If a deal seems suspicious in the early stages, the lender is required to go the extra mile to confirm that the borrower is being 100% honest. Michael Molinaro explains that the court expects a lender to check for fraud before a transfer of collateral is made. Failure to investigate can prove expensive.
The 7th U.S. Circuit Court of Appeals recently held that a lender is obligated to conduct a diligent investigation when it becomes aware of suspicious facts relating to an existing loan transaction.
