Kennedy Funding, Inc. represents one of the biggest names in the commercial real estate lending space. The company has made its presence known in the financial industry by offering high-risk loans and bridge financing. As a lender willing to take on projects that many traditional banks shy away from, Kennedy Funding has carved out a unique niche in the market.
However, the business model has also exposed the company to several legal battles. Here’s a look at the Kennedy Funding lawsuit and the organization’s questionable business practices that have landed them in hot water on more than one occasion.
Kennedy Funding Lawsuits: Background and Context
Kennedy Funding, Inc. was founded on the principle of providing financial solutions for commercial real estate projects that fall outside the scope of conventional lending. The company’s business model revolves around offering bridge loans. A bridge loan is a short-term mortgage that’s intended to “bridge the gap” until the client can secure longer-term financing or sell the property.
Many lenders treat bridge loans as high-risk, as borrowers have usually been turned down by traditional institutions. That’s because the project they are seeking funding for has a high propensity for failure, or the borrower is at an increased risk of default. Kennedy Funding’s willingness to take on risky commercial loans is its main value proposition.
While Kennedy Funding is far from the only non-traditional commercial lender, they are one of the biggest. The company’s size and ability to close on high-value loans fast have made it a go-to option for developers and investors who need capital fast. However, this aggressive approach has also led to scrutiny and allegations of predatory lending practices.
As you’ll see in the next section, Kennedy Funding has repeatedly been accused of mishandling loan agreements. The company frequently engages with multiple parties in complex deals, which further increases its exposure to risk and liability.
Major Lawsuits Against Kennedy Funding
Here’s a look at the two most notable cases against Kennedy Funding, Inc.:
Shelton v. Kennedy Funding Inc. (2010)
The most notable legal proceedings against Kenney Funding involved Virgil Shelton. Shelton sold the Rest in Peace Cemetery to Willie Acklin in 1992. Acklin signed a promissory note and agreed to pay Shelton in installments.
In the late 1990s, Acklin sought a loan to cover his obligations due to financial difficulties. Kennedy Funding, Inc. eventually granted the loan. A portion of the funds were issued to Acklin, and $675,000 was allocated toward Shelton, but it was not distributed at closing. Kennedy Funding held onto the funds in case Acklin defaulted. This move was inconsistent with the initial agreement between Acklin and Shelton.
Acklin defaulted on the loan and Kennedy Funding initiated a foreclosure action on the cemetery. Despite the potential risks, the lender did not pay Shelton the remaining balance that Acklin owed him, which totaled $675,000. In September 2002, Shelton filed a suit with the Arkansas trial court. He cited that Kennedy Funding violated the Arkansas Statute of Frauds and engaged in questionable business ethics.
Ultimately, the case made it to the Eighth Circuit Court of Appeals. The higher court affirmed the district court’s judgment in part, reversed it in part, and remanded a component of the case for additional proceedings. The court found Shelton’s legal arguments for the $675,000 to be valid and awarded him compensatory damages totaling this amount.
Kennedy Funding, Inc. v. Greenwich Landing, LLC (2010)
The year 2010 was very busy for Kennedy Funding, Inc., as they acted as a plaintiff against Greenwich Landing, LLC. The company issued a mortgage to Greenwich Landing. The deal was complex and involved other parties, several of which Kennedy Funding acted as an agent.
The Connecticut case revolved around whether the entity that holds a promissory note can act as an agent for more than one principle and bring action against one of the said parties.
The court affirmed that the holder of the note can foreclose on property even if that entity is acting as an agent for multiple principles. After receiving a favorable outcome in the case, Kennedy Funding completed the foreclosure process.
Other Notable Cases Against Kennedy Funding
Kennedy Funding, Inc. does not appear to have broken away from questionable business practices. In late 2020, Quimera Holding filed a suit against Kennedy Funding for “Other Fraud.” The case records have yet to be updated beyond 2020 but may still be ongoing.
Vladimir Isperov also filed a complaint against Kennedy Funding, Inc. for fraudulent activities in 2020. The case file has not been updated since October 2020, and details are scarce.
What we know is that Vladimir Isperov specializes in sourcing funding for real estate investment projects in California. He is affiliated with Lending Bee. It’s unclear what happened — if the US District Court tossed the case or if the parties settled discreetly. Either way, this complaint marks another in a long line of grievances about Kennedy Funding’s questionable business practices.
Legal Analysis of the Key Issues
Plaintiffs who file claims against Kennedy Funding seem to bring up a few recurring complaints. One of the most prevalent legal arguments in these cases involves claims that Kennedy Funding’s lending agreements are excessively harsh, deceptive, or both. Borrowers often argue that the terms were not clearly communicated or that they were misled about the true cost of the loan.
In the Shelton case, the plaintiff was promised $675,000, but Kennedy Funding attempted to withhold payment. The company also allegedly misled the title agency about who had the funds and where they were being held. This sort of blatant deception is part of a bigger problem within the financial sector that leaves consumers feeling victimized and misled.
