I'm no lawyer, but I would say that the Loan Officer has a duty to disclose anything of which he has knowledge which may potentially affect title to the property.

As far as privacy concerns go, banks and lending institutions  may share the consumer's non-public personal information with third parties in accordance with the Gramm-Leach-Bliley Act, provided that 1) the consumer is notified in writing of such disclosure to third parties; and 2) that such disclosure is necessary in the course of providing services to the consumer.

So, to answer your question, Gee-Dub, I say yes.

Regards,
Scott Perry