Don't Let Borrowers Turn the Tables: Assessing and Avoiding Lender Liability Claims

Analyze the most common lender liability claims and highlight the areas during the life of a loan when such claims arise.

Despite recent improvements in the nationwide economy, credit markets are still tight and loan defaults remain high. As a result, both lenders and loan servicers are at risk for lender liability claims brought by borrowers, guarantors, and even third parties. For many years, these claims were used mainly as stall tactics during foreclosure and bankruptcy proceedings, but now they are increasingly used as leverage during workout negotiations. As the market improves and borrowers have more potential equity to protect, they are becoming even more aggressive in using these claims. Third parties have also become more creative in pursuing claims against lenders related to borrower misconduct. This topic will analyze the most common lender liability claims and highlight the areas during the life of a loan when such claims arise, and will explore emerging theories of liability, including the recent resurgence of lender liability claims by developers and the rise of claims against lenders related to fraud or other misdeeds committed by the borrower. Equally important, the topic will offer concrete, practical steps for avoiding lender liability claims, and help senior management, loan officers, workout officers, special servicers, and counsel improve their ability to spot potential lender liability risks, assess claims asserted by borrowers, guarantors and third parties, and avoid lender liability claims, thereby avoiding unnecessary litigation and maximizing the lender's recovery in a challenging legal and economic environment.