Law Firms, Lawyers See Stability in Financial Industry
As Arizona struggles to recover from a struggling economy, law firms are seeing a rise in the number of complaints filed in relation to banks and loans.
Arizona lawyers have specifically seen an increasing number of claims involving commercial real estate and foreclosures.
This indicates to lawyers that banks are stable and will maintain stability if they continue to stay on top of these loans and claims.
Brad Vynalek, partner at Quarles & Brady, says that banking cases are trending upward in number, and have become extremely common in most practices.
If law firms didn’t have financial loan departments in the past, they do now. Small and mid-size firms are expanding to include departments to handle loans.
Vynalek routinely deals with financial cases, and represents banks in various aspects of the litigation process, either as the defendant or plaintiff. He has represented banks in enforcement actions against borrowers and guarantors, lender liability defense, fair market value hearings and trustee’s sales.
About 50 percent of the cases Quarles & Brady takes on involve financial institutions in some way.
“It’s purely a function and a reflection of the market,” Vynalek says. “We’ve seen more cases involving banks than we have over the last five years and will continue to see an increase.”
Some of the most common banking cases that are popping up are cases involving loans against borrowers on large commercial properties.
Often, the people and companies who have defaulted just don’t have the resources to pay the loans back. For commercial properties that had many tenants and now have very few, it can be difficult to come up with the money to pay the lender back.
Law firms are also seeing a growth in the number of counterclaims that borrowers are filing. The counterclaims are usually geared towards dragging out litigations.
Banks are stable because they are staying firm on settling loan delinquencies. Banks want to be able to give out loans to help stimulate the economy, but in order to do that they have to follow up with the loans in default.
“Consumers should know that banks are committed to trying to make this a better economic climate,” Vynalek says. “Banks have to enforce the loans in their books, and banks will do better as the economy does better.”
Banks will continue to play a key role in the economy as they begin to sell the commercial real estate they have obtained through foreclosures.
“I think that there are a lot of banks with significant portfolios of foreclosed properties that haven’t even hit the real estate market yet,” Vynalek says. “They’ve got to sell the inventory of foreclosed homes and commercial real estate properties.”
Jennifer Dioguardi, partner at Snell & Wilmer, has also seen a significant increase in banking cases involving commercial properties.
“A lot of commercial real estate properties are under water,” Dioguardi says. “They have a high vacancy rate, which means they’re not generating enough cash flow to pay the note.”
In cases involving commercial real estate and delinquent loans, lawyers work to help the bank achieve an agreement, either by pursuing payments or working out other options with the borrowers behind closed doors.
Dioguardi regularly handles litigation involving the representation of national and local banks, mortgage lenders, and credit card issuers. She has an emphasis on banking, commercial, financial services and securities litigation.
Specifically, Snell & Wilmer has seen an increase in litigation matters brought against mortgage lenders and services by homeowners.
In these cases, the homeowners file documents to challenge the various aspect of loans or the foreclosure process in order to have their homes avoid being foreclosed upon.
Many of the documents being filed by homeowners are loan modifications or restraining orders to stop trustee’s sales, and oftentimes the allegations in the complaint do not have legal value; however, when loan modifications are appropriate, banks are taking care of them.
According to Dioguardi, it has become common for homeowners to go online, gather information and represent themselves. Many of the arguments posed online don’t have any actual legal merit, so homeowners fail to stop the foreclosures.
Banks are forced to follow up on loans in default to ensure the industry stay stable. If banks don’t take ownership of their finances, the result of many delinquent loans can be detrimental to the bank itself.
If banks aren’t making money or receiving money back from loans, they can fail and be closed by the Federal Deposit Insurance Corporation (FDIC).
Arizona had 11 failed banks from 2009 to 2011, according to the FDIC failed bank list.
Dioguardi isn’t expecting that number to skyrocket over the next year.
“We can anticipate some additional bank failures in the next year or so, but I think the vast majority will weather the crisis,” Dioguardi says. “There will always be a need for banking services.”
Despite increasing regulation, banks have continued to remain a working part of the economy, and are focused on helping borrowers to their fullest extent.
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Arizona Business Magazine November/December 2011
