The New York Appellate Division, First Department earlier this week held that Nationstar Mortgage LLC was indeed entitled to indemnification for losses from Generation Mortgage Company and Guggenheim Partners, LLC under the terms of a 2015 purchase agreement, in which Nationstar acquired the servicing rights for tens of thousands of reverse mortgage loans.
The issue at hand stems from a contract that Nationstar entered with Generation and Guggenheim, as seller and guarantor respectively, which included a “survival period” – a negotiated timeframe within which the acquiring party must provide notice of any claims against the seller for indemnification. Prior to the period expiring, Nationstar provided the defendants notice of its indemnification claims against the defendants. Defendants refused to indemnify Nationstar on its claims and renounced any obligation for losses incurred outside the Survival period. In response, Nationstar brought a suit seeking indemnification and a declaration from the court.
On Defendants’ motion to dismiss, the trial court sided with the Defendants in part and dismissed Nationstar’s indemnification claims for future losses along with its claim for declaratory relief. On Appeal, the Appellate Division reversed that decision in all material respects. Amongst the most important takeaways from the Appellate Court’s decision are:(1) a claim does not require a showing that plaintiff actually realized the loss;” (2) under the purchase agreement, Generation’s indemnification obligation includes losses not realized until after the end of the survival period; and (3) the declaratory judgment claim is not duplicative of the indemnification claim and should not have been dismissed.
In light of this decision, which may affect other mortgage servicing purchasing agreements, both Generation and Guggenheim are now obligated to indemnify Nationstar for future losses on noticed loans – whenever the loss was incurred.
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