Unclaimed indemnity refunds: Show us the money!Andrew L. Liput Esq.indemnity agreements, collecting deposits, periodic payments, estimated losses
At a time and place in the mortgage industry when the bottom
line is getting awfully thin, lenders and brokers should remember
that there are sources of revenue in some very unusual and
largely-forgotten places. In fact, by some estimates, there are
millions of dollars in lender and broker funds just waiting to be
claimed—if only the rightful owners knew how and where to
look for them.
Over the past several years, investors have negotiated thousands
of indemnity agreements, collecting deposits and sometimes periodic
payments toward estimated losses. In most cases, these deposits and
payments, collected in anticipation of some final property disposal
and loss calculation, were designed to give an investor the comfort
that when their final losses were known, there was security for
their ultimate losses.
Since most investors do not service their loans, and therefore
never speak to a borrower or handle collections and foreclosure
proceedings, they rely on third parties to report a particular
loan's status to them. This means that the investor has no direct
knowledge of how loss mitigation is being conducted on his behalf,
including the costs incurred and methods employed. It also means
that an investor relies on these third parties to accurately report
on losses in a timely manner.
In many cases, lenders and brokers who have signed indemnity
agreements to avoid the dreaded repurchase no longer concern
themselves with the fate of the property and the status of their
investor's actual losses. Lenders and brokers are understandably
more interested in turning the page and continuing to originate
loans and generate revenue; repurchase demands and investor
indemnities are uncomfortable, but necessary costs of doing
business along the way. Like a short but dramatic bump in the road,
repurchase negotiations are strongly-felt, but soon forgotten.
However, the deposit money and payments made to offset anticipated
losses are still out there, waiting for the ultimate
loss—accounting.
During the period from 2001 through 2004, with housing prices
rising dramatically to levels never before seen in the United
States, real estate owned (REO) properties had the strange habit of
actually reselling for values that came close to, or even exceeded
the ultimate loss calculations. Some commentators claim that
investors and servicing companies in that period encouraged or even
manipulated loan records to create default scenarios, thereby
generating a profitable and unintended consequence of the secondary
transaction; some properties were worth more in foreclosure than
they were at the time their loans initially closed. I have no real
data to support these claims. I am merely reporting what I have
read in other publications. However, I have been involved in at
least one scenario, representing a lender in a loss mitigation
matter where the REO sale brought $75,000 more than the actual
losses incurred after two years of non-payment default status.
What I also know for sure is that because investors have
historically had poor communication with servicers about loan
status, and because lenders and brokers tend to move on once an
indemnity is signed, sealed and delivered, it is highly probable
that there are thousands of indemnity agreements that were signed
between 2002 and 2005 where refunds are due. What I mean by this is
that when investors collected deposits and payments toward
estimated losses, they were, thereafter, obligated to provide a
final accounting of those losses, and where monies were collected
in excess, those funds should rightfully be returned.
Now that you know you may have unclaimed funds sitting out there
somewhere, what do you do?
The place to start researching whether or not you may be owed
money by an investor is, of course, your indemnity agreements. If
you paid a deposit and/or periodic payments in connection with a
defective loan in lieu of a repurchase, you should ask for an
accounting of those monies. Several clients I have worked with have
been surprised to discover that their investors actually owed them
money, an ironic position for any lender or broker to be in today.
So, dust off those old indemnities and start dialing. There may be
gold in those hills.
Andrew L. Liput Esq. is president of The Liput Group. He may be
reached at (888) 424-3728 or e-mail
[email protected].
