A Lender’s Duty to Investigate Its Borrower

February 3, 2015

Adam Leitman Bailey and John M. Desiderio

Until recently, a mortgage lender preparing to give a loan needed only to conduct a basic search of the title and records of the subject property. A lender was not required to search into the background and financial status of a borrower to ensure that the borrower was legitimate and would be able to repay the loan. The recent foreclosure crisis has led the federal government and many states to take steps that expand the responsibilities of a lender to investigate its borrower before giving a loan. Adam Leitman Bailey, founding partner of the law firm Adam Leitman Bailey, and John M. Desiderio, a partner in the firm, reviewed legislation of the 22 states that have ability-to-repay requirements and also the recent court decisions of nine states that have addressed a lender’s duty to investigate suspicious transactions.

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