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Loan document terms are ambiguous when they are reasonably capable of being interpreted in more than one manner. Contract law often provides that an ambiguous term in a loan document is interpreted against the drafting party. This is especially true in a situation where the parties have unequal bargaining power. For lenders, this means that if a loan document contains ambiguous language, a court might interpret the disputed language in a way that favors the borrower and results in a disastrous or costly outcome for the lender.

Even in situations where the above principle is inapplicable, such as a loan involving a sophisticated commercial borrower being represented by sophisticated counsel, loan document ambiguities may mean that the “best case” outcome for a lender still requires long, contentious and costly litigation in order to achieve.

Lenders should take the following steps to avoid the above outcomes:

If you have questions or need help drafting and negotiating loan documents, the Financial Services attorneys at Poyner Spruill LLP would be happy to assist.

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