The Georgia Court of Appeals recently issued a very favorable ruling for banks that have purchased loans from the FDIC. In the case of KENSINGTON PARTNERS, LLC et al. v. BEAL BANK NEVADA, the guarantors argued that the purchaser of a $7 million loan from the FDIC did not possess a valid assignment from the FDIC. The original loan had been extended by BankFirst in 2006.  BankFirst subsequently failed and the FDIC sold the loan to Beal Bank Nevada.

The record established that the FDIC sold the loan and all related documents, including the guaranties and the court rejected the argument put forth by the guarantors. In a helpful comment, the court noted that even if the assignment from the FDIC had not referenced the guaranties, under Georgia law, the assignment of the note carried with it the assignment of the guaranties.  The guarantors also argued that there were genuine issues of fact concerning the amounts owed under the note.

The court rejected these arguments as well based on evidence from the FDIC loan portfolio manager accounting for the loan balance from its inception. The case is typical of some of the lender liability litigation that lenders are having to grapple with right now as well heeled borrowers and guarantors attempt to put off the day of reckoning. The litigation can be lengthy and expensive and the loan obligors are seeking to use that to extract a settlement form the lender that is favorable to the obligors.

Lenders seeking to collect against loan obligors that have sufficient assets to cover the loan should enter into collection activities with realistic expectations about the time and cost involved. Bank counsel’s awareness of typical or new lender liability theories is also vital to a successful collection effort.