Lowering Your Chances of Getting Sued

From time to time, clients ask me if they can get sued for this or that. My response is always “yes.” In America, we have a very open system that allows anyone to start a lawsuit. The lawsuit may have no merit and may be quickly dismissed, but in the meantime, you will be spending time and money to get the dismissal.

Are there ways to minimize the likelihood that you will be sued? Yes, there are.
You can be sued by your employees, you can be sued by your customers, and you can be sued by your investors who purchased the loans you underwrote that are now in foreclosure.

You should start by getting all agreements in writing. Nothing will protect you if the arrangement is verbal. Your word against someone else’s word means the lawsuit will be drawn out and expensive. Have your lawyer review the proposed contract before it is signed. The money you spend now to have that review will seem cheap if you are sued and have to pay litigation costs. But also recognize that even having an agreement in writing cannot stop a lawsuit from being started.

Supervise your managers closely. You should have a good idea of what is happening to your employees in terms of how they treat other employees (sexual harassment or discrimination suits) and how they treat your customers. Make sure that employees that are not following your company’s procedures are made aware that they are not following your company’s procedures. Document in writing all employee issues and how you resolve those issues. Consult with an employment law attorney so that you know how to handle these problems in accordance with all relevant laws.

Do not ignore customer complaints or let your managers do so. Customer complaints will result in lawsuits and complaints with the banking department. It may be cheaper to settle a complaint monetarily than to ignore the complaint. Customers hate being ignored or having their concerns ridiculed. If they feel as if they were not heard or were disrespected, then they get angry, and it starts a cycle of animosity that results in the lawsuit (and a difficult case to settle since they want "justice"). And the breakdown in communication may not even be intentional. It can as simple as one side being out of town (unbeknownst to the other side) and not returning a phone call. If you express your willingness to satisfy your customer, this may prevent a costly lawsuit or complaint. If you solve the problem even better than the customer expected, you can turn that angry customer into one who will rave about your customer service and send all of her family and friends to you with their business. Sometimes (actually, many times), it’s not the principle that counts. Many times, you will spend so much time and money on defending the principle that you will damage your company so severely that it may never recover.

Talk to your insurance company about managing risk before you have an inkling about a lawsuit (and you should have liability, professional practices, and errors and omissions insurance). They may suggest various procedures to put in place and strategies to use that help you lower your risk of being sued. Having those procedures in place may also lower your insurance premiums.

The subprime mess and current wave of foreclosures is also leading to lawsuits by borrowers claiming that they were misled about mortgage terms. Cities are suing lenders claiming that their lending policies have led to the cities’ losing tax revenue due to homeowners in foreclosed houses not paying their real estate taxes and trying to recoup their costs of maintaining vacant houses. In turn, the lenders are suing the mortgage brokers alleging that the mortgage brokers supplied fraudulent asset and income information about their borrowers. Homeowners are suing lenders, mortgage brokers, real estate agents, appraisers, and everyone else involved in a mortgage transaction. Some of these lawsuits are the typical “sue everyone in sight” nature of our current litigation practice and difficult to prevent. However, you must know that your loan officers are not engaging in any actions that leave you vulnerable to losing such a lawsuit. Although the focus of a loan officer may be his commission, you must ensure that you have procedures in place to ensure that neither your customers nor your loan officers are engaging in mortgage fraud.

We live in a litigious society and lawsuits are part of the cost of doing business. But there are many steps you can take to make lawsuits a smaller cost than it is now.