Unclean Hands Defense Difficult to Prove
A borrower can not rely on the defense of unclean hands unless the borrower relies on the lender’s misconduct, according to the 4th DCA in a recent case, Wells Fargo Bank, N.A. v. Williamson, 4D 15-286 (Fla. 4th DCA, July 13, 2016). In the case, the defendant, Willimanson, made application for a mortgage loan from Wells Fargo’s predecessor, Washington Mutual to purchase a new home. As successor to Washington Mutual, Wells Fargo filed for foreclosure after borrower defaulted on the loan. Borrower filed affirmative defenses which included Washington Mutual committed fraud and used unclean hands in securing the loan.
The basis of borrower’s defense was that Washington Mutual’s consultant overstated the borrower’s assets, income and ownership in real estate, thus falsifying the loan application. Borrower concluded that Wells Fargo knew or should have known of Washington Mutual’s fraudulent behavior and if it didn’t, then Wells Fargo did not exercise care in its due diligence and should be made to assume the consequences.
The trial court found that the loan consultant had acted alone in mis-stating the information on the loan application and borrower did not take part in the falsification. Wells Fargo knew of the conduct and acquiesced to it or failed to conduct due diligence, which is similar misconduct. Therefore, the trial court granted borrower’s motion to dismiss and granted judgment in favor of borrower.
The appellate court reversed, finding that the borrower had time to review the loan documents, including the falsified application, was not coerced into signing the documents and actually received the loan terms that she wanted. She successfully paid the mortgage for 4 years. To establish a defense of unclean hands, a defendant must have relied on the plaintiff’s misconduct and prove harm was caused by the misconduct. None of these factors existed. Washington Mutual did not act with unclean hands. Therefore, the successor, Wells Fargo, could not be held to such a standard.
It does appear, however, that had the standard been met, had Washington Mutual acted fraudulently, that behavior could have been imputed onto Wells Fargo. Lenders beware.