Brokers beware – borrowers are on the run or on the run

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“We are seeing an increase in more complex and contentious litigation, with borrowers hoping to find loopholes in the circumstances surrounding their original loan agreement.”

In my role as a lawyer with very specific expertise in specialized and short-term loans, I have access to a unique vision of the market. We get involved in both sides of the process – mounts and laps – which gives us insight into current pressure points, and this in turn hints at trends that may soon have a wider impact on brokers and traders. lenders.

My take on the current period is that we are now entering a very interesting period of long legal covid, especially for the gateway market. After several months of deferred execution and increasing loan balances, many borrowers realized that their equity had eroded and, in many cases, had nowhere to go. Now that lenders take enforcement action, these borrowers now have a decision: fight or flee – and many are choosing to fight.

We are seeing an increase in more complex and contentious litigation, with borrowers hoping to find loopholes in the circumstances surrounding their original loan agreement. This is clearly frustrating for lenders, but it can also spell bad news for brokers.

In a recent case, borrowers, who had taken advantage of the commercial use statement to release funds for commercial purposes, argued that this was not the case, and despite their own signed statement, they knew, the broker knew, and the lender knew, that the funds were intended for personal and consumer use. It follows that their loan is actually regulated. Due to the lack of correct formality, the loan was unenforceable.

Their case failed, thankfully, but it serves to demonstrate that desperate people will try to dig holes in any process or document they can, to the point of denying the veracity and integrity of their own statements and statements.

The learning here is that brokers and lenders need to make sure their requests and processes are well documented. Appropriate legal advice is essential and increased diligence in this environment is essential.

A particularly hot area is that of secret and semi-secret commissions. This is a re-emerging and recurring problem in unregulated lending following a recent high-profile court judgment and of financial and regulatory importance to lenders and brokers. Commissions, secret and semi-secret, fiduciary duties, bribes, etc. are the basis of the trade claim companies, lawyers and activists. Permissions, reputations, and money are all at stake.

The precise way in which brokers are paid by the lender varies between lenders and intermediaries. It can often be “creative” and sometimes opaque; the very nature of what is and what is not a commission may be open to debate. The precise scope of a broker / lender’s legal obligation to their client is now defined by the courts, and lenders and brokers must ensure that the process reflects the current state.

Make no mistake, at the heart of the matter is the customer’s legal right to know, understand, and consent to who is being paid for what by whom in their transaction. Only then, say the courts, can a client make an informed decision as to whether his broker is acting in his best interests.

It’s not a simple question, but it is a growing question. Again, brokers and lenders are well advised to seek the help of a legal expert in this area to guard against future claims.

Beware of brokers – borrowers fight or flee. Now is the time to close the hatches.


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