Lender Liability Returns: Sample Cases and Situations
It has been a long, long time since claims of lender liability received any real attention. Indeed, Mike Baggett co-authored a book in the early '90s on lender liability. Mike's book was somewhat of a best seller among the tough time for lender crowd (which is tough for me to admit, since I went to Texas and Mike went to Texas A&M —and as an former "yell leader" at TAMU, Mike is an "Aggie's Aggie").
Since then, however, the topic has fallen off everyone's radar screen. The fall off has been this dramatic: the publisher of Baggett's book has NOT updated it since the initial publication, and it is out of circulation. But to give you a sense of how we see lender liability creeping back into play, below is a short list of where we're dealing with it now.
If nothing else, it will equip you to watch for similar situations—and perhaps get ready. As always, if you have an example or a question or comment, please post it.
- Defending National Banking Association in a currently certified class action in the Eastern District of Texas challenging the bank's status as trustee for approximately 220 trusts. The bank is the latest successor trustee in a series of successor trustees and fiduciary substitutions and appointments dating back to the late 1980s. The class alleges defects in the trusteeship chain of title which purportedly disqualify the defendant bank from serving as trustee. The class seeks to recover all trustee fees paid to the bank and its predecessors, together with appointment of new trustees. Class certification is on appeal to the Fifth Circuit.
- Currently defending REMIC Trust Lender in state court action alleging Special Servicer induced borrower into making property renovations by misrepresenting its intent to extend loan maturity and interfered in borrower's efforts to secure refinancing.
- Secured judgment for Hedge Fund that acted as lender to high-end residential subdivision developer. Developer contended lender breached promise to lend additional sums to complete subdivision and negligently advised borrower in connection with the development.
- Represented lender against allegations by commercial developer/office building owner that lender had failed to fund multimillion dollar construction loan.
- Representing bank where borrower and guarantor allege failure to fund and credits on guarantee liability in connection with California residential development.
- Represented lender against claims that it and its president had aided and abetted borrower's securities fraud, including borrower's theft of millions of dollars belonging to securities customers.
- Defended lender against counterclaim that it had improperly ceased funding loan. Lender had sued borrower and guarantor for misappropriating collateral in asset based funding arrangement.
- Defense of National Banking Association in state court against lender liability lawsuits alleging claims for improper loan servicing and wrongful foreclosure.
- Defended national residential mortgage lender in state court against lender liability actions for wrongful foreclosure.
- Successful jury verdict for National Savings and Loan Association to collect debt owed by borrower on SBA loan. Borrower counterclaimed that bank had misled it about the profitability of the business to induce the loan.
- Defended Lender against borrower's claim that bank had refused to refinance or modify construction loan and wrongful foreclosure on partially developed subdivision, including private water utility.
- Defending national bank in Arizona against allegations that one of its workout officers conspired with one of the borrower's officers and other borrower-insiders to steal the borrower (a closely held corporation) from its owners through a negotiated private sale of the borrower's assets. The borrower held inventory, equipment and AR securing the $33M debt.
