Lender Liability Ė Itís Still Out There

By Robert Wenger, Jr.

Lender liability can come in many forms and can park on a lenderís doorstep at any time.† Following is a partial list of instances where lender liability may exist:

Unauthorized release of confidential information

Failure to provide promised financing

Faulty documentation or procedures

Providing faulty business advice

Inadequate disclosure

Business development and lending officers lead a life that requires sophistication and discipline.† Theyíre pushed by management to build loan totals, cross sell various non-loan bank services, and stay close to the customer to build commitment to the bank / customer relationship.† This may mean attending events with a customer, inviting them over to watch a ball game or any of a number of things to develop a bond.

When things are going well on both sides of the relationship, life is good.† But, when things get off track, memories get short and negotiations often fall apart.† Thatís when attorneys get involved and lawsuits are filed.† How do you avoid it?† Sometimes, it canít be avoided, but there are things that can be done to reduce the possibility of it happening.

First of all, a clear guideline and discipline must be ingrained in the culture of the lending organization.† Lenders must understand what is appropriate and what is not, even if it means role-playing in a training session.† Customers come from all levels of business.† They cannot be expected to take the lead.

Key precautionary actions that can be taken:

Extra care should be taken to avoid over-promising in sales calls

Agreements should be in writing

Written agreements should state there are no agreements other than those included in the written agreement

If there is a deviation from the agreement, a written modification should be executed

Business and personal relationships must be differentiated

If lender has a strong personal relationship with a customer, it would be a good idea to move the customer to a different account officer

Consulting with a customer is good from the perspective that the lender generally has a broad view of the customerís industry and financing alternatives

Consultations should be generic and not disclose other clientsí trade information

Referrals and advice should always give the customer multiple choices on how they operate their company or who they choose to do business with

What if you find yourself toe to toe in a lender liability lawsuit?

Make sure you have an attorney that understands lender liability.

Discovery should be thorough.† Seemingly small details can make a big difference.

A good expert can sift through details and identify and present points that support your side of the case.

Robert Wenger has worked in banking and real estate finance since 1972, serving clients in California, Oregon, Nevada, Utah, Arizona, Colorado, Kansas, Nebraska and Hawaii.† During his career, Mr. Wenger has been responsible for originating and servicing agricultural loans and managing over 100,000 acres of agricultural property for an insurance company, managing a $450 Million special asset portfolio for a niche lender and managing special assets and loan operations at three community banks.†† Mr. Wenger is a California real estate broker and has provided expert witness services in the areas of banking, real estate finance and agriculture for the past 10 years and has instructed home buyer education classes for the past 7 years.

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