Lender Liability Defenses

Common types of lender liability defenses

Snellings Law LLC represents financial institutions involved in commercial litigation over the following types of lender liability allegations:

• Commercial foreclosure issues
• Bank or mortgage fraud
• Predatory lending
• Misrepresentation
• Breach of contract
• Breach of fiduciary duty
• Bad faith claims
• Usury

Understanding lender liability lawsuits

Lender liability lawsuits borrow from two areas of law: Tort claims and contract law. Contract claims involve a breach of contract or breach of a loan agreement. Tort claims allege that some financial injury occurred to the borrower due to:

• Fraud,
• Negligence,
• Breach of fiduciary duty,
• Fraudulent concealment, or
• Breach of the implied covenant of good faith.

In tort cases, a borrower typically alleges that the lender is guilty of some kind of malfeasance and that the initial contract is unenforceable. For example, if a borrower alleges that a lender agreed to extend the maturity date of a loan upon request and then refuses when the time comes, the borrower can bring a lender liability suit against the lender.

Key to cases alleging negligence is the extent to which a lender owes a borrower a duty of care. A possible defense to a tort claim is that the lender owed the borrower no such duty and fulfilled their end of the loan contract that the borrower agreed to. However, this would not insulate a lender from a claim of fraud or fraudulent concealment.

Even in cases where a duty of care can be established, the lender can argue that the borrower was also negligent. A lender can also blame a third party for contributing negligence to the borrower’s damages. Lastly, a suit against a lender must be brought within the statute of limitations.

Litigating lender liability lawsuits

To avoid lender liability lawsuits in the first place, lenders should require that borrowers sign a forbearance agreement as a contingency to negotiating a settlement. The agreement should contain standard releases and waivers as well as an alternative dispute resolution requiring mediation prior arbitration or lawsuit. This ensures the borrower cannot file any action in a court of law against the lender. However, in certain cases, the borrower will still be entitled to a jury trial.

What to do after a lawsuit has been filed

After the borrower has filed a lender liability suit, the lender is tasked with examining the merits of the case against them. The lender will need to:

• Be responsible for gathering facts and evidence,
• Place an internal hold and preserve all documents related to the borrower
• Investigate the terms of the agreement to determine whether or not an arbitration clause exists. If it does, the case can be moved out of the courts.

Mediation is not outside the realm of possibility, and the lender should also analyze whether or not the borrower can file for bankruptcy.

Responding to a lender liability lawsuit

After the lender has determined that there are no grounds on which to compel arbitration, the first move in a lender liability suit is to find any grounds on which to dismiss the case. The lender may also want to move the case from state to federal court.

The most aggressive response at the lender’s disposal is to file a cross-complaint or an anti-SLAPP motion.

Anti-SLAPP motions in lender liability lawsuits

SLAPP suits (known as strategic lawsuits against public participation) allege that the plaintiff in a suit is attempting to silence or intimidate the defendant by burdening them with the cost of a lawsuit. The defendant must prove that the lawsuit lacks even a modicum of merit.

If a defendant files an anti-SLAPP motion, the court will determine, based on the merits of the case, whether or not the lawsuit should move forward.

To determine whether or not a lawsuit has merit, the court will use a two-factor test. First, the court will decide whether the suit hinders the exercise of the defendant’s constitutional rights. If the court determines that the suit does impede the exercise of the defendant’s rights, the court will then determine whether or not the lawsuit has a probability of prevailing based on the merits of the claim. If the court believes the case has no merit, or is unlikely to prevail based on the evidence presented, the anti-SLAPP motion will be granted and the case will be dismissed.

Anti-SLAPP motions are best employed if a defendant files a lawsuit in retaliation after a lender has exercised their rights to collect a debt.

Advantages of borrower representation

Due to the knowledge and insight into the strategy of a lender liability defense, a New Jersey banking law lawyer who represents lenders may have a slight advantage should he or she come to represent a borrower. In these cases, the attorney will need to determine what duties the lender owed to the borrower. He will also need to determine whether the lender broke or breached the trust or contract.

Contact a NJ Lender Liability Lawyer for More Information

With claims against lenders continuing to increase due to difficult economic times, many lenders may need an experienced lawyer who can build a solid defense. At Snellings Law LLC, our proficiency and intelligence, in addition to our extensive experience, allows us to handle a variety of cases ranging from complex banking law to simple disagreements. To learn more about how we can be of assistance, contact us to schedule your initial consultation. As New Jersey banking law attorneys, we are fully dedicated to our clients. We will also strive to reach the most desirable outcome for your situation.