Pub. 3 2013 Issue 2

10 www.azbankers.org PART TWO: Additional Factors to Keep in Mind in Order to Minimize Lender Liability Risk BY CHRISTIAN C.M. BEAMS, RYLEY CARLOCK & APPLEWHITE First, the public holds conflicting perceptions and expectations toward banks. On the one hand, in the current economic environment, many people hold lingering resentment and anger toward banks, blaming them (along with politicians) for the 2008 financial crisis and resulting economic distress — many believe that banks got “bailed out” while ordinary citizens (and especially those who lost their homes in foreclosures or short sales) suffered undeserved harm. However, on the other hand, potential jurors hold unrealistic expectations for standards of perfection for bankers, holding them accountable for perfectly appraising real estate values and demanding per- fect timing in predicting market trends in the midst of market turmoil. Bank- ers may get the blame for any perceived mistakes by real estate appraisers, even though the borrowers themselves were mistaken in their perceptions of their own properties. Innocent and immaterial errors in internal bank memoranda, including emails, may be viewed as blameworthy. Any nasty comments about borrowers in emails may be viewed by borrowers and jurors alike as nefarious, and as evidence that the bank was “out to get” the borrowers out of malice. Second, angry and frustrated bor- rowers — and potential jurors sitting in judgment of banks’ actions — may cling to dreamy scenarios of suc- cess with respect to their real estate projects, believing them somehow to be exceptions to the market forces that doomed everyone else’s projects. The fantasy that their project was special enough to succeed while others around them failed can be remarkably per- sistent in the face of what objectively should seem daunting odds. Moreover, potential jurors may be more than willing to believe in the dreams of bor- rowers with whom they identify and who seem sympathetic, despite over- whelming evidence to the contrary. Third, borrowers and potential jurors are often unwilling or unable to I N THE SEPTEMBER/OCTOBER 2012 IS ͳ SUE OF ARIZONA BANKER, I PROVIDED THREE POLICIES BASED ON MY EXPERI ͳ ENCE THAT, IF INSTITUTED IN YOUR respective institutions, should make the risk of being named in a lender liability lawsuit less. I discussed the importance of not blending the distinction between offering a product (loans) and providing a service (financial advice), the latter of which comes with fiduciary duties, free of charge. I also urged you to document your communications with your borrow- ers and to limit the staffing – and thus customer contact – on any particular file. In the intervening six months, my firm served as lead counsel in a three week lender liability jury trial. Shareholders Fred Bellamy and Scott Jenkins, Jr., led that team, and what they observed in terms of court and ju- ror misperceptions during the process may surprise you. COUNSELOR’S CORNER