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Finding the Unicorn in Lender Liability Litigation

September 14, 2017

Authors

Jerry Blanchard

Finding the Unicorn in Lender Liability Litigation

September 14, 2017

by: Jerry Blanchard

Investors frequently talk in terms of trying to find the next unicorn, that small start-up company that is going to turn into a billion dollar valuation.  Lawyers are like that as well, always looking for that new decision where a court opens a crack in the door of some long held legal theory. Something like this occurred in the 1980’s when the courts in California held that a party could bring a tort action for the breach of the obligation of good faith. The courts were expanding a doctrine that then existed only in the area of insurance contracts. The expansion of this theory to noninsurance contracts generated universal criticism by other courts and scholars across the US and after a ten year experiment the California Supreme Court reversed its earlier decision

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Before You Comment on My Haircut, Think Again

May 10, 2017

Authors

Jerry Blanchard

Before You Comment on My Haircut, Think Again

May 10, 2017

by: Jerry Blanchard

Back in 2008 and 2009 Eddie Liles lent around $102,000 to his brother Dallas to purchase rental properties at 554 South Shore Drive and 540 South Shore Drive in Greenup County, Kentucky, as well as a 2008 Ford 4×4 truck.  The brothers signed a Loan Agreement that provided the loan would be interest free and that the loan for 554 South Shore Drive to be repaid first, followed by the loan for the truck, and finally the loan for the 540 South Shore Drive. The Loan Agreement called for Dallas to make payments of “ [a] minimum of $600.00 per year,” which it specified could be “multi-payments or one payment of $600.00.” It was also clear that Dallas could pay more than $600 per year towards the indebtedness, if he so desired.

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California Court Rejects “Sham Guarantee” Defense

October 13, 2016

Authors

Bryan Cave

California Court Rejects “Sham Guarantee” Defense

October 13, 2016

by: Bryan Cave

Bryan Cave LLP recently served as counsel for amicus curiae California Bankers Association (“CBA”) and helped score a victory in an important California appellate case of great interest to the banking industry,  LSREF2 Clover Property 4 LLC v. Festival Retail Fund 1 357 N. Beverly Drive LP (Second District, California Court of Appeal case number B259937).

The trial court had ruled that the guarantor of a commercial loan was excused from performance on the grounds that the guaranty was a “sham,” structured by the lender to circumvent California’s anti-deficiency laws.  The guarantor essentially argued that there was no legal separation between it and the borrower because it was the borrower’s “alter ego,” and as support they identified evidence that the two entities failed to observe basic corporate formalities.  According to the guarantor, it should be excused from its obligations because it was essentially the same as the borrower, and

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Agreeing to Lower an Interest Rate is Fraudulent?

September 2, 2015

Authors

Jim Goldberg

Agreeing to Lower an Interest Rate is Fraudulent?

September 2, 2015

by: Jim Goldberg

When is a loan modification that reduces the borrower’s interest rate fraudulent and not “benevolent” under the UCC?  Maybe when the lender extends the loan repayment period or procures a guaranty from HUD, according to one federal district court.

A husband and wife took out a mortgage. After their divorce, the ex-wife agreed with the lender to modify the mortgage to lower the interest rate by 2%, allegedly without the knowledge or consent of her ex-husband. The lender considered the husband obligated to make the modified mortgage payments and reported him to credit reporting agencies when payments were missed.

The ex-husband brought claims against the bank for breach of contract, violation of the Fair Credit and Reporting Act and defamation. He asserted he was discharged from the mortgage due to the loan modification.

The lender moved to dismiss the case at the outset by arguing that as a matter of

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Lenders and Collectors Beware: Missouri Expands Coverage of Consumer Protection Act

September 8, 2014

Authors

Jeffrey Russell and Jonathan Potts

Lenders and Collectors Beware: Missouri Expands Coverage of Consumer Protection Act

September 8, 2014

by: Jeffrey Russell and Jonathan Potts

In companion opinions issued on August 19, 2014, the Supreme Court of Missouri held that unfair practices associated with residential foreclosures occur “in connection with” the original sale of a mortgage loan and therefore fall within the scope of the Missouri Merchandising Practices Act (“MMPA”).  See Conway v. CitiMortgage, Inc., — S.W.3d —-, No. SC 93951, 2014 WL 4086671 (Mo. banc Aug. 19, 2014); Watson v. Wells Fargo Home Mortg., Inc., — S.W.3d —-, No. SC 93769, 2014 WL 4086486 (Mo. banc Aug. 19, 2014).  In Watson, however, the court also held that unfair practices associated with loan modification negotiations between a lender and borrower do not occur “in connection with” the original sale and cannot form the basis for an MMPA claim.

