A cause of action, also referred to as a claim, is the reason a lender gives for going to court to recover debt from a borrower. In most cases, the cause of action is what the court uses to make a final ruling. Causes of action for debts vary depending on the type of loan and any applicable state laws, although there are several common causes of action lenders will try to use.
A Suit on the Debt
This occurs when one lender files suit against a borrower to recover a debt. Another lender, upon seeing the first claim, may become concerned the borrower cannot pay all their debts and file its own lawsuit to stake a claim on the borrower's finances. When one party brings a claim against a borrower, it is common for related lenders to follow suit.
A Suit on an Account
While some suits can be filed against borrowers, others can be filed against accounts available to pay a specific debt. This occurs when a type of trust or account is directly linked to borrowed funds, usually in a contract. If another party files a suit against this account, then the lender has reason to also make a claim for the money they are owed from the account.
Breach of Contract
Breach of contract is one of the most common causes of action for lenders. Most often, this means the borrower has failed to pay back the loan as specified, missing payments or losing the ability to pay the loan for a long period of time. Borrowers can also breach contracts in others ways, by falsifying information or failing to take required actions.
Breach of Conduct
Causes of action connected with breaches of conduct are much more rare than breaches of contract, and these are often connected with larger borrowers. This most often occurs in cases of fraud, or when the borrower obtains money in other illegal ways not directly connected with the loan.
Not Fulfilling Regulations
Lenders may also have a cause of action if the borrower does not fulfill regulations connected with the loan. These are laws that states or the federal government impose on borrowers in terms of reporting funds, taxation and other factors. If borrowers do not fulfill all requirements by law, then the lender often has a claim.
Tyler Lacoma has worked as a writer and editor for several years after graduating from George Fox University with a degree in business management and writing/literature. He works on business and technology topics for clients such as Obsessable, EBSCO, Drop.io, The TAC Group, Anaxos, Dynamic Page Solutions and others, specializing in ecology, marketing and modern trends.