Many of the legal battles involving Kennedy Funding invoke federal and state lending regulations designed to protect borrowers from unfair practices. The Truth in Lending Act (TILA) represents one of the most notable provisions. The TILA requires lenders to disclose key terms and costs associated with a loan.
Most states impose additional requirements on lenders to ensure fairness and transparency. However, Kennedy Funding, Inc. has proven skilled at darting around many of these laws, as was the situation in the Shelton case. Kennedy Funding exploited the Arkansas Statute of Frauds to convince the appellate court to reverse part of the lower court’s decision, thereby saving the business from hundreds of thousands in additional fees.
Somehow, Kennedy Funding, Inc. has managed to keep most of its shady business dealings out of the mainstream news cycle. However, these cases have recently resurfaced, which may prompt legal experts to weigh in on the company’s questionable practices and predatory lending practices.
Impact on Kennedy Funding
Kennedy Funding appears to be unphased by the slew of court cases. In the Shelton incident, Kennedy Funding drastically reduced the amount of damages it was required to pay, ultimately reducing the impact on the company. In fact, the court allowed Kennedy Funding to pay Shelton what it originally owed based on the agreement with Acklin. If Kennedy Funding’s issues are as widespread as they seem, it makes sense that the company is doing well. Most victims of practices like this don’t sue because it is always extremely expensive and time-consuming.
The company has even won out in a few of the cases. In the Greenwich example, Kennedy Funding convinced the courts that it should be allowed to proceed with the foreclosure process even though it acted as the agent of multiple principles.
However, the recent cases could have a more significant impact on Kennedy Funding, especially if the plaintiffs are able to obtain favorable verdicts. Until then, Kennedy Funding, Inc. will probably proceed with business as usual.
Industry-Wide Implications
Any time a major lender receives criticism for predatory lending practices, the TILA issues return to the forefront. The controversies surrounding Kennedy Funding and the recent resurfacing of several major cases could reignite discussions about stricter regulations for commercial lenders.
Social media has given the everyday consumer, as well as smaller-scale investors and developers, a platform for sharing concerns and drawing attention to shady business practices. This shift in the business environment could have long-term implications for the commercial lending industry as a whole.
Lenders may be more likely to ensure that their loan agreements are clear and fair. They may also place an added emphasis on compliance with state and federal laws.
The legal challenges faced by Kennedy Funding serve as a cautionary tale for borrowers and may impact consumer behavior. Individuals who are seeking a large sum of money for commercial investments or development projects need to ensure that the contracts are carefully reviewed by an experienced contract attorney.
Other Major Corporate Lawsuits
The Kennedy Funding lawsuits were far from the most notorious or widely publicized. These cases were overshadowed by more recent and far-reaching claims, including suits against:
Disney
The House of Mouse has garnered a ton of negative media attention in recent weeks over its attempts to counter a wrongful death suit by citing a Disney+ terms of service agreement. A woman died due to an allergic reaction after eating at a restaurant on Disney property, and the global brand initially stated that the plaintiffs could not sue because they agreed to arbitrate all disputes when they signed up for a Disney+ trial (hidden multiple pages deep in the Terms & Conditions).
The company has since walked back this defense in response to the public outcry. The case is ongoing and could have huge implications for consumers everywhere.
Amazon
Amazon Prime subscribers filed a complaint against Amazon for altering its terms of service and incorporating ads into its previously ad-free streaming service. The case is still in its early stages but could result in a hefty settlement.
Poppi
Have you ever purchased a “gut healthy” Poppi prebiotic soda? If so, you may be able to join a class action suit that accuses the brand of false advertising and misleading consumers. The suit is still ongoing, but the plaintiffs have built a strong case so far.
JUUL
The e-cigarette company JUUL reached a $300 million settlement but continues to face serious legal challenges, including multiple attempts to ban its products. While JUUL devices are back on store shelves, the company is facing an uphill battle back toward profitability.
Lessons for Borrowers and Lenders
Any time you are dealing with a lender or borrowing large sums of money, it’s vital to do your due diligence. Be particularly cautious of high-risk lending agreements. Remember, no institution will loan money for a risky endeavor out of the goodness of their heart. They are likely going to charge you premium fees and may even resort to unscrupulous practices to stack the deck in their favor.
Make sure you consult with a legal professional and have them review the documents. They can identify any potential loopholes that may expose you to unnecessary liability or excessive fees. Protect yourself and do your homework before you sign on the dotted line.
How the Case Impacts You
The Kennedy Funding lawsuits probably won’t have a huge impact on your daily life unless you act as a commercial property investor or developer. Major class action lawsuits, like those against Google and Costco, are more likely to influence how you interact with brands.
With that in mind, we suggest keeping an eye on ongoing suits against major corporations from which you’ve purchased products. You may be able to recover unclaimed money if you meet eligibility requirements. Additionally, you can do your part to hold big brands accountable for their mistreatment of customers.