The MMPA is a consumer fraud statute that provides both the Missouri Attorney General and consumers the right to bring actions against individuals who engage

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Third Party Communications can Lead to Lender Liability

July 21, 2014

Authors

Jerry Blanchard

Third Party Communications can Lead to Lender Liability

July 21, 2014

by: Jerry Blanchard

When a lender underwrites a loan application it examines the borrower’s business and makes a decision about whether the business model is acceptable to it, whether cash flows are adequate and whether sufficient collateral exists to secure the loan. If the borrower is expanding its business operations the lender may decide whether the new operations make sense to it. Likewise, if a borrower is purchasing a major piece of equipment the lender might indicate that it does not finance certain items or it might say that it only finances such equipment on certain terms. The point is that the terms of what the lender finds acceptable will be contained in a commitment letter setting out all of the terms of the loan or in the actual loan documentation.  As part of that process the lender may be a part of conversations the borrower has with various vendors such as ones

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Major Loan Participation Decision Affecting FDIC Successor Rights

April 13, 2014

Authors

Jerry Blanchard

Major Loan Participation Decision Affecting FDIC Successor Rights

April 13, 2014

by: Jerry Blanchard

One of the very powerful rights that the FDIC possesses in any receivership is a provision added by FIRREA which states that the FDIC may enforce any contract entered into by the depository institution notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason of, insolvency or the appointment of or the exercise of rights or powers by a conservator or receiver (i.e., “ipso-facto” clauses). Many typical vendor contracts will oftentimes contain just such a clause providing that one party to the contract can terminate the contract at will if the other party files for relief under the Bankruptcy Code or is taken over by the government. The logic is pretty compelling, a party wants to be able to decide if it is comfortable dealing with an entity that is insolvent or attempting to reorganize.

​A recent Georgia Court of

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The Anti-Tying Rules: Recent Case Illustrates Problems for Banks

March 10, 2014

Authors

Jerry Blanchard

The Anti-Tying Rules: Recent Case Illustrates Problems for Banks

March 10, 2014

by: Jerry Blanchard

A loan negotiation generally follows the lines of each party setting out its “want” list and then using whatever leverage it brings to the table to accomplish its goals.  The lender typical wants to get paid back in a reasonable time frame and at a market rate while possibly generating other business income from things such as selling cash management services while the borrower wants to obtain favorable repayment terms that leave it with as much discretion to run their business as possible. The size of the loan, documentation costs, regulatory pressures and possible past dealings are all issues that affect the negotiation.

Sometimes the lender’s “want list” includes things such as the borrower providing guarantees or additional collateral or even retaining a consultant to advise the borrower on developing a better business plan. In preparing its request for such items, lenders must work within the strictures set out in

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Bank Has No Obligation to Inform Borrower of Bank’s Impending Failure

October 25, 2013

Authors

Jerry Blanchard

Bank Has No Obligation to Inform Borrower of Bank’s Impending Failure

October 25, 2013

by: Jerry Blanchard

One of the ironic issues for failing banks has been the fact that banks that they have had to continue to deal with their borrowers and depositors in the ordinary course of business even though they are already in the queue for resolution by the FDIC. So for example, loans continue to get renewed and documents executed. What happens if you renew a loan shortly before the bank fails, do you have some sort of defense to enforcement of the loan when the successor bank or the FDIC makes demand on you? The Georgia Court of Appeals recently dealt with a set of facts like these in the case of CSS Real Estate Development I, LLC v. State Bank & Trust. CSS Real Estate had entered into a credit relationship with The Buckhead Community Bank d/b/a The Alpharetta Community Bank in February of 2007 to obtain funding to purchase land

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Update Needed to Missouri Loan Document Forms

September 12, 2013

Authors

Beth Haden

Update Needed to Missouri Loan Document Forms

September 12, 2013

by: Beth Haden

The Missouri Credit Agreement Statute of Frauds applicable to commercial transactions, RSMo. § 432.047, has undergone an important change, and in order to be protected by the revised statute, lenders must update the language contained in their form loan documents.

Effective August 28, 2013, any loan or workout documents that meet the definition of a “credit agreement” under the statute, must contain the following language, in at least 10 point boldface type (changes are italicized):

ORAL OR UNEXECUTED AGREEMENTS OR COMMITMENTS TO LOAN MONEY, EXTEND CREDIT OR TO FORBEAR FROM ENFORCING REPAYMENT OF A DEBT INCLUDING PROMISES TO EXTEND OR RENEW SUCH DEBT, ARE NOT ENFORCEABLE, REGARDLESS OF THE LEGAL THEORY UPON WHICH IT IS BASED THAT IS IN ANY WAY RELATED TO THE CREDIT AGREEMENT.  TO PROTECT YOU (BORROWER(S)) AND US (CREDITOR) FROM MISUNDERSTANDING OR DISAPPOINTMENT, ANY AGREEMENTS WE REACH COVERING SUCH MATTERS ARE CONTAINED IN THIS WRITING, WHICH

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