Lynx Whole Loan Acquisition LLC v. Nationstar Mortgage LLC

• Court: Court of Chancery of Delaware
• Decided: December 3, 2024
• Docket: C.A. No. 2022-1203-LWW
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

LYNX WHOLE LOAN ) ACQUISITION LLC, ) ) Plaintiff, ) ) v. ) ) NATIONSTAR MORTGAGE, LLC, ) ) Defendant, ) ______________________________ ) CONSOLIDATED NATIONSTAR MORTGAGE LLC, ) C.A. No. 2022-1203-LWW ) Counterclaim Plaintiff, ) ) v. ) ) LYNX WHOLE LOAN ) ACQUISITION LLC, and ALLIED ) FIRST BANK, S.B., ) ) Counterclaim Defendants. )

MEMORANDUM OPINION

Date Submitted: August 20, 2024 Date Decided: December 3, 2024

Bradley R. Aronstam, Garrett B. Moritz, Reiko Rogozen & Anthony Calvano, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; David M. Grable, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Los Angeles, California; Manisha M. Sheth, Wing F. Ng, Alex Zuckerman & Jeffrey C. Arnier, QUINN EMANUEL URQUHART & SULLIVAN, LLP, New York, New York; Veronica B. Bartholomew, QUINN EMANUEL URQUHART & SULLIVAN, LLP, Wilmington, Delaware; Counsel for Plaintiff and Counterclaim Defendant Lynx Whole Loan Acquisition LLC and Counterclaim Defendant Allied First Bank, S. B. Daniel A. Mason & Elizabeth Wang, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, Wilmington, Delaware; Richard Jacobsen & Thomas Kidera, ORRICK HERRINGTON & SUTCLIFFE LLP, New York, New York; Counsel for Defendant and Counterclaim Plaintiff Nationstar Mortgage LLC

WILL, Vice Chancellor This breach of contract action arises from purchases of distressed, federally

insured mortgage loans in late 2021 and early 2022. Lynx Whole Loan Acquisition,

LLC paid $2.7 billion to buy the loans from Nationstar Mortgage, LLC. Nationstar

represented and warranted to Lynx that the loans sold were accurately described.

Nationstar, which would continue as servicer after the sale, also represented and

warranted that it would service the loans consistent with regulatory guidelines.

Lynx claims that Nationstar breached these representations and warranties in

a hodgepodge of ways. After trial, I conclude that some of Lynx’s theories fail.

Others—regarding the accuracy of Nationstar’s descriptions of the loans and

compliance with a specific guideline—succeed. Lynx is entitled to indemnification

damages for the breaches it proved, and for the value that a third-party appraiser

ascribed to mortgage servicing rights.

After Lynx discovered Nationstar’s breaches, it terminated Nationstar as loan

servicer. Nationstar brings counterclaims against Lynx and the successor servicer

for repayment of servicing advances it made on Lynx’s behalf. Lynx, in turn, asserts

that Nationstar improperly retained certain funds owed to the successor servicer.

Both claims have merit. I fashion a remedy that addresses the respective harms.

1 I. BACKGROUND

The following facts were stipulated to by the parties or proven by a

preponderance of the evidence at trial.1

A. Nationstar’s Business

Nationstar Mortgage LLC (a/k/a Mr. Cooper) is a Delaware limited liability

company.2 Nationstar originates and services home mortgages that are guaranteed

by the federal government and may become eligible for delivery into pools of

mortgage-backed securities (MBS) issued by the Government National Mortgage

Association (GNMA).3 Payments of principal and interest due to purchasers of the

MBS are also guaranteed by GNMA.4

1 Joint Pre-trial Stipulation and Order (Dkt. 301) (“PTO”). The trial record includes the testimony of 23 fact and 6 expert witnesses over 5 trial days, and 2,175 exhibits. Facts drawn from exhibits jointly submitted by the parties are referred to by the numbers provided on the parties’ joint exhibit list and cited as “JX __” unless otherwise defined. See Dkt. 300 (joint exhibit list). Pincites for joint exhibits refer to the page of the exhibit as marked rather than internal or Bates pagination, unless otherwise noted. Deposition transcripts are cited as “[Name] Dep.” Trial testimony is cited as “[Name] Tr.” See Dkts. 329-333. 2 PTO ¶ 6. 3 Id. ¶ 36. 4 Id. 2 Servicers like Nationstar deliver qualifying loans into GNMA MBS pools.5

GNMA then securitizes the loans, and Nationstar sells the securities to third-party

investors in the market for MBS.6

The right to service—and earn fees from—the underlying loans is distinct and

severable from ownership of the loan itself.7 Lenders may sell loans to investors

while retaining the servicing rights.8 Here, Nationstar derived fee revenue from

principal and interest payments on mortgage loans it sold to plaintiff Lynx Whole

Loan Acquisition, LLC—a Delaware entity—and continued to service.9

B. Early Buyout Option Loans

The mortgage loans Nationstar sold to Lynx were early buyout option (EBO)

loans. EBO loans are a category of GNMA loans that are 90 days or more past due.10

Servicers may repurchase EBO loans from GNMA to remove them from the MBS

pool before default.11 Exercising an EBO eliminates the servicer’s obligation to

continue advancing principal and interest but requires the servicer to pay off the

5 Id. ¶ 37. 6 Id. ¶ 36. 7 Id. ¶ 38. 8 Id. 9 Id. ¶¶ 4, 39. 10 Id. ¶ 41. 11 Id. 3 remaining principal balance on the nearly defaulted loan.12 If an EBO loan comes

out of delinquency or “reperforms,” it becomes eligible to be redelivered to a GNMA

pool and re-securitized.13

Non-bank servicers (like Nationstar) sell EBO loans to investors (like Lynx)

and use the cash flows from the sales to pay off the loans’ remaining principal

balance.14 In EBO transactions like those at issue here, an investor will buy a

portfolio of EBO loans from a servicer, and the servicer will retain the mortgage

servicing rights (MSRs).15 When an investor purchases an EBO loan, the loan may

take three paths—other than foreclosure or liquidation—to become eligible for

redelivery into a GNMA pool.16

First, the borrower can resume payment without changes to the original loan

terms and pay all amounts past due.17 This path is known as a “natural cure.”18

Second, the servicer can defer the borrower’s unpaid principal and interest

payments, resulting in a standalone debt payable upon maturity of the loan that is

