A Primer On Lender Liability For Land Use Investments

Traditionally, lenders have made great efforts to ensure that they did not take on the risks associates with ownership of their borrowers' real estate. Now, lenders are embracing land ownership to stay competitive in the marketplace.

1 minute read

November 12, 2005, 5:00 AM PST

By Chris Steins @planetizen


"Lender liability results when lenders cross the line from being mere sources of capital for a business to being active participants in that business. For many years, the line was clear. As a result of the decision by the California Supreme Court in Connor v. Great Western Savings and Loan Association, 69 Cal. 2d 850 (1968), the line moved much closer to lenders and became blurred.

In Great Western, homeowners sought damages from the lender, Great Western Savings and Loan Association, for construction defects when the borrower, the developer of a real estate project, built homes with ill-designed foundations that could not withstand the expansion and contraction of adobe soil. The borrowers sought to hold Great Western liable on the grounds that its participation in the real estate development brought it into a joint venture with the developer. Under this joint venture theory, the lender would be held jointly and severally liable for any obligations that the developer might have to third parties, in this case the homeowners who had purchased homes from the developer. The court held that Great Western was so involved in day-to-day operations that it had transcended the line between lender and borrower, and thus was liable for, among other things, the tort liability and mechanics' lien liability of the developer."

Thursday, November 10, 2005 in Pillsbury Winthrop Shaw Pittman LLP

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I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching. Mary G., Urban Planner

I love the variety of courses, many practical, and all richly illustrated. They have inspired many ideas that I've applied in practice, and in my own teaching.

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