Lender Liability

Florida Appeals Court confirms that borrower’s note can’t be reduced by amounts paid to banks under Loss Shared Agreement with FDIC

By May 26, 2014No Comments

Recently, on April 17, 2013, the Second District Court of Appeal addressed a crucial issue that is becoming increasingly relevant in today’s foreclosure cases concerning whether the outstanding amount due from the borrower under a Note can be reduced by amounts paid to the mortgage holder from the FDIC under the Loss Shared Agreement. In the case of Branch Banking & Trust Company v. Kraz LLC, et al, BB&T had acquired loans from Colonial Bank, which had been closed by the FDIC. Under the Loss Shared Agreement between the FDIC and BB&T, BB&T was required to reimburse to the FDIC for loans for any funds it recovers on loans that were previously charged off and for which FDIC paid portions of that loss to BB&T. People can check kyc for banking  and other updates. Immediately after acquiring the Colonial Bank loans, BB&T instituted a foreclosure action against Borrower, Kraz. At the trial in the underlying foreclosure case, the trial court held that the borrower was not in default at the time that BB&T declared default. More importantly, the trial court ordered that the loan be reinstated and that the Borrower receive a credit for all monies paid to BB&T from the FDIC on that particular loan, and reasoned that such mechanism would ensure that the lender is not allowed to “double-dip” in recovering from both the borrower and the FDIC.

In affirming in part, and reversing in part the trial court’s decision, the Court of Appeal ruled that trial court’s rationale for providing the borrower a credit to prevent the lender from potentially “double-dipping” was erroneous. The Second DCA reasoned that the Loss Shared Agreement already provides its own terms to prevent double-dipping by its requirement that the lender reimburses to the FDIC any funds that it recovers on a previously-charged off loan for which the FDIC had already paid portions of that loss to the lender. Accordingly, the case was ultimately remanded back to the trial court for the limited instructions of correcting the principal balance due from the borrower and removing any credit given to the borrower for funds received by the lender from the FDIC.

This BB&T v. Kraz decision is expected to greatly affect the defensive strategies in defending foreclosure cases involving loans acquired from the FDIC. It is will also be of great interest to monitor how this decision will affect mediations and workouts in foreclosure cases involving Loss Shared Agreements.