12 Id. 13 Id. ¶ 42. 14 Id. ¶ 43. 15 Id. ¶ 44. 16 Id. ¶ 45. 17 Id. ¶ 46. 18 Id. 4 subordinate to the original loan.19 Such deferral is known as a “partial claim.”20

Third, and most relevant here, the servicer can work with the borrower to renegotiate

modified loan terms—typically a lower monthly payment, lower interest rate, or

longer term.21 The modification is deemed complete and the loan rehabilitated when

the borrower makes payments under the revised terms.22

C. Lynx and Nationstar’s Agreement The COVID-19 pandemic visited sudden financial distress upon borrowers

with government-backed mortgages. To address borrowers’ unforeseen hardship,

federal agencies launched forbearance programs in March 2020 that temporarily

paused or reduced mortgage payments.23

Although borrowers availed themselves of these federal forbearance

programs, the programs did not excuse Nationstar from advancing principal and

interest payments for the loans it serviced.24 For Nationstar, exercising EBOs freed

it from advancement obligations for loans that could be in forbearance for an

19 Id. ¶ 47. 20 Id. 21 Id. ¶ 48. 22 Id. 23 Id. ¶ 51. 24 JX 1091 at 2-3. 5 indeterminate period. But, to exercise EBOs, Nationstar first had to pay the principal

balance on the underlying loans.25

To lessen these costs, Nationstar sought buyers for the loans. This approach

was attractive to Nationstar since it would immediately obtain cash flows to offset

the costs of exercising the EBOs.26 Purchasing the EBO loans was also appealing to

potential buyers. Many EBO loans carried higher interest rates than the historically

low rates available in 2021.27 Any economic benefit realized by the buyer would

come later, however, depending on the quality of the loans sold and the seller’s

servicing of the loans.28

Lynx emerged as a potential buyer of Nationstar’s EBO loans in the fourth

quarter of 2020.29 Lynx would own the loans. Nationstar would retain the associated

MSRs and continue servicing the loans.30

On November 1, 2021, Lynx and Nationstar entered into a Flow Mortgage

Loan Sale and Servicing Agreement (the “Agreement”), which outlined the

framework for Lynx’s purchase.31

25 Id.; Watts Tr. 16. 26 PTO ¶ 43. 27 JX 1091 at 1-2. 28 See Watts Tr. 22. 29 PTO ¶ 54. 30 Id. 31 JX 74 (“Agreement”) 1; PTO ¶ 55. 6 Over a five-month period ending April 1, 2022, Lynx purchased 15,341

government-backed mortgage loans from Nationstar in seven transactions totaling

an unpaid principal balance of $2.655 billion.32 All of the purchased loans were

delinquent ones on which Nationstar had exercised an EBO.33 At each of the seven

closings, Lynx paid Nationstar (1) the par value of the loans, which Nationstar used

to buy the loans out of securitization, and (2) a premium.34 Nationstar received more

than $50 million in upfront profit across the seven transactions and eliminated its

obligation to advance principal and interest on the delinquent MBS loans.35

As servicer, Nationstar would remain responsible for the “care and feeding”

of the loans Lynx purchased.36 Nationstar also had superior access to information

about the loans being sold. Lynx therefore bargained for promises and protections

from Nationstar in the Agreement.

1. Accuracy and Completeness of Loan Information Nationstar made representations and warranties about the accuracy and

completeness of information it provided to Lynx about characteristics of the loans.

32 PTO ¶ 59 (noting the closing dates for the seven transactions: November 1, 2021; December 1, 2021; December 1, 2021; December 28, 2021; January 3, 2022; February 1, 2022; and April 1, 2022). 33 Id. 34 Watts Tr. 21-22. 35 See JX 2109 (see App. 11 tab). 36 See Hasan Tr. 487. 7 These representations were important to Lynx for two reasons. First, loan value is

affected by the loans’ characteristics.37 Second, it “would be impossible” for Lynx

to review the voluminous loan files, which span “thousands of documents per loan,”

during the period between the purchase population being set and closing.38

In Section 3.01(a)(x) of the Agreement, Nationstar represented and warranted

in its capacity as seller that:

Neither th[e] Agreement nor any statement, report or other document furnished or to be furnished in writing by or on behalf of [Nationstar] pursuant to th[e] Agreement or in connection with the transactions contemplated [t]hereby contain[ed] any untrue statement of fact or omit[ted] to state a fact necessary to make the statements contained therein not misleading[.]39

Nationstar also agreed to execute a separate contract memorializing each of

the seven transactions, called an Assignment and Conveyance Agreement

(AACA).40 In each AACA, Nationstar agreed to provide a mortgage loan schedule

(MLS) that outlined data points or characteristics for every loan in the portfolio it

sold to Lynx.41 Each MLS effectively provided an inventory of the loans being

sold.42

37 See Summers Tr. 438. 38 See Watts Tr. 24. 39 Agreement § 3.01(a)(x). 40 PTO ¶ 59. 41 Agreement § 2.01. 42 Hasan Tr. 493; Meacham Tr. 1023; see also Agreement § 1.01; id. § 2.01 (“As of each Closing Date, the Seller shall absolutely and irrevocably sell, transfer, assign, set over and 8 In Section 3.02(a) of the Agreement, Nationstar represented and warranted to

provide “true, correct, and complete” information in the MLS:

