What should a commercial borrower look for if it thinks it may have a lender liability claim?
Commercial borrowers should keep a close watch on the borrowing relationship and must be keenly aware of any sudden changes in lender conduct. Consider pursuing a lender liability claim if your lender:
- Wrongfully refuses to honor a loan commitment
- Wrongfully refuses to honor a ‘side deal’ that is not in the loan agreement
- Wrongfully fails to fund a loan
- Wrongfully refuses to renew a loan
- Negligently processes or administers a loan
- Misrepresents information about a borrower in responding to third-party credit inquiries
- Threatens to take enforcement action, which it does not intend to carry out but that causes the borrower to act to its detriment
- Improperly forecloses a deed of trust, a mortgage or a security agreement without giving the required notice or otherwise following proper statutory procedures
- Sells a borrower’s collateral for less than its fair market value
- Interferes, to the borrower’s detriment, with a borrower’s day-to-day management or contractual relations with third parties
- Breaches a fiduciary duty that may have arisen or that a lender may have assumed, whether purposely or inadvertently, with respect to a borrower
- Engages in other acts that may constitute a breach of the lender’s duty of good faith to a borrower in carrying out the terms of the parties’ loan contract
What are the potential consequences of failing to stay on top of your financing relationships?
Borrowers need to carefully monitor their relations with lenders to quickly recognize if they are being mistreated. Borrowers may have valid claims against lenders without realizing it. Again, this isn’t a one-sided relationship in which the lender has all the power and can do whatever it wants. If a lender engages in misconduct, a borrower must be able to recognize it and use it as leverage to bring balance back to the relationship — even if the borrower does not intend to file litigation against the lender.
Additionally, the line of communication between the borrower and lender needs to remain open. Good lenders have three separate teams — the origination team that sources the loan, the loan administration team that administers the loan and the workout team that deals with loan defaults. The borrower needs to show the administration team and, if need be, the workout team, that it is a thoughtful and savvy borrower, and that it knows how to assert leverage to bring balance to the relationship.
If you think you may have a lender liability claim, who should you consult?
The best person to consult is legal counsel who has litigated lender liability claims in the courts. The experienced litigator will be able to tell you if you really have the basis for a lender liability claim.
Monte Mann is a partner with the business litigation specialty firm Novack and Macey LLP. Reach him at (312) 419-6900 or [email protected].