“Lender liability claims frequently increase where volatile economic conditions lead to a rise in borrower defaults and less willingness by lenders to offer additional credit. Often the borrowers have failed to pay back loans and use litigation to claim that the lender was really to blame for a default,” writes Daniel B. Moar, partner in Goldberg Segalla’s Business and Commercial Practice Group.
In his article, Dan explains the basics of breach of contract, breach of fiduciary duty, tortious interference, and “control” liability, and ways lenders can minimize their likelihood of litigation and liability.
“When lenders are in preliminary discussions with prospective borrowers regarding the possibility of providing a loan, lenders should clearly and expressly note in writing that a loan commitment letter or other preliminary document is subject to a definitive loan agreement,” explains Dan in reference to minimizing liability at the start of the lending process. He continues on to highlight the various provisions lenders should include in loan documents such as prohibiting oral modifications, and seeking a personal guaranty.
Dan concludes by stating, “Lenders will continue to face an increase in lender liability claims originating in the Great Recession because of delays in commencing suit and delays in ongoing litigation. Additionally, economic volatility will ensure that such claims are an enduring reality for lenders.”