All information set forth in the Mortgage Loan Schedule is true, correct and complete in all material respects as of the Principal Cut-off Date. The Mortgage Loan Schedule contains all of the data fields required to be included therein. The information set forth in the Mortgage Loan Schedule correctly and accurately reflects the data in the [Nationstar’s] books and records as of the related Principal Cut-off Date and is consistent with the information reflected in the Mortgage File.43 Nationstar also confirmed the accuracy and completeness of information it

would provide to Lynx after closing. This was important to Lynx since Nationstar

would remain servicer, and its servicing could affect the loans’ values.44 In Section

3.01(b)(ix) of the Agreement, Nationstar represented and warranted in its capacity

as servicer that:

Neither th[e] Agreement nor any statement, report or other document furnished or to be furnished by [Nationstar] pursuant to th[e] Agreement or in connection with the transactions contemplated hereby contain[ed] any untrue statement of fact or omit[ted] to state a fact necessary to make the statements contained therein not misleading.45

convey to Purchaser, without recourse, free and clear of any liens, security interests or other encumbrances, but subject to the terms of this Agreement and the related Assignment and Conveyance Agreement all right, title and interest in and to the Mortgage Loans (other than the related Servicing Rights) specified in the Mortgage Loan Schedule appended to the related Assignment and Conveyance Agreement.”). 43 Agreement § 3.02(a); see also id. § 1.01. 44 See infra Section II.A.1.a. 45 Agreement § 3.01(b)(ix). 9 2. Applicable Requirements and Customary Servicing Procedures Nationstar represented and warranted in Section 4.01(a) of the Agreement to

service loans in accordance with “Applicable Requirements and Customary

Servicing Procedures.”46 “Applicable Requirements” were defined to include

guidelines imposed by certain federal agencies, including Federal Housing

Administration (FHA) and Department of Veterans Affairs (VA).47 Certain

guidelines bear on loan modifications, which could affect loan value.48

Nationstar also represented and warranted that, during the term of the

Agreement, it had “not violated any Applicable Requirement in a manner that

reasonably could be expected to have a material adverse effect upon the value of any

Mortgage Loan.”49

46 Agreement § 4.01(a) (“The Servicer, as an independent contractor, shall service and administer the Mortgage Loans on an actual/actual basis on behalf of the Purchaser and any subsequent holder or holders of the Mortgage Loans in accordance with Applicable Requirements and Customary Servicing Procedures, and using not less than the same degree of care, diligence, and prudence that the Servicer uses when servicing mortgage loans of the same type as the Mortgage Loan for the Servicer’s own account [.]”); see also id. § 3.01(b)(v). 47 Id. § 1.01. 48 See infra Section II.A.2.b. 49 Agreement § 3.01(b)(vi). 10 3. Repurchase and Indemnification Rights

Lynx bargained for two monetary remedies if Nationstar breached the

Agreement: repurchase and indemnification damages.

Regarding repurchase damages, Nationstar could be made to pay a defined

repurchase price for any loan affected by an uncured breach of a representation and

warranty that “materially and adversely affect[ed] . . . the value . . . of such

Mortgage Loan or [Lynx’s] interest therein[.]”50

As to indemnification, Lynx could recover “any and all out-of-pocket costs,

damages, expenses, fees (including reasonable attorneys’ fees incurred in connection

with the enforcement of the Seller’s repurchase, indemnification and other

obligations hereunder), fines, penalties, forfeitures, judgments, liabilities, and other

losses” arising from breaches of Nationstar’s representations and warranties.51

D. Lynx’s First Demand The final loan sale closed on April 1, 2022.52 By this point, interest rates had

risen.53 Lynx experienced losses on its investment, particularly with respect to

50 Agreement § 3.03(a); see infra Section III.A.1 (discussing Lynx’s request for repurchase damages). 51 Agreement § 3.03(c); see infra Section III.A.2 (discussing Lynx’s request for indemnification damages). 52 PTO ¶ 59. 53 See JX 3007 at 1. 11 profits it anticipated making through its hedging strategy.54

Lynx’s deal lead Brandon Watts flagged three primary concerns to his

counterpart at Nationstar, Christopher Said. First, Lynx expressed that certain loans

Nationstar sold it had preexisting modified interest rates that had not been disclosed

on the associated MLSs. Second, Lynx believed that Nationstar had modified loan

rates below applicable servicing standards. And third, Lynx observed that

Nationstar had modified loans at a pace slower than the applicable guidelines

required.55

On September 2, 2022, Lynx sent Nationstar a letter invoking its audit and

information rights under the Agreement.56 Nationstar ignored this letter. It

responded to a follow-up letter and refused to comply.57

On December 13, Lynx sent Nationstar another demand letter listing multiple

alleged breaches of the Agreement and events of default.58 Lynx stated that it was

terminating Nationstar as servicer under Section 9.01 of the Agreement and

transferring the MSRs to another provider.59 Lynx attached three schedules to its

54 See JX 307. 55 JX 303 at 1; Watts Tr. 87-88. 56 JX 482 at 2-3. 57 JX 2100; JX 2101. 58 JX 591 at 5-6. 59 Id. at 6-7. 12 letter. Schedule 1 listed loans that Lynx identified for repurchase.60 Schedule 2

listed loans identified for indemnification.61 And Schedule 3 listed loans for which

Lynx exercised its termination rights against Nationstar as servicer.62

Nationstar responded a week later, disputing Lynx’s allegations.63 It refused

to step down as servicer.

