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May 4, 2022 Collections

What are Common Litigation Tactics in a Lender Liability Lawsuit?

Someone filling a lender liability lawsuit

As defined by the International Risk Management Institute (IRMI), a lender liability claim is a type of legal action in which a borrower alleges that they suffered damages “caused by the wrongful acts of a lending institution.” These claims take many different forms—and banks and other financial institutions must be fully prepared to face this type of legal action. 

This raises an important question: What type of strategies can lenders expect when they are facing liability litigation? While every case is unique, plaintiffs (borrowers) often use similar strategies in litigation. Here, our New Jersey lender liability defense attorney highlights some of the most common litigation tactics that lenders should be ready to address when facing a lawsuit. 

Four Litigation Tactics that You Should be Ready for When Facing a Lender Liability Claim

1. Flooding of the Zone With Many Different Types of Claims

Lender liability is essentially an umbrella term that covers a wide variety of different types of claims that banks, mortgage services, and other financial institutions may face from borrowers. One of the most litigation tactics that lenders should expect is effectively a “flooding of the zone.” In other words, plaintiffs may allege a wide array of different violations on behalf of the lender hoping that something will stick. Some examples of the grounds for a lender liability claim include: 

  • Breach of fiduciary duty;
  • Lender fraud; 
  • Common law negligence; and 
  • Contractual violations.  

A plaintiff may even try to pressure a defendant into an unfavorable settlement by making a significant number of different claims, thereby making it appear as though the lender may face a greater risk of potential liability than is actually realistic given the underlying circumstance. Defendants should always be ready to face complex allegations. An experienced New Jersey lender liability defense lawyer can help you and your firm evaluate and address every allegation. 

2. Allegations of Breach of Oral and Implied Contracts—Especially Regarding Forbearance

While a wide range of different types of allegations can be raised in lender liability lawsuits in New Jersey, the most challenging cases often involve allegations that an oral contract was breach or that an implied contract was breach. This specific type of claim is frequently an issue in mortgage forbearance cases. 

Through a lender liability claim, a plaintiff may try to assert that a bank or mortgage company “promised” some sort of forbearance. It is imperative that lenders are prepared to defend this type of legal action, particularly when there is no merit to the case. Lenders should carefully document any discussions regarding mortgage forbearance with a borrower. 

3. Delay, Delay, Delay

A large share of lender liability claims are filed by borrowers that are already in foreclosure who are at immediate risk of foreclosure. Many of these claims are simply without merit. However, that does not mean that they should be taken lightly. Indeed, a borrower may file a lender liability claim, at least in part, in order to create another roadblock in the foreclosure process. 

Delay is a common litigation tactic that lenders should be prepared to address when facing a liability claim. There are proactive measures that lenders can take to put themselves in the possible position to protect their legal rights and financial interests. As an example, well-handled discovery can help lenders get unsupported cases dismissed in a more timely manner. 

4. Attempts to Get an Arbitration Clause Ruled Unenforceable

Many lending agreements contain a mandatory arbitration clause. When valid, a forced arbitration provision will be upheld in New Jersey. It will require the parties to have their dispute resolved through a private arbitration process, and not in state or federal court. In general, arbitration of a lender liability claim is faster and less costly for banks and other financial institutions. In the early stage of a dispute, a plaintiff may try to find a way to “wiggle out” of a mandatory arbitration agreement. It is imperative the lenders are prepared to assert their rights—invoking arbitration whenever it is appropriate. 

Schedule a Confidential Consultation With a NJ Lender Liability Lawyer 

At Snellings Law LLC, our New Jersey lender liability defense attorneys are skilled, experienced advocates for our clients. If you have any specific questions or concerns about the litigation tactics that can be used in a lender liability case, we are more than ready to get started. Give us a call or send us a direct message for your confidential, no obligation case review. With a law office in Parsippany, we provide lender liability defense representation throughout New Jersey.