As a lender looking to avoid liabilities and penalties in your transactions, these guidelines and regulations apply to you. However, if you would like someone else to handle the responsibility of ensuring that your transactions are free of liabilities for you, contact us today.

Lender liability legislation protects borrowers by ensuring that they are treated properly. This appears to be a straightforward process for lenders. However, due to the complexities of loan agreements and the length of contracts, facts might be missed, and conditions can change, making lender liability concerns even more complicated. Therefore, lenders should be aware of their legal risks and know how to mitigate them ahead of time. There are several ways in which this could be done, some of which are discussed below:

  1. Prepare Protective Loan Documentation: Including language in loan papers that anticipate claims is the most effective technique for limiting liability. For example, an “integration” provision indicates that the written contract is the entire agreement, a provision prohibiting oral amendment of the agreement, and a “jurisdiction and venue” provision dictating where claims can be made, among other safeguards.
  2. Always consult the contract and legal counsel before acting: If a lender suspects a borrower of defaulting on a loan, it’s best to consult the contract and a lawyer before freezing the borrower’s line of credit.
  3. Keep open lines of communication with all parties: All contracts presuppose good faith and require both the borrower and the lender to uphold the agreement’s spirit. Lenders can assist with this by communicating with borrowers regularly and timely.
  4. Proper Documentation of all engagements: Lenders should refrain from making promises that go beyond the terms of the loan agreement. All forms of communication with the borrower should be written down and contain context.
  5. Maintain a thorough loan file: Lenders should create and keep a loan file that contains important documents such as the loan application, credit reports, and records of correspondence with the borrower.

To read more about lenders’ liability and how to avoid them during transactions, click here.

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Note Servicing Center provides professional, fully compliant loan servicing for private mortgage investors so they can avoid the aggravation of servicing their own loans and just relax and get paid.

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