E. This Litigation On December 28, Lynx sued Nationstar in this court.64 Lynx sought expedited

declaratory relief on the validity of Lynx’s termination of Nationstar as servicer.65

Lynx sought to transfer the MSRs to a different servicer—counterclaim defendant

Allied First Bank, S.B. (“Servbank”).66

Within days of the lawsuit being filed, Nationstar agreed to resign as

servicer.67

60 JX 592 (Sched. 1). 61 Id. (Sched. 2). 62 Id. (Sched. 3). 63 JX 917. 64 PTO ¶ 67; Dkt. 1. 65 PTO ¶ 67; Dkt. 1 ¶ 17. 66 PTO ¶¶ 68, 71. 67 Id. ¶ 71; see Dkt. 8; Watts Tr. 104. 13 F. The Valuation Dispute

Nationstar’s resignation as servicer triggered a contractual “Servicing Rights

Valuation” process, which is defined by the Agreement as “a written determination

of the Servicing Rights Value . . . of the Servicing Rights related to all Bifurcated

Mortgage Loans.”68 The valuation is to be performed by a “Servicing Rights

Valuation Provider,” meaning “any . . . nationally recognized provider of valuation

services chosen at [Lynx’s] election in [Lynx’s] sole discretion.”69 The provider is

to determine the “Servicing Rights Value,” which is the fair market value of the

MSRs as of the transfer date, excluding unrecovered servicing advances.70 If the

Servicing Rights Value is positive, Lynx is to pay Nationstar the fair market value

of the MSRs.71 If the value is negative, Nationstar is to pay Lynx.72

Lynx initially engaged Situs AMC to perform the valuation.73 But after Lynx

raised questions about Situs’s independence from Nationstar, the parties agreed to

68 Agreement § 10.02. 69 Id. § 10.02(3). 70 Id. § 10.02. 71 Id. § 10.02(1). 72 Id. § 10.02(2). 73 See Watts Tr. 107. 14 engage Mortgage Industry Advisory Corporation (MIAC) instead.74 MIAC

performed both an economic and fair market valuation of the MSRs.75

On March 22, 2023, MIAC delivered a report valuing the MSRs at negative

$23.6 million.76 Nationstar declined to pay that amount and sought an order from

this court directing Situs to conduct a new valuation.77

While the valuation dispute was ongoing, Lynx filed an amended complaint

in this court on March 30.78

G. Servicing Rights Transfer

On April 20, Nationstar agreed to transfer the MSRs to Servbank. 79 Their

previous resignation triggered an obligation for Nationstar to deliver to Servbank all

funds in an escrow account for the loans.80 Nationstar retained $13.2 million from

the escrow account before transferring the rest of the money to Servbank.81

Nationstar kept the funds to offset servicing advances it had made for Lynx’s

loans while Nationstar was the servicer. A servicing advance is a payment to cover

74 PTO ¶ 73. 75 See infra Section II.B.1.b. 76 JX 662 at 1-2. 77 Dkt. 47. 78 PTO ¶ 82; Dkt. 71. 79 PTO ¶ 88. 80 See Agreement §§ 4.08, 12.01. 81 Dkt. 349 (Tr. of August 2, 2024 Post-trial Oral Arg.) 74. 15 certain third-party costs and expenses like taxes, property preservation or foreclosure

costs, and insurance premiums made on behalf of borrowers who are delinquent on

their mortgages.82 As servicer, Nationstar was responsible for making these

servicing advances. The Agreement required Servbank, as the successor servicer, to

make arrangements to reimburse Nationstar.83

Neither Servbank nor Lynx have reimbursed Nationstar for these servicing

advances.84

H. Lynx’s Second Demand and Second Amended Complaint

On August 7, 2023, Lynx sent another letter to Nationstar demanding

repurchase of and indemnification for certain loans.85 Lynx attached two schedules

82 PTO ¶ 52; Agreement § 1.01 (defining “Servicing Advances” as “[a]ll customary, reasonable and necessary ‘out of pocket’ costs and expenses incurred by the Servicer in the performance of its servicing obligations, including, but not limited to, the cost of (i) the preservation, restoration and protection of the Mortgaged Property, (ii) any enforcement or judicial proceedings, including foreclosures, (iii) the management (including reasonable fees in connection therewith) and liquidation of the Mortgaged Property if the Mortgaged Property is acquired in satisfaction of the Mortgage, (iv) Escrow Payments, if applicable, (v) any loss mitigation actions permitted under and in accordance with the provisions of this Agreement, (vi) the payment of delinquent HOA fees, and (vii) compliance with the obligations under Section 4.11.”). 83 Agreement § 12.01; see infra Section II.B.2.a (addressing Nationstar’s counterclaim for reimbursement of the servicing advances). 84 Dkt. 349 at 171. 85 JX 727. 16 to its second demand letter. Schedule 1 listed loans identified for repurchase and

Schedule 2 listed loans identified for indemnification.86

Nationstar responded three weeks later. It wrote that Lynx had failed to

identify a cognizable breach of the Agreement or facts supporting its repurchase and

indemnification demands.87

This response prompted Lynx to move for leave to file an amended complaint,

which was granted.

On September 8, Lynx filed its Verified Second Amended and Supplemental

Complaint (the operative “Complaint”).88 Lynx advances four counts. The first is a

breach of contract claim regarding Nationstar’s representations and warranties in the

Agreement.89 The second is a breach of contract claim for Nationstar’s failure to

pay the Servicing Rights Value and for its retention of certain escrow funds.90 The

third count seeks declarations that: “(1) Nationstar must abide by the [Servicing

Rights Valuation] and pay Lynx $23 million dollars; (2) Nationstar has no right to

the funds it has looted from borrower escrow accounts; and (3) Nationstar is not

86 Id. at 9-96. 87 JX 918 at 2. 88 PTO ¶¶ 99-100; Dkt. 156 (“Compl.”). 89 Compl. ¶¶ 213-35. 90 Id. ¶¶ 236-44. 17 entitled to reimbursement of Servicing Advances from Lynx.”91 The fourth seeks a

contractual award of attorneys’ fees under Section 12.16, the Agreement’s fee-

shifting provision.92

On November 3, Nationstar counterclaimed against both Lynx and Servbank

(the “Counterclaims”).93 Nationstar advances five claims. The first is a breach of

contract counterclaim for Lynx’s purported failure to procure a Servicing Rights

Valuation.94 The third is breach of contract counterclaim regarding the unpaid

servicing advances.95 The second and fourth counterclaims are brought in the

alternative for breaches of the implied covenant of good faith and fair dealing.96 The

fifth counterclaim is for unjust enrichment, regarding the unreimbursed servicing

advances.97 The sixth counterclaim seeks attorneys’ fees under the Agreement’s fee-

shifting provision.98

91 Id. ¶ 247. 92 Id. ¶¶ 249-51. 93 PTO ¶ 104; Dkt. 196 (“Countercl.”). 94 Countercl. ¶¶ 125-31. 95 Id. ¶¶ 141-51. 96 Id. ¶¶ 132-40, 152-62. 97 Id. ¶¶ 163-66. 98 Id. ¶¶ 167-69. 18 The parties went on to cross-move for partial dismissal of certain claims and

counterclaims.99 On March 5, 2024, I delivered a bench ruling denying the motions

in full.100 Each cause of action in the Complaint and Counterclaims remained for

trial.

