In re Hill

The Hills (plaintiffs) bought a home for $220,000. As the home’s value increased, the Hills refinanced the original deed of trust and obtained a junior deed of trust that they refinanced several times. The Hills eventually filed for chapter 7 bankruptcy. National City Bank (the bank) (plaintiff) was the foreclosed-out holder of the junior deed of trust. A year before bankruptcy, the Hills contacted mortgage broker Ellerback to refinance the second deed of trust for a new equity line of credit in the amount of $200,000 with the bank. The Hills’ combined gross annual income was listed as $145,000 on the loan application. Approximately six months later, the Hills increased their line of credit directly with the bank to $250,000. The Hills listed their combined annual income as $190,000 then. The Hills provided a letter attesting to Mrs. Hill’s business and verifying her self-employed income on an accountant’s letterhead, but otherwise the bank required no proof of income. The verification letter was signed actually by someone other than the named accountant. The bank never questioned the increase in claimed income during the six-month period between the two loan applications or verified the claimed income. The Hills’ combined gross annual income never actually exceeded $65,000. The bank sought to except its $250,000 claim from the Hills’ chapter 7 discharge under 11 U.S.C. § 523(a)(2)(B).