by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
randolphp@umkc.edu

MORTGAGES; MORTGAGEE'S DUTY OF CONFIDENTIALITY: Bank mortgagee has no duty to maintain confidentiality with regard to the status of a mortgagor's loans.

Hopewell Enterprises, Inc. v. Trustmark National Bank, 680 So.2d 812 (Miss. 1996).

Mortgagor, who apparently was relatively unschooled in business, discovered a valuable artesian well on his property. In connection with attempts to develop the well, he apparently fell into "bad company" and executed several mortgages on his property to secure loans to himself and a business advisor who in fact never was able to assist him in his development project.

In interviewing others who might be of assistance in developing the resource and dealing with the looming bank debt already incurred, the landowners were visited by a party who told them that he had been to the bank and that the bank had told him the amount of the indebtedness and the default status of the notes. In fact, there was an allegation, apparently not credited by the appeals court, that the mortgagee told the buyer "why deal with [landowners] when you can buy this property at foreclosure on the courthouse steps?"

The trial court had found nominal actual damages for all of this but had awarded punitive damages of $25,000.

On appeal, held: reversed. As a matter of law, a lender has no duty of confidentiality regarding the debt status of persons who have borrowed money from it. The court differentiated the bank's duty of confidentiality regarding the interests of depositors.

The court did indicate that the lender might have a duty not to make the borrower's information public, as this would be a breach of privacy, but indicated that a private communication such as that alleged here was different.

The court also held that the relationship between mortgagor and mortgagee is not a fiduciary one as a matter of law and no fiduciary relationship arises in contractual agreement unless relationship goes beyond parties operating on their own behalf.

Finally, the court held that there was no duty on the part of the bank to reveal the contents of a report that the bank had commissioned that estimated the value of the water resource on landowner's property at almost a million and a half dollars. (The bank was foreclosing to collect $60,000.) The court distinguished other cases holding that a foreclosing lender might have to provide information regarding offers to purchase the property. Note that the borrower had knowledge of the existence of the report and sought to know its contents in connection with working out a bankruptcy proceeding.

Comment: The editor concurs that there should be no fiduciary duty, and in general not duty to reveal information that the lender has collected for its own business purposes. But the notion that banks are free to disclose information concerning the borrower's personal finances to third parties without the borrower's permission strikes the editor as beyond what borrowers normally expect of the borrower/lender relationship. What do DIRT readers think about this one?

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