Pub. 10 2020 Issue 1

15 ISSUE 1. 2020 Continued on Page 16 states applying Arizona law, meaning that a bank could be bound by an email if the bor- rower argued it was intended as a signature, unique to the loan officer. Does the loan offi - cer, by default, use a "signature line," which includes his or her signature? This can pose a serious problem for the bank. Existing Risk Reduction Tools Risk reduction naturally flows from the combined forces of Arizona statutes, judi- cial decisions, and the loan documents used by most banks. The Statute of Frauds, most notably, precludes filing an action against the bank in the absence of a bank-signed contract to lend money, extend credit, mod- ify a loan or otherwise extend credit if the amount exceeds $250,000 and does not in- volve a loan made or extended for "personal, family or household" purposes. Many judicial decisions have also rejected borrowers' allegations of oral agreements, fraud and promissory estoppel, asserting that their loan was modified, the deadline to pay was extended, or the amount of avail- able credit was increased, because there is no signed writing. And, of course, bank loan documents, from documents generat- ed by LaserPro to tailored loan documents generated by bank counsel, typically have a range of protective provisions, including an integration clause stating the agreement con- tains all material terms and supersedes any prior oral statements, a provision precluding oral modifications, and many other protec - tions, to deter borrowers and guarantors from pursuing claims and defenses against the bank by ensuring that any binding commit- ment by the bank must be in writing and signed by all parties. Yet, examples too numerous to mention of negotiations and discussions turned against the bank are everywhere, with just two examples here: 1. Bankers allegedly orally promised to freeze the foreclosure process and roll the construction loan into a convention- al loan, causing the borrower to seek additional borrowings to complete the construction, yet the bankers did not freeze the foreclosure and were denied summary judgment on the borrower's contract, fraud and estoppel claims arising from those alleged promises. 2. Bankers allegedly orally promised to de- liver a permanent loan modification and not to commence foreclosure proceed- ings if the borrowers met the lender's demands. Yet, upon satisfaction of those demands, the lender foreclosed anyway, leading to borrower damages sufficient to withstand summary judgment and require a trial. What do you intend to communicate if you tell the borrower, "I'll take care of you," or mention over lunch at the golf course, "I expect every- thing to be approved shortly"? Practical Ways to Further Reduce Risk Are there practical ways to limit the risks above that are consistent with a robust and long-term relationship with the borrower and the guarantors? Several solutions come to mind: • Choose your words carefully in person, by phone and in emails. Reassuring statements or language, which sounds like a promise, will be used against you in the event of future borrower or guar- antor financial stress. It's not enough to win the litigation if the bank is distract- ed from its day-to-day mission by docu- ment requests, depositions or a trial. • Remove your actual signature from your email signature line, and create an email legend or disclaimer that makes clear the bank does not intend to be bound by any email communications, under the Arizona Electronic Commu- nications Act or otherwise, and that comprehensive writing signed by all parties is required to bind the bank. • Enter into a signed pre-negotiation agreement with the borrower and guar- antors to emphasize that workout dis- cussions are just that, and not intended to be binding, unless and until writing signed by all parties is generated. • If you think your words could be misconstrued or that the borrower was summarizing your words in any way which made you uncomfortable about whether the bank was making any commitment, confirm the substance of your conversation in writing in a manner that confirms the bank does not intend to be bound by mere discussions or negotiations. • Avoid "partnering" with the borrower to control, manage or run her business, which can give rise to additional claims for breach of fiduciary duty. Again, the claim may be weak, but there may be 20 emails, and multiple recorded phone calls and even face-to-face meetings, which muddy the waters and make it difficult or impossible to eliminate the claim by summary judgment. • Consider establishing a bank policy that moves any distressed commercial loan to a new, or at least one additional, loan officer for oversight and reporting to the Special Assets Group or in-house legal team to achieve a fresh and inde- pendent assessment. • If a relationship must be terminated, do it professionally, not at the eleventh Many judicial decisions have also rejected borrowers’ allegations of oral agreements, fraud and promissory estoppel, asserting that their loan was modified, the deadline to pay was extended, or the amount of available credit was increased because there is no signed writing.