unconscionable about a loan simply because of its size. The district court held that the law does not allow for a finding of an unconscionable contract without some showing of substantive unconscionability. D appealed.