Funds News

Dykstra drops JPMorgan suit, foreclosure looms

* Dykstra drops lawsuit

* Trustee, JPMorgan in agreement to allow home foreclosure

NEW YORK, March 29 (Reuters) - Lenny Dykstra has dropped his $100 million predatory lending lawsuit against JPMorgan Chase & Co JPM.N, and the bank has reached an agreement with a bankruptcy trustee to let it foreclose on the former baseball center fielder's California mansion, court filings show.

Dykstra had alleged that Washington Mutual Inc, now owned by JPMorgan, fraudulently induced him to borrow more than he could afford to buy the $17.4 million Thousand Oaks home from hockey legend Wayne Gretzky, only to renege on a promise to let him refinance.

The agreement with JPMorgan calls for the bank to pay $400,000 to Dykstra’s estate and give up its interest in a possible $500,000 insurance settlement claim.

In exchange, the trustee liquidating Dykstra’s estate agreed to let JPMorgan “proceed with its applicable remedies under state law to foreclose” on the six-bedroom, eight-bath home, and to pay the bank $92,000 from insurance proceeds to clean up the trash-strewn property.

“The trustee and the lender believe that any litigation concerning the loan and/or the property would likely be time-consuming, factually complex and expensive,” a lawyer for the trustee Arturo Cisneros wrote.

JPMorgan is owed at least $13 million on its home loan, court records show. The home is up for sale for $14.9 million.

It is unclear why Dykstra dropped the lawsuit after just nine days. The dismissal was disclosed in a Friday filing in Manhattan federal court. The JPMorgan agreement was disclosed in a March 23 filing in a California bankruptcy court.

JPMorgan spokesman Tom Kelly declined to comment. A New York lawyer representing Dykstra did not immediately return a request for comment.

Cisneros separately urged the California court to reject Dykstra’s bid to dismiss his Chapter 7 bankruptcy case, saying “there is no evidence” that the debtor has the ability to repay the $43.7 million owed creditors outside of bankruptcy.

The trustee contended that Dykstra has failed to act “in the best interest” of creditors, pointing to Dykstra’s having allegedly pawned World Series and All-Star rings and trophies just before his bankruptcy for much less than their worth.

Dykstra has alleged that Cisneros is “only interested in dumping assets as quickly as possible.”

The former New York Mets and Philadelphia Phillies player retired from baseball in 1996 after a 12-year career.

Hearings on Dykstra’s motion to dismiss his bankruptcy case and on the JPMorgan agreement are set for April 6 and April 13, respectively, California court records show.

The bankruptcy case is: In re Lenny Kyle Dykstra, U.S. Bankruptcy Court, Central District of California, No. 09-18409. The JPMorgan case is Dykstra v. JPMorgan Chase & Co, U.S. District Court, Southern District of New York, No. 10-02413. (Reporting by Jonathan Stempel; Editing by Steve Orlofsky)