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1st Cir Sides With FDIC: Default on Your Loans, You Lose

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By Brett Snider, Esq. on July 08, 2013 3:58 PM

In a case that should remind us all of our loan obligations, the First Circuit affirmed that if you fail to pay your loans, despite your financial circumstances, the default is on you.

FDIC v. Estrada-Rivera had the Court sizing up a claim that a bank later taken over by the FDIC was somehow complicit in destroying a third party deal that left the appellants with no money to pay their loans.

¡Qué escándalo!

Member FDIC, Not Your BFF

Estrada-Rivera took out a loan from a Puerto Rican bank in 2008 to start his family business, and he defaulted on that loan while claiming that the bank had refused to participate in a financial arrangement from which Estrada-Rivera would have profited.

There aren't any claims of tortious interference here, simply a failure on Estrada-Rivera's part to overcome a motion for summary judgment by the FDIC, who took over the bank and its interests, and wants its money.

There's just one problem, under 12 USC § 1823(e)(1), agreements which would take away or diminish assets owed to the FDIC that aren't in writing aren't enforceable. So arguments about bad faith or promissory estoppel aside, federal law precludes this sort of weird contract claim.

Loan Not Contingent on Deal

Despite appellants' notions to the contrary, at the district court level there was no proof that their loan obligation was somehow contingent on the bank making this business deal happen.

The First Circuit stood again on § 1823(e), finding that this sort of loose arrangement in an attempt to bilk the FDIC out of their rightful interests is exactly what the law prevents. The Court rightly points out that only "material" facts can overcome a summary judgment motion, and appellants failed to produce even a scrap of written evidence to support their contingency claim.

Counterclaim Not Timely

Like with so many appellants who fail to get decent legal advice, Estrada-Rivera and his company failed to follow the proper administrative procedures before filing their claim. After filing a claim with the FDIC and receiving a disallowance, a claimant has 60 days to request an appeal or file in federal court before their claim is barred.

The court didn't touch the merits of this argument, noting that the counterclaim could not even be addressed if it was validly filed, since the FDIC declared the bank in question to have no funds left for unsecured creditors.

Since they have no injury that can actually be redressed, the counterclaim has no chance of seeing the light of day in federal court.

Bottom Line

Your loan obligations are typically severable from all of life's other problems (even death), so attempts not to pay them are typically futile.

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