Commercial Lender Left Without Collateral After Borrower Defaults

Victoria Negron

Written by
— Updated on April 9, 2018

Commercial/Industrial Asset-Based Loans Expert

This industrial loan case involves a lawsuit against an attorney who represented a lender. The lender was making a loan to be secured by several properties. After the loan was made, the borrower defaulted and it was learned that the borrower did not own the properties. The lender’s attorney used a form suitable for a blanket loan but did not properly adapt this form to a loan to be secured by specific properties. As a result, the loan documents did not contain any representation that the borrower owned the property at the time of the loan. The lender argues that if this effort had been made, the attorney would have discovered that the borrower did not own the properties before closing, and the loan would not have been made. An attorney with substantial experience in closing commercial/industrial asset-based loans was asked to testify to industry norms when making loans that are secured by equipment

Question(s) For Expert Witness

  • 1. Do you routinely close commercial/industrial asset-based loans?
  • 2. What is the advising attorney's duty to ensure that loan collateral is actually owned by the borrower?
  • 3. What additional steps could the attorney have taken in order to protect their client's interests?

Expert Witness Response E-062594

I am a financial institutions and funds lawyer focused on conventional and structured finance. I currently advise clients on deals and transactions involving financial assets and loans backed by those assets. I have 30+ years of experience in the U.S. mortgage markets, conventional finance, and structured finance. In my current practice, I also serve as an expert witness on finance cases. I was recently involved in a similar case that grew out of the financial crisis. A firm was purchasing a company whose value was pegged to its assets, which deteriorated. In that case, I assisted the lawyers being accused of malpractice. In this instance, I think the lender’s council would normally perform some kind of search/evaluation that would reveal ownership of the collateral.

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