Lender Liability Claims for Negligent Misrepresentation

Posted on: December 27, 2013

The doctrine of lender liability refers to the various legal theories a commercial borrower may bring against their lender for purported misconduct. If a lender benefits from negligent misrepresentations made to a borrower, the lender may be liable. The South Florida lender liability claims attorneys at Schecter Law have represented both borrowers and lenders.

Under Florida law a claim for negligent misrepresentation requires that: (1) there was a misrepresentation of material fact; (2) the representer either knew of the misrepresentation, made the misrepresentation without knowledge of its truth or falsity, or should have known the representation was false; (3) the representer intended to induce another to act on the misrepresentation; and (4) injury resulted to a party acting in justifiable reliance upon the misrepresentation. Additionally, a claim for negligent misrepresentation has a heightened pleading standard under Florida law because negligent misrepresentation sounds in fraud.

Although negligent misrepresentation is a valid cause of action, Florida’s Banking Statute of Frauds provides that a debtor may not maintain an action on a credit agreement unless the agreement is in writing, expresses consideration, sets forth the relevant terms and conditions, and is signed by the creditor and debtor. In Dixon v. Countrywide Home Loans, Inc., 710 F. Supp. 2d 1325 (S.D. Fla. 2010), the borrower argued that the lender promised different financing terms from those included in the loan documents. The court barred the claim because purported oral promises are unenforceable under the Banking Statute of Frauds. Furthermore, the borrower could not establish reasonable reliance when the purported misrepresentation is contradicted by the express terms of the signed loan documents.

In Coral Reef Drive Land Development, LLC v. Duke Realty Limited Partnership, 45 So. 3d 897 (Fla. 3d DCA 2010), the Third District stated that “[t]he world of commercial real estate is not a warm and fuzzy place. That is why parties to substantial transactions consult counsel and prepare highly-detailed written agreements to address every contingency the parties and counsel can imagine.” While borrowers should get everything the lender represents to them in writing, lenders should protect themselves through well-drafted loan documents. Lenders should have an experienced attorney review all documents to ensure the agreement properly sets forth the relevant terms and conditions. Likewise, borrowers should allow counsel to review agreements before signing to make sure no information that was relied upon has been left out.