Mortgage Loan Servicer is a Real Party in Interest

The right of a mortgage loan servicer to sue has been the subject of much litigation and not only in the mortgage foreclosure area. In a recent Seventh Circuit opinion, CWCapital Asset Mgmt., LLC v. Chicago Properties, LLC, 09-3506 (7th Cir. June 29, 2010) a mortgage servicer sued the mortgagor and landlord, its owners who guaranteed the loan for commercial mortgage placed in securitization trust, and the former tenant. The servicer claimed that it was contractually entitled to rent owed for time remaining on a lease after tenant abandoned the premises, including money that the tenant paid the mortgagor in settlement of underlying suit for unpaid rent. The District Court ruled ”seemingly as an after-thought” that the servicer was not a real party in interest and dismissed the suit under Fed. R. Civ. P. 17(a). The Seventh Circuit reversed. The opinion explained the servicer’s place in the mortgage securitization procedure. After mortgage loans close, they are placed in a securitization trust and the trust holds the legal title to the mortgages. The trustee or in this case the trustee’s delegate (the plaintiff)” is responsible for servicing those mortgages. The servicer is the trust’s collection agent to whom all power and authority to service and administer is delegated under the pooling and servicing agreement. Under the terms of the pooling and servicing agreement, the servicer ”has the whip hand; he is the lawyer and the client”; while the trustee’s duty was merely to provide support when needed. It likened the servicer to an assignee for collection who must render to the assignor the money collected by the assignee’s suit on his behalf (minus the assignee’s fee) but can sue in his own name without violating Rule 17(a). Though a servicer may not be an assignee, it also has a personal stake in the outcome of the lawsuit because it receives a percentage of the proceeds of a defaulted loan that it services.

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