lender's exposure to financial compensation claims relating directly or indirectly to actions taken by the lender. Lender liability is a complex topic; but lenders may be placing themselves at risk if they assume a controlling interest in a borrower's business.
In view of lender liability claims in recent years, lenders can no longer rely on traditional views of acceptable conduct in extending credit and collecting repayment once a loan has been made.
the responsibility of a bank, S&L, or credit union to a potential borrower to whom it has made a loan commitment. Should the lender fail to provide the loan as promised, it may be responsible for damages suffered by the potential borrower. These can be substantial amounts, especially if the borrower's business failed because of a cash shortage.
the responsibility of a lender for damage to a business, when the lender fails to fund a loan commitment.
Example:Bad Faith Federal (BFF) issued a commitment to Dewey Development Company (DDC) for $2 million to rehabilitate an apartment complex. BFF failed to provide the money, causing DDC to lose $3 million. BFF may be liable for that loss under lender liability law.the possible responsibility of a lender who forecloses on and operates a business that is the site of environmental contamination for cleanup of the property. Under Fleet Factors and the EPA's April 29, 1992, rule, lenders who foreclose just to protect security interest may not be liable for the cleanup.
Example:Real estate values were falling, and BankTwo foreclosed on property that was behind in payments. Although BankTwo became the owner and the property is contaminated, the bank may not be liable for cleanup.