A five-day trial began on May 6. Post-trial briefing and argument were

completed on August 2. The case was taken under advisement at that time.

II. ANALYSIS

The parties bear the burden of proving their respective claims and

counterclaims by a preponderance of the evidence. “Proof by a preponderance of

the evidence means proof that something is more likely than not.”101

The Agreement is governed by New York law.102 Under New York law, a

party claiming a breach of contract must establish that “(1) a contract exists . . . (2)

[the] plaintiff performed in accordance with the contract . . . (3) [the] defendant

breached its contractual obligations . . . and (4) [the] defendant’s breach resulted in

damages.”103

99 Dkts. 177, 197, 205, 233, 245, 251. 100 PTO ¶ 111; Dkts. 265, 266. 101 Revolution Retail Sys., v. Sentinel Techs., Inc., 2015 WL 6611601, at *9 (Del. Ch. Oct. 30, 2015). 102 Agreement § 12.05. 103 34-06 73, LLC v. Seneca Ins. Co., 39 N.Y. 3d 44, 52 (2022) (citation omitted). 19 New York courts view “the best evidence of what parties to a written

agreement intend [to be] what they say in their writing.”104 As such, “a written

agreement that is complete, clear, and unambiguous on its face must be enforced

according to the plain meaning of its terms.”105 “Extrinsic evidence of the parties’

intent may be considered only if the agreement is ambiguous, which is an issue of

law for the court to decide.”106

A. Lynx’s Breach of Contract Claims

Lynx’s breach of contract claims against Nationstar fall into three categories.

One category concerns Nationstar’s representations and warranties in its

capacity as seller. Lynx contends that Nationstar failed to disclose that certain loans

were in the process of being modified, despite representing and warranting to the

accuracy and completeness of information provided to Lynx. Lynx proved this

claim.

The second category concerns Nationstar’s representations and warranties as

servicer of the loans post-closing. Lynx alleges that Nationstar breached these

representations and warranties in three ways, because: (1) modified interest rates

104 Slawmow v. Del Col, 79 N.Y.2d 1016, 1018 (1992). 105 Greenfield v. Philles Records, Inc., 98 N.Y. 2d 562, 569 (2002). 106 Id. at 569-70 (“[I]f the agreement on its face is reasonably susceptible of only one meaning, a court is not free to alter the contract to reflect its personal notions of fairness and equity.”). 20 were too low; (2) modification and redelivery timelines were too slow; and

(3) Nationstar’s facilities, procedures, and personnel for servicing were substandard.

Lynx has only proven a subset of the second alleged breach.

The third category pertains to Nationstar’s actions after it was terminated as

servicer. Lynx proved that Nationstar breached the Agreement by refusing to step

down from that role. Lynx’s claim about Nationstar’s retention of certain escrow

funds is addressed alongside Nationstar’s related counterclaim on servicing

advances.

1. Nationstar’s Alleged Breaches Regarding Modifications in Progress

A loan modification is a change to the terms of an existing mortgage loan,

which can include changes to the interest rate, the unpaid principal balance, and/or

the term to maturity.107 Nationstar and Lynx understood the terms “modifications in

progress” or “modifications in process” to mean a loan for which Nationstar as

servicer had approved and offered a modification to a borrower (e.g., a change to the

interest rate), which the borrower had yet to accept by executing the modification

documents.108

107 Latman Tr. 1145-46. 108 See Watts Tr. 32-33 (testifying that modification in progress means “when a rate lock occurs, and new terms . . . for our borrower are locked in and offered to a borrower”); Schiffer Tr. 166-67; see also JX 154 at 6. The parties also referred to modifications in progress as “modifications in flight” (or “mods-in-flight”) and “active mods.” See Said Tr. 389; Schiffer Tr. 167. 21 One type of modification in progress is a trial modification. A loan subject to

a trial modification involves a probationary payment period during which the

borrower makes several scheduled payments under the terms of the proposed loan

modification.109 The proposed loan modification only takes effect after the borrower

makes the set trial payments under the modified terms.110 The trial period extends

the time during which a modified loan is ineligible for redelivery into a GNMA

pool.111

Lynx claims that Nationstar breached three provisions of the Agreement by

failing to accurately disclose modifications in progress. Section 3.01(a)(x) is a

representation by Nationstar that “[n]either th[e] Agreement nor any statement,

report, or other document furnished or to be furnished in writing . . . contain[ed] any

untrue statement of fact or omit[ted] to state a fact necessary to make the statements

contained therein not misleading.”112 Nationstar made the same representation in its

capacity as servicer in Section 3.01(b)(ix).113 And in Section 3.02(a), Nationstar

represented that the information in the MLSs it provided to Lynx was “true, correct

109 Hasan Tr. 521-22; see also JX 14 ¶ 19; JX 17. 110 See Latman Tr. 1151. 111 Said Tr. 394-95. 112 Agreement § 3.01(a)(x); see supra note 39 and accompanying text (full text of provision). 113 Id. § 3.01(b)(ix); see supra note 45 and accompanying text (full text of provision). 22 and complete in all material respects” and “contain[ed] all of the data fields required

to be included therein.”114

Lynx asserts that these provisions were breached in two ways. The first type

of alleged breach concerns information provided in the MLS for each of the seven

loan pools. The second relates to statements made by Nationstar representatives

during negotiations about the composition of the loan pools. Lynx has proven its

claim regarding the former but not the latter.

