Servicer Indemnification Issues

[Andy Mirza]

In the last 5 years, we've been sued in civil court 4 times for wrongful foreclosure for non-judicial foreclosures. These have all been meritless lawsuits meant to stop a foreclosure sale. In judicial foreclosure states, you have to file a lawsuit to foreclose so I've gotten used to the process of borrowers putting up defenses, which is very similar to these 4 lawsuits where the borrower is the plaintiff.

Our servicer has been named as a defendant in the 4 cases, 2 of which were by the same borrower.

At the beginning, you need to be clear on who is defending whom. In one case, we (trustee doing the foreclosure, servicer, us) decided that each party would represent themselves. The borrower dismissed her suit when the sale was stayed & her Ch 13 BK case was confirmed. A problem occurred when the servicer tried to stick us with their entire legal bill.

We have another situation that just started in which the servicer is telling us that they are retaining outside counsel to review our defense strategy before deciding whether they will let us represent us or have their counsel do so. All at our expense.

I looked at the indemnification clause in the servicing agreement & I don't think this procedure is covered. I have no problem if they want to "tag along" and have us represent them alongside us in a case that we are paying for anyway. I have no problem if they want to have input. But if you exercise your right to have your own counsel, it has to be at your own expense. We have no control over the expenses that that outside counsel will run up. And, when looking at the complaint itself, the servicer is being accused of misconduct.

Anyone have experiences that they're willing to share? @Chris Seveney?

[Don Konipol]

@Andy Mirza

Another reason I stick with commercial loans. We service the loans ourselves, need no license, and when a case goes infront of a judge there’s no stretching the law because of sympathy for the consumer home owner; both us and the debtor are professional business people. But, of course commercial real estate requires a different knowledge and experience base.