When Lenders Play Hardball – Lawyers and Business Executives in the News

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After leaving the Santa Barbara City Attorney’s Office for private practice, A. Barry Cappello began noticing that few people would bring lawsuits against big banks – particularly when it came to lender liability. Cappello realized it was a potential niche for his firm, Cappello & Noel (http://www.cappellonoel.com/).

“Nobody was suing the banks because they were hiring the biggest lawyers in the world, and I didn’t think that was right,” Cappello said in an interview that can be heard exclusively at http://www.prlawinc.com/. “While they’re good lawyers, they’re just lawyers and it’s one against one in court.”

Cappello emphasizes that buyers do have some recourse, even when they face some of the biggest banks and the best law firms. Lender liability, by his definition, is illegal conduct in the civil sense against borrowers that destroys or harms borrowers. It can include fraud, breach of contract and breach of the covenant of good faith.

“Lender liability always comes up when the economy is bad and the banks are actually suffering,” Cappello said. “What banks will do is make decisions to cut out or eliminate the business borrower. They’ll stop lines of credit when they have no right to, they’ll insist that the workout people go in when the workout people are not needed or are incompetent.”
Another technique could involve pulling the plug on a development project when it is only halfway finished in an effort to cut losses – before there are even losses to be cut.

Cappello advises clients to not be too quick to make a deal with the lender when lender liability issues arise. It’s at that point that a lender will flip in a release or a jury trial waiver. While specialists like him are not usually needed in the contract phase, he does advise clients to never sign a deal that has a clause waiving a jury trial.

“Cross it out, initial it and move on,” he said on reviewing such contract clauses.
Cappello’s firm advises clients to follow ten rules when dealing with their banker.

They Include:

1. Don’t rely on what your banker tells you; get it in writing.

2. If you get a loan commitment, be sure it is in writing and includes all the terms of the loan.

3. Get all important statements by your loan officer confirmed in writing.

4. Read every document before signing; if you have any questions, ask.

5. If you have any questions about your loan documents or your rights under them, contact a lawyer.

6. Never give a lender a security interest in something you can’t live without.

7. If your banker tells you something that sounds unusual, check it out.

8. Be aware of what you’re giving up if you sign a jury trial waiver, an arbitration clause or a release.

9. If you suspect your lender has done something improper, do something about it.

10. Don’t ever forget that your banker’s allegiance is to the bank and not to you.

Cappello, author of “Lender Liability,” can be reached at info@cappellonoel.com or by calling (805)-564-2444. “Lender Liability” can be purchased on the firm’s Web site at http://www.cappellonoel.com/book/. The complete, exclusive interview can be heard now at http://www.prlawinc.com/by clicking on America’s Best Lawyers icon.

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