a. Disclosure of Modifications in Progress in MLSs

Under New York law, “strict or absolute liability” is imposed for “untrue or

incorrect statement[s] on the MLS” in breach of related representations and

warranties.115

Nationstar attached an MLS spreadsheet as Annex 2 to the AACA for all

seven sale transactions. The MLS provided loan-level information as of closing for

every loan sold to Lynx.116 Nationstar was required to provide 61 specific data fields

in the accompanying MLS.117 One of the mandatory fields was called

114 Id. § 3.02(a); see supra note 43 and accompanying text (full text of provision). 115 U.S. Bank, Nat’l Assoc. v. UBS Real Est. Sec., Inc., 205 F. Supp. 3d 386, 428-29 (S.D.N.Y. 2016); see also MBIA Ins. Corp. v. Credit Suisse Secs. LLC, 2020 WL 7041787, at *7-8 (Sup. Ct. N.Y. Cty. Nov. 30, 2020). 116 See Hasan Dep. 45-47. 117 Agreement 75-76 (Annex 2 listing the data fields in the MLSs Nationstar agreed to provide). 23 “active_modification_flag.”118 This field was intended to capture modifications in

progress.119

Nationstar included the “active_modification_flag” in the MLS it supplied for

the first loan pool sold on November 1, 2021.120 For this transaction, the

“active_modification_flag” was filled with either a “1” or a “0.” Loans denoted with

“0” meant that there was no modification in progress.121 If the field was populated

with a “1,” it meant that there was a modification in progress.122 The Nationstar

team responsible for preparing the MLS neither worked to understand what the

“active_modification_flag” meant nor confirmed the accuracy of the information in

the field.123

Nationstar failed to provide the “active_modification_flag” field for the

second through seventh loan pools sold between December 1, 2021 and April 1,

118 Id. 119 See Watts Tr. 56; Schiffer Tr. 166-67; DelPonti Tr. 720 (Lynx’s expert testifying about his understanding of the active modification flag based on his industry experience); JX 847 (“DelPonti Rep.”) 50; cf. Ross Tr. 1382. 120 JX 75 column “BB”. 121 See DelPonti Rep. 50-52; Said Tr. 320. 122 See DelPonti Rep. 50-52; Said Tr. 320. 123 See Hasan Tr. 505-07, 510; Said Tr. 415-16; Richardson Tr. 568-76. At trial, Nationstar’s transaction manager for the loan sale to Lynx testified that the data field meant a modification that had been completed. Richardson Tr. 581. But he could not explain an example loan with a “1” in the “active_modification_flag” field where the modification documents were not returned and executed as of November 1, 2021. Richardson Tr. 581- 86. His testimony is inconsistent with both the weight of the record and the fact that the field explicitly refers to “active” modifications. 24 2022. For these six sales, Nationstar provided a “mod_trial” field that was meant to

capture whether the loan was in a trial modification period.124 The “mod_trial” field

was not one of the 61 fields agreed upon by the parties.125

If there were any trial modifications in a pool, Lynx expected Nationstar to

populate the “mod_trial” field with a “1.”126 If the loan was not subject to a trial

modification, Lynx expected the field would read “0.” But the “mod_trial” field

instead read “NULL” for every row.127 No Nationstar witness at trial was familiar

with the “mod_trial” flag.128

i. Nationstar’s Breaches

Regarding the first sale and associated MLS, Nationstar breached its

representations and warranties that any document furnished to Lynx—including the

MLSs—be true, accurate, and complete.129 It did so by including inaccurate

information about modifications in progress for certain loans in the first pool.130

124 See, e.g., JX 93 at 13. 125 See Agreement 75-76 (Annex 2). 126 Watts Tr. 60-61. 127 DelPonti Tr. 721; see, e.g., JX 93 at 13. 128 See, e.g., Ross Tr. 1382-83. 129 Agreement §§ 3.01(a)(x), 3.01(b)(ix), 3.02(a). 130 See infra Section II.A.1.a.ii. 25 Nationstar’s omission of the “active_modification_flag” field from the second

through seventh MLSs also breached the Agreement.131 Section 3.02(a) of the

Agreement obligated Nationstar to provide an MLS containing “all of the data fields

required to be included therein.”132 Appendix 2 to each AACA specified that

“active_modification_flag” was a required data field.133

Nationstar was not obligated to include the “mod_trial” field and Lynx did not

request it. But Nationstar was prohibited from “omitting to state a fact necessary to

make the statements contained [in any furnished report] not misleading.”134 Listing

“NULL” in the “mod_trial” field was misleading because it indicated to Lynx that a

loan was not subject to a trial modification.135 Other fields included combinations

of “NULLs” and information.136 It would not have been apparent to Lynx, then, that

the “mod_trial” field indicated an absence of information.

These breaches caused harm to Lynx. A loan’s modification status affects

loan pricing.137 All else equal, loans in the process of modification are worth less

than unmodified loans because they are more likely to reperform at a lower interest

131 DelPonti Rep. 52. 132 Agreement § 3.02(a). 133 Id. at 75-76. 134 Id. §§ 3.01(a)(x), 3.01(b)(ix). 135 See DelPonti Tr. 721. 136 See id.; e.g., JX 93 at 40, 45, 48. 137 See Said Tr. 393, 397-98; see also JX 263 at 1-2. 26 rate.138 The higher the incidence of modifications in progress, the less Lynx would

have paid for the loan pools.139 That is because the longer a modification offer

remains outstanding, the longer Lynx is exposed to the risk that interest rates will

fluctuate.140 This risk was particularly acute during the historically volatile interest

rate environment in late 2021.141

ii. The Experts Lynx put forward the expert testimony of John DelPonti to estimate the

number of loans with undisclosed modifications in progress. 142 DelPonti has more

than 35 years of experience in the mortgage banking industry. He was the chief

executive officer of a mortgage originator and servicer and the chief risk officer of

a savings and loan association before transitioning to a consulting practice, where

he specializes in mortgage banking.143

DelPonti conducted a loan-by-loan analysis to assess whether the MLSs

Nationstar delivered to Lynx misstated or omitted facts about the condition of the

