Lender liability first became a trend in the legal practice in the 80s. This law requires lenders to consider borrowers fairly. When they don’t, borrowers may bring forth a litigation against lenders in variety of legal claims.
Lender liability usually happens when there is a breach of contract, inappropriate sales, and breach of fiduciary duty.
Understanding Lender-Borrower Relationship
While this relationship is straightforward, it can also become complex. At an everyday level, the lender gives loans and has a signed loan doc with the borrower. The document is subject to terms and conditions.
Lender Liability Cases
To know if it’s time to pursue a legal action, here are some of the lender liability case the borrower should be aware of.
1. Fraudulent Conduct
The liability may arise from the fraudulent acts of lenders. This could be a misrepresentation, violations of state, predatory lending, and even False Claims Act.
2. Bad Faith
Lenders also have the obligation to fairly deal with borrowers and keep up with the loan agreements in good faith.
3. Breach of Fiduciary Duty
This refers to one party’s obligation that has to act in the best interest of another. Lenders may also argue to limit the borrowers to bring claims that the lender and borrower relationship is fiduciary in nature, and this depends on the circumstances
4. Breach of Contract
Lenders also have civil lawsuits to sue the borrowers who breached their contracts. By working with lawyers who have experience in this field of law, the borrowers can bring effective claims and look for recoveries of the damages.
Fair Dealing in Lender-Borrower Relationship
There is a long-standing principle that the lender must act in good faith and dealing fair with the borrower. This principle has been around in the financial services industry, that’s why commercial lenders get familiar about this concept. They are expected to adhere to it, as this dealing requires them to be consistent with policies, requirements, and procedures.
Preventing Lender Liability
In lending, it is important to have transparent, full, and accurate communication with the borrower. In any case, the lenders should monitor the activities of the borrowers, especially if they see malpractice in the borrower’s activities. This is to ensure that the lender makes an action under its loan documents, of course with data privacy to preserve the lender’s capital.
While the borrower feels that the lender gives them advice, the lender should remain focused on adhering to the terms of the loan documents. And if the borrower’s controls over the business are not acceptable, the lender can easily evaluate legal options to protect the collateral, which includes bankruptcy cases.
When to Involve an Attorney for Lender Liability
Working with a lawyer becomes critical in lender liability cases. As such, when borrowers have been wronged by lenders, it could violate the duty of good faith and fair dealing. The borrower should take initiative to involve and must be willing to pay for the attorney fee. Doing so can always make a difference. It could also help you ensure the right steps are taken at every phase.