The term 'third party defense' in lending refers to which situation?

The term 'third party defense' in lending refers to which situation?

• A. Proximate cause defense
• B. No-fault defense
• C. Reverse liability defense
• D. Third party defense

Answer: (D)

Shifting liability to a third party in the lending process. The idea is that a lender can defend itself by pointing to a third party—such as a broker, appraiser, or settlement service provider—whose actions or misconduct caused the alleged violation, rather than the lender's own policies or practices. For this defense to work, the lender typically must show it acted in good faith, carried out due diligence in selecting and supervising the third party, and relied on the third party’s information or actions in carrying out the loan. In practice, this means the responsibility for the improper conduct sits with the independent third party, not the lender, when the latter can demonstrate they did not cause or knowingly permit the wrongdoing.

Shifting liability to a third party in the lending process. The idea is that a lender can defend itself by pointing to a third party—such as a broker, appraiser, or settlement service provider—whose actions or misconduct caused the alleged violation, rather than the lender's own policies or practices. For this defense to work, the lender typically must show it acted in good faith, carried out due diligence in selecting and supervising the third party, and relied on the third party’s information or actions in carrying out the loan. In practice, this means the responsibility for the improper conduct sits with the independent third party, not the lender, when the latter can demonstrate they did not cause or knowingly permit the wrongdoing.