138 See JX 774 (“Press Rep.”) 18-22; see also Savchenko Dep. 113. 139 Watts Tr. 32. 140 Summers Tr. 454-55. 141 See Pl. Lynx’s Opening Post-trial Br. on Lynx’s Claims (“Lynx’s Opening Post-trial Br.”) (Dkt. 322) 38. 142 DelPonti Rep. 5. 143 Id. at 8. 27 loans being sold.144 His methodology involved five steps: (1) identifying the key

documents in loan files; (2) identifying key servicing activities in Nationstar’s

electronic records; (3) comparing the loan file documents with electronic records to

determine accuracy; (4) identifying Nationstar’s comment codes and comments for

loss mitigation activities; and (5) determining whether key comment codes were

system-generated or free-form to ascertain their reliability for his purposes.145 After

confirming that he had identified comment codes (four-letter abbreviations

indicating the type of servicing activity being recorded) and comments (descriptions

of servicing activity) for relevant loss mitigation activities, DelPonti applied his

technique to a sample of loans.146 When his sampling proved effective, he

extrapolated it to the entire population of 15,000 loans.

DelPonti compared the set of loans that were approved by Nationstar for

interest rate modifications in Remedy, Nationstar’s internal rate-setting program,

against the MLS for each transaction.147 He determined that, in the first transaction,

Nationstar populated the “active_modification_flag” field with “0” for 16 loans that

were in the process of being modified.148 He also concluded that 1,578 loans in the

144 Id. at 9. 145 See DelPonti Tr. 709-11; Lynx’s Trial Demonstrative 2 at 12; DelPonti Rep. 49. 146 DelPonti Rep. 51. 147 Id. at 50-51; DelPonti Tr. 723-25. 148 DelPonti Rep. 50-51; JX 864. 28 second through seventh pools had undisclosed modifications progress, including 893

undisclosed trial modifications.149 In total, he opined that of the loans he evaluated,

1,594 (or 12.41%) had undisclosed modifications in progress.150

Nationstar critiques DelPonti’s methodology because he did not conduct an

exhaustive review of the voluminous loan files. Doing so would have been a

massively burdensome undertaking. The loan files are at least 1,000 pages per

file.151 The electronic servicing files average 1,862 records per mortgage loan, and

over 25 million records for the 15,000 mortgage loans at issue.152 But a full file

review was unnecessary for DelPonti’s purpose.153 Only a small portion of the data

in a loan file or servicing activity file relates to Nationstar’s loss mitigation servicing

practices during the relevant period.

149 DelPonti Rep. 53, tbl. 14; DelPonti Tr. 820-21. 150 See DelPonti Rep. 53, tbl. 14; JX 864. 151 DelPonti Tr. 782. 152 DelPonti Rep. 14. 153 Nationstar’s argument relies on a federal decision explaining that, under New York law, breach of contract claims must be proved on a “loan-by-loan” basis. Nationstar’s Post-trial Answering Br. on Lynx’s Claims and Opening Br. on Countercls. (Dkt. 325) (“Nationstar’s Post-trial Answering Br.”) 36 (quoting BlackRock Allocation Target Shares: Series S. Portfolio v. Wells Fargo Bank, Nat’l Assoc., 247 F. Supp. 3d 377, 389-90 (S.D.N.Y. 2017)). But DelPonti did conduct a loan-by-loan analysis—one that relied on a relevant subset of available data for each loan. The cited decision provides no support for Nationstar’s contention that, to prevail on a breach of contract claim, a plaintiff must review of every line in a loan file. It is also procedurally inapposite. There, the court evaluated breach of contract allegations at the pleading stage. Id. I am weighing evidence after trial. 29 Nationstar sought to rebut DelPonti’s analysis through the expert testimony

of Peter Ross. Ross managed mortgage servicing functions before forming a

mortgage banking consulting firm.154 Ross did a full-file review—but of only 15 to

20 loans. His sample was “not statistically random.”155 Ross admitted that the

purpose of his review was “to find illustrations” to undercut DelPonti’s

conclusions.156 New York law recognizes that extrapolations gleaned from a non-

random sample are untrustworthy.157 Ross’s outcome-driven analysis is thin, and I

give it little weight.

I accept DelPonti’s approach and figures. DelPonti’s data-driven

methodology was reliable, thorough, and industry-appropriate.158 He employed a

loan-by-loan analysis that involved the review of 12,171,592 records.159 He relied

on essential data, used a sample to check his approach, performed a quality check,

154 JX 793 (“Ross Rep.”) 4. 155 Ross Tr. 1419-20. 156 Id. at 1419. 157 See, e.g., Fed. Hous. Fin. Agency v. Nomura Hldg. Am., Inc., 104 F. Supp. 3d 441, 473 (S.D.N.Y. 2015) (concluding that it was “impossible to extrapolate to an entire pool the results from” non-random sample), aff’d, 873 F.3d 85 (2d Cir. 2017). 158 See Robinson v. Nationstar Mortg. LLC, 2019 WL 4261696, *19 (D. Md. Sept. 9, 2019) (observing that an expert’s analysis based on “a central computerized analysis of Nationstar data” using Nationstar’s comment codes was an acceptable approach to prove violations of federal regulation). 159 DelPonti Rep. 14. 30 and revised his conclusions to address minor flaws.160 Nationstar’s data provided a

responsible basis for him to do so.161

b. Inclusion of Loans with Modifications Lynx contends that Nationstar also breached the Agreement by including

loans with modifications in progress in the pools sold to Lynx. Nothing in the

Agreement required Nationstar to exclude loans with modifications in progress.

