Lender Liability: How it Affects Lawsuits
Lender liability is a body of law that has been developed over the decades to hold lenders liable when they fail to uphold their fiduciary duties to their borrowers. In fact, Braverman Kaskey Garber was the first Pennsylvania firm to win such a case for a borrower intended to hold lenders legally responsible for the actions they did or did not take during the lending process. When you suspect that a lender has failed to uphold its end of the agreement or led you to believe it would perform a certain way but did not, contact us at Braverman Kaskey Garber. You have the right to recourse, and a business attorney Pennsylvania may be able to help.
Understanding the Basics of Lender Liability
It used to be that borrowers almost never sued lenders for liability in financial transactions. Lenders frequently hid behind an evidentiary rule known as the “parole evidence rule.” This rule made verbal agreements that were not written down in the contract inadmissible in court. A lender would make verbal promises to the borrower, then renege and deny they made the promise and sue the borrower for breach of contract.
Lenders still try to engage in this activity, but lender liability laws make it much more difficult for them to succeed. Borrowers turned to PA business lawyers for help with enforcing verbal agreements and breach of contract and fraud. Over time, the laws evolved to give borrowers the opportunity to have their day in court against unscrupulous lenders.
The Different Types of Lender Liability
Lender liability issues come in different forms, but the lender’s goal is the same in all cases: to minimize their responsibility for fraudulent or unethical actions at the expense of the borrower. Lender liability includes:
- Breach of contract or fraud
- Fiduciary relationship
- Inappropriate sale of collateral
Breach of Contract and/or Fraud
All financial transactions involve the creation of a written contract that’s used to hold both parties responsible to perform according to an agreement. Essentially, the lender agrees to loan money to the borrower, and the borrower agrees to repay the money at an agreed-upon schedule. However, the contract doesn’t prevent a lender from making verbal promises or inducements to the borrower, then failing to perform while benefiting in some way.
Breach of contract and/or fraud can consist of a lender making verbal promises and claiming that the promises will be written into the contract but failing to do so or changing the terms of the contract without warning. The lender may promise that their verbal promises are valid and to not be concerned with the changes in the written contract to encourage the borrower to sign the contract. Once the contract is signed, the lender denies their verbal promises are valid and proceeds to sue the borrower for failure to perform pursuant to terms of the contract.
When a lender and a borrower engage in what’s known as an arm’s length transaction in which the lender loans money to the borrower, the relationship is not a fiduciary relationship. However, when the lender provides financial advice and encourages the borrower to take certain actions with the money they borrowed, the relationship becomes a fiduciary one in that the lender is now a financial advisor. Lenders who provide financial advice in this fashion ultimately become responsible for the outcome of the actions taken by the borrower as the borrower was following their advice.
Inappropriate Sale of Collateral
When a borrower defaults on a loan that’s been secured by collateral, the lender can take the collateral and sell it to satisfy the debt. However, when a lender knowingly sells the collateral for an amount that’s less than it’s worth on the open market or has it under-appraised for sale at a lower amount, the lender can be held liable by the borrower for an inappropriate sale. The borrower, with the help of a business attorney Pennsylvania, can move to eliminate responsibility for the remaining balance owed to the lender and walk away from the debt due to an inappropriate sale.
All of these issues are best handled by a business attorney PA who can enforce lender liability laws on your behalf. PA business attorneys can uncover fraudulent actions taken by the lender and take actions to resolve the issue.
Contact the Law Firm of Braverman Kaskey Garber for Help with Lender Liability
At Braverman Kaskey Garber, we can help you secure a resolution in a lender liability case. Our law office is staffed by Pennsylvania business attorneys who are knowledgeable, experienced, and will work tirelessly on your behalf.