What is Lender Liability?
Lender liability is an area of law that protects borrowers who have been wronged by lenders that failed to uphold their contractual obligations or treat them fairly in regard to loans and loan agreements. Whether borrowers have contractual relationships with lenders for small operational expansions or to fund multi-million dollar projects, financial service providers must treat them fairly. When they don’t, borrowers have a right to take action.
At Spangenberg Shibley & Liber LLP, our legal team works with individuals and businesses – including companies in bankruptcy or receivership – to help them explore their rights against banks, financial institutions, and other lenders who have violated their obligation to act in good faith and treat them fairly, whether contractual or implied.
Types of Lender Liability Cases
When determining whether it is time to pursue legal action against a lender, and involve an experienced attorney to guide you through the process, consider the following:
- Breach of contract – Lenders have long used civil lawsuits to sue borrowers who breached loan agreements. With the rise of lender liability, borrowers now also have a right to sue lenders who breach contractual obligations established in a loan agreement, such as failing to honor a loan commitment. By working with attorneys who have experience in this area of law, borrowers can position themselves to bring effective claims and seek recoveries of their damages.
- Fraudulent conduct – Lender liability may arise from the fraudulent conduct of lenders, such as fraudulently induced agreements, misrepresentation, predatory lending, or other violations of state or federal laws, including the False Claims Act. While fraud may result in criminal investigations and criminal penalties or civil sanctions, borrowers will need to take legal action in civil court to recover their own damages.
- Breach of fiduciary duty – Fiduciary duty refers to the obligation one party (the fiduciary) has to act in the best interest of another. Depending on the circumstances, lenders may argue to limit borrowers in bringing claims that the lender-borrower relationship was fiduciary in nature. However, borrowers can work with attorneys to explore their options in determining whether a fiduciary duty may have arisen in regard to carrying out loan agreement terms or was assumed by a lender due the scope of their control over a borrower.
- Bad faith – Lenders have an obligation to deal fairly with borrowers and handle loan agreements and relationships in good faith. There are many ways they may fail to do this that can be grounds for lender liability claims, including improper default or foreclosure notices, improperly enforcing personal guarantees, wrongfully interfering with third party contractual relationships or a borrower’s daily activities, wrongfully failing to honor or renew loans, and more.
Our objective in lender liability cases is to ensure banks, financial services, and other lenders treat their customers and borrowers fairly. Because these financial institutions have considerable power and deep resources, working with an attorney becomes critical to leveling the playing field. As such, borrowers who have been wronged by lenders that violate a duty of fair dealing or good faith should take initiative to involve a lawyer as soon as they can. Doing so can make the difference in one’s legal journey, and can help ensure the correct steps are taken at every phase.
Lender liability is a complex and evolving area of law, and it is not one all attorneys are equipped to handle. With extensive experience handling these cases, our legal team at Spangenberg Shibley & Liber LLP is prepared to help evaluate your situation, explore your available options, and seek the best possible resolution.
To discuss a potential case, contact us for a free consultation.