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North Carolina Supreme Court Confirms That Lenders Do Not Owe Fiduciary Duties to Borrowers

    Client Alerts
  • December 21, 2015

On Friday, December 18, 2015, the North Carolina Supreme Court issued an opinion affirming the dismissal of a lender, and its appraiser, from a lawsuit alleging breach of fiduciary duty, fraud, violation of North Carolina’s Mortgage Lending Act, and other causes of action. Arnesen, et al. v. Rivers Edge Golf Club & Plantation, Inc., et al. The case arises out of several developments located on North Carolina’s coast, in which individuals purchased undeveloped lots prior to the recession. BB&T was the primary lender for the purchasers, and BB&T obtained appraisals for several of the lots. The homeowners alleged that BB&T and the appraiser failed to disclose that the appraisals allegedly overstated the value of the lots and that the bank had a duty to discover and disclose this information.
The Court began by stating the existing rule that a lender generally does not owe its borrower any duty beyond its contractual obligations. The purchasers in this case did not rely on the bank or appraiser for any information and obligated themselves to purchase the lots independent of the loan process. In short, the Court found that the purchasers alleged nothing more than a typical debtor-creditor relationship and, as a result, the bank has no duties outside of the contract.
With respect to the Mortgage Lending Act, the Court held that the MLA only applies to properties purchased for “personal, family, or household use.” In this case, the purchasers all purchased the property for investment purposes. As a result, the MLA did not apply to the lot purchases. The Court noted that the bank could not violate the MLA when it did not disclose information that it did not have, was not asked to provide, and was not contractually obligated to provide. In short, because the lot purchasers all committed to the purchase without relying on the appraisal or any loan information, there could be no justifiable reliance.
Despite the clear ruling from the Supreme Court, the opinion was not unanimous. On dissent, Justice Hudson (joined by Justice Beasley) concluded that the claims for fraud and unfair trade practices against the bank should have survived a dismissal. The dissent argued that plaintiffs purchased the property to be ultimately used for residential purposes, which would fall under the MLA and create additional duties on the part of the lender. Justice Edmunds also joined in the portion of the dissent finding that the MLA applied to the plaintiff’s purchase of the lots but did not believe such ruling was dispositive.
This ruling from the North Carolina Supreme Court reaffirms North Carolina’s existing law that a lender generally does not owe any duties to its borrowers outside of the contractual obligations.


Questions regarding this case update or financial services litigation can be addressed to Brian Darer at or Will Esser at This legal update does not constitute the provision of legal advice or the creation of an attorney/client relationship with any party.