THE LENDING industry is predicted to embark on a wave of overvaluation disputes akin to the ones which followed the 2008 financial crisis.
Alex Jakubowski, partner at law firm Clarke Willmott, specialises in general commercial litigation and has acted for a number of lenders, including peer-to-peer lenders, on valuation disputes.
He has noted a rising number of queries around the valuations of assets used as collateral against loans.
“Overvaluations can occur as a consequence of negligence or worse, fraud on the part of the valuer,” he said.
“They happen all the time but they expose themselves when security has to be sold in a plateauing or falling market.
“We saw a wave of overvaluation claims following the 2008 financial crisis and I expect to see another wave before too long.”
As well as valuers, allegations of fraud or negligence could be levered against monitoring surveyors, Jakubowski explained.
“On development loans, monitoring surveyors may be the cause of the loss through negligent reporting in both initial and monthly reports,” he said. “With fees tight, corners get cut and drawdown is recommended without proper consideration.”
Solicitors could also be subject to allegations of negligence, he added, for example if they failed to register charges or report evidence of dishonesty by the borrower or valuer.
“There has been a lot of over-exuberant lending in the past few years and refinance has been easy enough to find,” said Jakubowski.
“When this dries up, the shortfalls in security will expose themselves.
“I think the merry-go-round is soon to stop and Brexit will surely be a factor in that.”
A specific issue for the P2P lending sector could be the question of whether investors are classified as creditors or not when it comes to overvaluations claims – an issue which has already arisen in the cases of platform insolvencies such as Lendy and FundingSecure.
“Arguments are likely to arise over whether the professionals’ duty is to the lending platform administrator, who has instructed them, or the end lenders who have suffered the loss,” said Jakubowski.
“However, it is unlikely that negligent and still less fraudulent professionals will be able to escape the consequences of their actions.”