Arby, WPSC and its insurer AEGSL were sued by the survivors and the estate of the deceased.   Both WPSC and AEGSL raised the indemnification clause as an affirmative defense.   Prior to trial, the parties settled the case where Arby, WPSC and AEGSL paid sums to the injured and the deceased’s estate.   The settlement specifically stated that certain claims were dismissed without prejudice, including claims WPSC had against Arby and its insurers.  It also stated that all other claims were dismissed with prejudice.

Immediately after the settlement WPSC and AEGSL sued Arby for indemnification under the contract.   Arby sought to dismiss the AEGSL claim on the issue of claims preclusion, arguing that since AEGSL was not one of the specifically identified cross claims that were dismissed without prejudice, it was dismissed as part of the settlement.   The Court of Appeals agreed with Arby, holding that the indemnification claim was substantively the same claim as the cross claims for indemnification in the original suit.   You can view the court’s decision here.

Then new rules eliminate the yield spread, prohibiting mortgage brokers’ compensation from being based on anything other than the size of the loan.  Many independent brokers are now complaining that the new compensation scheme will diminish their pay and lead to more expensive loans.   They also claim the new rules favor big banks over the typically smaller, and independent mortgage brokers.   While I’m sure many brokers were ethical and procured the best loans available for their clients, the abuse of the system was so wide-spread that I think the new rules were necessary.  The new rules will be subject to legal challenges and it will be interesting to see if they hold up in court.

I find this move extremely short-sighted.   First, the funding came from the $21.50 court filing fee which was dedicated to legal service issues such as this and CCAP funding.    Now that money is going to slosh around the pot of the general budget.   Second, this move will probably end up costing the courts much more money in the long run.  Having seen Pro-Se litigants in action, it is surprising how much longer and more difficult the case becomes.   This will lead to greater backlogs in the court system and deny a significant swath of low-income people the help they desperately need.

The frustrating thing is that principle modifications would help the investors.   I cannot tell you how many times I proposed a reasonable offer which did not even reduce the principal to a bank, only to have them foreclose instead.  And immediately after foreclosing, the bank markets the property for 60% or less of what the loan value was.   Even shaving a modest 15 to 20% off the original loan would have allowed many homeowners to continue to stay in the homes and make payments which were within their budgets.   However, the bank and loan servicers would not be able to collect additional fees with such an arrangement, so regardless of whether it is in the interests of both the home owner, the investors and society at large; the bank will refuse to negotiate.   Now, even the modest relief afforded by the HAMP program has been withdrawn from homeowners.  As long as the housing crisis forces people to pay for nothing, and leads to more foreclosures and walk-aways, the economy will not significantly recover.