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Law Educator, Esq.
Law Educator, Esq., Attorney
Category: Business Law
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Experience:  All corporate law, including non-profits and charitable fraternal organizations.
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If you applied for a small business loan from the city and

Customer Question

If you applied for a small business loan from the city and submitted a business plan that showed you renting a particular premises, and one of the city's loan committee was agent to the owners of that same building and manipulated the committee to caveat that the borrower had to purchase that building, instead of renting it as planned, what would you characterize the actions as, legally?
We bought the building with 30k of the loan money as a down (Fed money was forbidden to be used for such - was expressly intended for payroll only) and eventually a combination of loss of op cap and elevated overhead as a result of ownership)plus not being able to walk away when the business and economy went bad and ended up with a lot of debt and are litigating in bk court. Wondering how to characterize the cause of actions.
Submitted: 5 years ago.
Category: Business Law
Expert:  Fran-mod replied 5 years ago.
Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find an Expert to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 5 years ago.
Yes I am still waiting for an answer. Doesn't seem like the hardest question. Just don't know how to characterize this kind of crime.
Expert:  Fran-mod replied 5 years ago.
Sometimes, finding the right Expert can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly.
Expert:  Law Educator, Esq. replied 5 years ago.
If the loan committee member did not disclose his agency relationship, it is fraud, self dealing and an ethics violation as well and you would characterize it as such in your pleading and also you would file a complaint against the loan committee member with the state ethics commission as well. A finding of a violation by the ethics committee would support your claims of fraud and self dealing.

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Law Educator, Esq., Attorney
Category: Business Law
Satisfied Customers: 118075
Experience: All corporate law, including non-profits and charitable fraternal organizations.
Law Educator, Esq. and 5 other Business Law Specialists are ready to help you
Customer: replied 5 years ago.
Thanks for another good answer, Paul. I'm accepting your answer of course.
Forming an adversary proceeding to address these matters and definition help a lot.

You don't mention the city - the city is a lender of federal funds and it would seem are required to follow basic lending laws. They approved a loan of 140k based on the submitted business plan submitted by plaintiffs and approved by Great Northern Corp., who scrutinises business plans' feasability and the borrowers ability to pay, credit etc. for the city. They waited until after everything was approved by Great Northern, then removed 17k of the funds and caveated that we make a 140k real estate 'investment' we could not afford. We had to use 30k of the borrowed funds for the 30k down payment - strictly forbidden with these fed funds that are intended fopr payroll only. The city and the committee member essentially converted economic development funds into real estate investment funds and holding the same piece of real estate as collateral. Pretty slick. We were left with only 93k to work with after the removal of 47k from the loan, and 333k in debtload. And we couldn't 'walk away' in '06 like if we'd rented and had to go down with the ship and are now inm bankruptcy fighting it. Although everyone has encouraged me to find an attorney willing to address both the bankruptcy proceedings and either an adversary complaint or othe rappropriate move, I've not been able to find such a person. An attorney in Texas is helping me draft the bankruptcy and help with the adversary complaint, but he isn't licensed in Ca. so I'm submitting everything pro se and will have to appear in court on my own.
I have exhausted the remedy by serving the city with a claim, which they denied, and now can include them in a complaint or suit.
Any suggestions?
Expert:  Law Educator, Esq. replied 5 years ago.
If the City was aware of the agent's actions they too could of course be liable, but if they had no knowledge and he was committing ethics violations then they would seek to avoid liability. If you are going after the city on this I would urge you to use an attorney and if you are suing on behalf of a business entity you have to use an attorney anyhow to represent the business entity if your business is the proper party in the suit because you cannot represent a business it would be the unauthorized practice of law. You need to make sure when filing that you are actually filing with the proper party and not filing in your own name to avoid the requirement of getting an attorney for the business as the court can dismiss the suit if you bring it in your name personally when you are not the proper party but your business is.
Customer: replied 5 years ago.
I don't have a business anymore - just a rental building.

Seems to me that regardless of their take on the committee member, they are obligated to follow basic lending laws intended to not make loans to people who cannot pay. They loaned money to private citizens, not to a business. When they changed the numbers on the loan it would seem they would also be obligated to rescrutinise the 140k plan, which could not have worked with just 93k. It was a guaranteed failure, according to an accountant friend that looked at it.
Expert:  Law Educator, Esq. replied 5 years ago.
I am not saying it was not a problem and if on top of the self dealing of this employee if the basic lending rules were not followed, then the city can be liable as well. However, if this employee misrepresented to the city, they will seek to avoid liability.