A Matter of Credit: When Banks Abuse Their Trust

Few relationships matter more than the one between banks and real estate agents, investors, owners, and developers. Or: If a bank has ample credit but little or no credibility with its clients, if a bank is a trust in name only—because it does not enjoy the trust of its clients—it cannot flourish.

Rather, a bank cannot flourish if it cannot furnish clients with contracts that constitute a trust to keep; that elicit trust because clients know a bank has a reputation for keeping its word; that a bank will honor its word with more than words, with deeds—with actions that are worth more than any deed, title, or agreement—because, in the end, a bank is true to its word.

Such is, alas, not the case, according to a $98 million lawsuit (Garland Connect, LLC v. Wells Fargo Bank, et. al.) filed against Wells Fargo.

The case is important for several reasons, starting with the role of trust in real estate transactions. Which is to say a breakdown in trust can cause the economy to break down, causing a shutdown in construction and hiring, causing markets to panic and buyers to flee.

Unless banks earn the trust of their clients, the real estate market will suffer. We will all suffer, directly or indirectly, if banks that are “too big to fail” act like they are too big to care and too powerful to lose power.

The case against Wells Fargo is more than a legal dispute.

The case is bigger than any one bank or all the nation’s banks, because a disputatious relationship between bankers and clients is the antithesis of what a business relationship must be.

The case begins with this lawsuit, but the future of banking hinges on an issue separate from this case: on the need for banks to make the case, not by pounding the table but by pounding the facts, by starting anew—by establishing a factual record—so as to not repeat the mistakes of the past.

Banks cannot litigate their way to success, nor can the real estate industry thrive without banking on (pun very much intended) the reliability of bankers.

Absent that standard, the real estate industry will be more chaotic and contentious.

Legal contracts cannot, therefore, prevent the real estate market from contracting. Not when contracts are meaningless without a court order. Not when plaintiffs must incur legal costs by going to court. Not when courting justice means courting bankruptcy, too, because few plaintiffs have the resources to go to trial.

To bankers, my plea is simple.

For the good of the real estate industry and the benefit of the industrious, for all who endure the trials of their profession and the exertions of plying their trade, let us have banks that dedicate themselves to truth.

Let us have a real estate industry that is robust, in partnership with banks and businesses, where trust is paramount and honor is sacrosanct. Let us make it so.

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