Examining a Case Study: Third Party Lender Responsibilities & SBA Loan Defaults

Picture this: our main character is Timothy Rister, a brave soul who decided to single-handedly navigate the rough waters of litigation. His opponent was none other than Yadkin Bank. Both parties were embroiled in a dispute related to a loan extended to a salon named Mystique Makeover, LLC – an entity controlled by Maria L. Rex and fortified by a partnership with the United States Small Business Administration (SBA).

In 2011, Rister and Rex, in solidarity, acknowledged their commitment as guarantors of a six-figure loan via a signed letter. The same year, Rister boldly declared his resolve to fulfil any obligations under the loan, no matter the obstacles, by signing the famed SBA Unconditional Guarantee (SBA Form 148).

Fast forward to 2014, the plot thickens as Rex pulls the plug on her business due to disability which leads to an unfortunate loan default and bankruptcy filing. Rister receives a chilling message from the Bank’s crack team of counsels, Ellis & Winters LLP, demanding immediate payment of all due principal balance, unpaid interest as well as other pending amounts. Rister retaliates by launching an aggressive legal offensive against the Bank, taking the form of a comprehensive 17 count complaint.

The Crux of the Matter: Ambiguity in Contract Terms

Rister accused the Bank of “negligence/mistake/deception/bad faith” related to a somewhat mysterious “commitment fee”. He argued that the Commitment Letter carelessly sidestepped an elaborate explanation of terms such as “packaging fee” and “SBA fee”. According to him, these elusive terms were vague and failed to provide a precise breakdown of what these fees stood for.

Moreover, he asserted that the Bank, by virtue of the Commitment Letter and Guaranty, held an ethical responsibility to maintain good faith and openly disclose details of these undefined fees, owing to the existence of a contractual agreement. He further suggested that the Bank’s failure to clarify the nature of these fees led to a serious misunderstanding on his part, which in turn made any contractual agreement baseless or open to cancellation.

Court’s Perspective on Rister’s Allegations

However, the court held a different viewpoint. It drew attention to prior instances where courts have routinely dismissed the idea of a universal duty of care between a lender and a guarantor. The Bank’s supposed failure to provide a fee breakdown was insufficient to generate a claim for breach of good faith, which is observed when one party exercises unreasonable authority within a contract.

Delving further into Rister’s claim of unilateral mistake, the court discussed that for the claim to be valid, the mistake must be detrimental to the central assumption or the very foundation of the contract. The amended Complaint did not convincingly infer that Rister made a mistake that compromised the essence of the agreement.

In the grand scheme of things, the loan’s fees represented a minuscule fraction of the total loan amount. Therefore, any so-called mistake related to these fees wouldn’t rock the ship. Most importantly, the Complaint fell short of evidencing that Rister held insufficient knowledge about the agreement at the time of signing the Commitment Letter, a crucial element for establishing a unilateral mistake claim.

Last but not least, even if Rister managed to justify a unilateral mistake, courts do not typically provide relief unless the mistake is mutual and can be attributed to the fault of the other party. In this case, the court ruled that Rister failed to plausibly allege that he made a unilateral mistake due to the Bank’s negligence.

Conclusion of the Case Study

In conclusion, the allegations in Rister’s complaint were adjudged as inadequate to present an actionable claim. The case demonstrates the criticality of understanding contractual agreements before diving headfirst into a commitment.

If you find yourself in the murky waters of SBA loan defaults, it is prudent to contact a seasoned representative like Lawscape and the trusted team at Lawscape for a consultation regarding SBA debt resolutions and possibilities of submitting an SBA offer in compromise.

What can Lawscape and his team do for you?

The Lawscape resolves millions of dollars in SBA debts via methods like Offer in Compromise and Negotiated Repayment Agreements without necessitating bankruptcy or foreclosures.

Our highly skilled team successfully defends substantial amounts of Treasury Debts through AWG Hearings, Treasury Offset Program Resolution, cross-service disputes, private collection agency representation, offers of compromise, and negotiated repayment arrangements.

We have the privileges outlined in the Agency Practice Act and are authorized to represent Federal debtors nationwide before the SBA, the SBA Office of Hearings and Appeals, the Treasury Department, and the Bureau of Fiscal Service, ensuring the best representation possible with your case.