In the l ast issue we discussed the Seven Habits of Highly Successful Litigators. In this issue, again using Stephen R. Covey's "The Seven Habits of Highly Effective People" as a model, we discuss the seven habits to avoid lender liability.

1. "I love this bar" -- Toby Keith. Lenders must be wary of oral conversations (even at cocktail hour) that can be interpreted as a commitment. Oral conversations often lead to misunderstandings regarding the written deal. These misunderstandings may lead to litigation. The parol evidence rule, statute of frauds, and even a written agreement may not bar a fraud or negligent representation claim.

2.  "I hope this letter catches up with you" -- John Michael Montgomery. Hand in hand with avoiding the cocktail hour commitment is to confirm everything significant in writing. Unlike a witness, a document's "memory" is never fuzzy concerning an oral conversation or deal point. Further, confirmation lets all parties to the transaction know in precise terms your interpretation of the oral conversation. However, such correspondence should be concise.

3.  "He stopped loving her today" -- George Jones. This was number 3 last issue and it bears repeating here. Having good communication with a borrower on a regular basis is a must. Good communication avoids surprises. This is because the lender knows what is happening and importantly the borrower knows what the lender is relying upon.

4.  "From the coal mines of Kentucky to the California sun, Bobby shared the secrets of my soul" -- Kris Kristofferson. Items which are confidential must be handled appropriately. In idle office chatter or sharing information with other creditors or other customers, confidential information must remain confidential. Releasing confidential information is not only bad business, it is an avenue to liability.

5. "The road goes on forever and the party never ends" -- Robert Earl Keen. Lenders should make definite decisions regarding extensions to the borrower. While there might be the hope that things may get better, lenders should not make gratuitous concessions based on unfounded optimism. Being firm with the borrower can be in the best interest of all concerned.

6. "You caused it all by telling lies" -- Hank Williams. When ending a relationship with a borrower, do so without suddenly stranding or misleading him or her. This is somewhat in conflict with Number 5. However, using tact and good customer service, even in the face of ending a customer relationship, is necessary. Avoiding conflicts in a professional manner goes a long way to avoiding the hurt feelings that fuel lawsuits.

7. "I ain't got no business doing business today" -- Alabama. Avoid becoming entangled in running your borrower's business. Control, management or giving advice (whether real or perceived) leads to taking on additional responsibilities (fiduciary duties, duties of disclosure) a lender should not undertake, namely running the borrower's business. Thus it often leads to exposure to litigation from not only others, but the borrower as well. This can cause particular unpleasantness when the borrower is in the zone of insolvency!