When a borrower gets behind on payments to a lender, she is often given the chance to restructure that debt. After all, you can’t squeeze blood from a turnip. But such debt restructuring is often coupled with execution of a “forbearance agreement,” whereby the borrower acknowledges the validity of the debt and waives any lender liability claim she might have. If the borrower later fails to meet the new payment plan, then the lender need only sue on the forbearance agreement, without reaching back to the circumstances underlying the initial loan.
In RL Regi North Carolina, LLC v. Lighthouse Cove, LLC, decided today, the Supreme Court of North Carolina upheld broad waiver language in such a forbearance agreement, rejecting a guarantor’s claim that she was discriminated against based on marital status in violation of the Equal Credit Opportunity Act (“ECOA”). The guarantor’s claim hinged on the borrower’s alleged conduct in issuing the initial loan and procuring her guaranty, not on the borrower’s conduct in securing the forbearance agreement. Because the forbearance agreement included a waiver of “any and all claims” arising out of the lending relationship, the ECOA claim was no longer available to the guarantor.
The Court seemed to rest its analysis on the notion that it does not violate public policy to enforce a contract waiving an existing claim in this context. The analysis may have been different had the guarantor been required to prospectively waive her ECOA claim in connection with the initial loan documents.
For the many lenders holding forbearance agreements entered into during the recession, this unanimous opinion is nothing but good news.