Builders Instituting Lender Liability Lawsuits

The Wall Street Journal reports that the "love affair" between lenders and builders that existed during the housing boom is over, and the lender liability lawsuits that characterized the real-estate downturn in the early 1990s are making a comeback.

Builders are beginning to file suits against lenders contending that the lenders forced the builders and their projects into insolvency by acting in bad faith. The bad faith allegations include delaying or stopping projects midstream by refusing to release funds from construction loans, launching lengthy audits and appraisals, and aggressively enforcing personal guaranties.

The Journal suggests that the clampdown is the result of financial institutions acting in the face of intense pressure from regulators and shareholders to reduce their real-estate exposure and avoid crippling losses.

For more information, see the Wall Street Journal.