Toxic assets are assets that can no longer be sold on a secondary market. Due to various factors, toxic assets are essentially guaranteed to lost money for the holder of the asset. The term “toxic asset” or “toxic security” stems from the mortgage-backed securities crisis of the late 2000’s, when various debt obligations and other financial arrangements could not be sold off because due to the massive losses they caused their holders.
An example of a toxic asset is when a person defaults on their mortgage, and the property declines in value to the point where the bank would lose profits if they tried to sell it. If the property was used to back any other securities, these mortgage-backed securities might become toxic since the property can’t be sold for a profit.
What are some Legal Issues Associated with Toxic Assets?
One of the more common legal issues associated with toxic assets is where a financial advisor sells or recommends a toxic asset to a person looking to invest in an asset. Advisors are generally obligated under state and federal laws to inform investors to the best of their knowledge regarding the risks and predictable losses associated with a potential asset.
If the advisor knowingly recommends a toxic asset to an investor client, they could face various consequences. Likewise, they can also face consequences for fraud or misrepresentation regarding an asset that is toxic.
Toxic assets can also be an aspect of broader legal topics like bankruptcy (for instance, where reliance on toxic assets have led to bankruptcy), as well as foreclosure issues. Lastly, toxic asset disputes can also arise from a trustee dispute, where a trustee who is tasked with the management of a person’s assets fails to invest or acquire assets according to sound business judgment
What are the Legal Remedies for Toxic Asset Disputes?
In most cases, legal remedies in a toxic asset dispute involve a monetary damages award. This may be issued against the liable party, to allow the affected party to recover losses associated with the toxic asset. In some cases, other consequences may be involved. For instance, a licensed advisor may have their license suspended. In cases involving multiple clients, a class action lawsuit may be filed. This can happen for instance where widespread financial fraud in an investing firm affects the assets of many clients.
Do I Need a Lawyer for Help with Toxic Asset Disputes?
Toxic assets claims can involve a number of complex financial and legal issues. You may need to hire a finance lawyer in your area if you need assistance with any type of legal dispute over assets. Your attorney can provide you with legal advice, research, and guidance to help with your claim. If you need to file a lawsuit and appear in court, your attorney can represent you during that process.