Lynx instead invokes Sections 3.01(a)(ix) and 3.01(b)(ix) of the Agreement, which

concern the accuracy of any “statement . . . furnished” by Nationstar “in connection

with the transactions.”162

On October 28, 2021, Nationstar’s Said emailed Lynx’s Watts that Nationstar

would “continue to remove pending mods” from Lynx’s loan pools.163 Four days

later, Nationstar confirmed to Watts that loans “[m]ods in-flight” would be

excluded.164

160 The flaws were identified by Nationstar’s expert, which pointed out issues with 20 loan findings out of over 4,300 loans. Despite the relatively minor nature of the critiques, DelPonti reexamined and corrected his findings. DelPonti Tr. 868-39, 843-45. 161 See Latman Tr. 1201-04 (Nationstar’s employee testifying that he was “comfortable using data” from Nationstar’s systems rather than “go[ing] through every loan file” to investigate why rates for Lynx loans were below prevailing market rates). 162 Agreement §§ 3.01(a)(ix), (b)(x). 163 JX 65 at 1; see also Watts Tr. 33. 164 JX 87 at 4. 31 After the first sale transaction closed on November 16, Said told Watts that

“[Nationstar] w[ould] remove all mods and mods in progress from the pool prior to

[the] sale date” and “continue to remove [m]ods in progress.”165 Three months later,

in February, Said wrote to Watts: “[W]e have 473 loans that have mods in progress

(Docs out). 13 of them would be 2.5 coupon and we plan to remove[.]”166 Watts

interpreted “docs out” to mean the time “when the rate lock is set by Nationstar” and

Nationstar sends “the modification document to the borrower.”167

Lynx asserts that Said’s statements about removing modifications in progress

were false because such loans were included in sold pools. Setting aside whether

Said’s emails can be fairly read as statements “furnished in writing” under Section

3.01(a)(x) or 3.01(b)(ix) of the Agreement,168 this small set of selective

communications does not prove Lynx’s claim.

A closer look at the record reveals that Lynx agreed to the inclusion of some

modifications in progress in the loan pools. For example, in the same October 28

165 Id. at 2; Watts Tr. 38-39. 166 JX 154 at 1. 167 Watts Tr. 45. 168 Communicating through email did not necessarily relieve Nationstar of its obligation to provide truthful information. The Agreement expressly permits written notices to be sent by email. See, e.g., Agreement §§ 4.02, 4.04(b), 4.05(d), 4.08, 12.06, 12.17. In the statute of frauds context, New York courts have held that email may satisfy the Uniform Commercial Code’s definition of a writing. See Bazak Int’l Corp. v. Tarrant Apparel Grp., 378 F.Supp.2d 377, 383 (S.D.N.Y. July 18, 2005). 32 email Lynx cites, the parties agreed that Nationstar would remove loans with

modifications in progress that were expected to be redelivered into a

securitization.169 But Watts instructed Said to “leave in” modifications in progress

that were “2-4 months out” from redelivery, amounting to $100 worth of loans.170

For the second sale transaction, Watts asked Said to “exclude [m]ods-in-flight

similar to what [Nationstar] did” on the first pool—where Watts had asked Said to

include certain modifications in progress.171 Lynx also accepted loans with

modifications in progress for the February 2022 sale. When Lynx asked about the

rates at which loans were being modified, Said volunteered that “473 loans . . . ha[d]

mods in progress ([d]ocs out).”172 Watts responded: “We are good to keep the

[m]ods in progress in the closing population.”173

Given these contradictions in the record, Lynx did not prove that Nationstar

promised to remove the same loans with modifications in progress that were

included in the pools. Lynx focuses on isolated statements in transaction-specific

169 JX 65 at 1. 170 Id.; see also Said Tr. 314 (testifying that he understood Lynx made this distinction because loans that were expected to be redelivered imminently did not have enough “upside potential” for Lynx, as it “may not be able to receive principal and interest on those loans for a long enough period of time”). 171 See JX 87 at 4; Said Tr. 317-19. 172 JX 154 at 1. 173 Id. 33 emails. Lynx cannot use these snippets to obtain protections it did not bargain for

in the Agreement.

2. Nationstar’s Alleged Breaches Related to Servicing of Loans Lynx also claims that Nationstar breached the Agreement post-closing in its

capacity as seller. It raises four categories of alleged breaches regarding:

(1) modifying interest rates below prevailing market rates; (2) actions taken slower

than applicable guidelines or industry standards require; (3) the accuracy and

completeness of mortgage loan report data; and (4) Nationstar’s facilities,

procedures, and personnel. Lynx has met its burden of proof for a subset of the

second category.

a. Rate-Setting Practices

Lynx asserts that Nationstar breached the Agreement by modifying loans

below the Prime Mortgage Market Survey (PMMS) rate.174 PMMS is an aggregate

weekly survey of mortgage interest rates in the United States issued by the Federal

Home Loan Mortgage Corporation (Freddie Mac).175 PMMS is considered the

market rate, and modifications are often made at or above it.176

174 Lynx’s Opening Post-trial Br. 24-31. 175 PTO ¶ 50. 176 See DelPonti Tr. 733; DelPonti Rep. 63-65. 34 After closing, Nationstar modified certain loans sold to Lynx using a “brand

rate” that was below PMMS.177 A brand rate is a modified interest rate applied

across an investor’s or owner’s loans that is different from the maximum allowable

interest rate set by agency guidelines.178 The brand rate Nationstar applied to Lynx’s

loans was lower than the default rate programmed into Remedy for other Nationstar

clients.179

Nothing in the Agreement obligated Nationstar to modify interest rates at or

above PMMS. Yet according to Lynx, Nationstar’s sub-PMMS rate modifications

breached the Agreement in two ways. First, Lynx argues that the rates applied were

inconsistent with “Customary Servicing Procedures” in breach of Section 4.01(a) of

the Agreement.180 Second, Lynx argues that emails about rate setting practices were

inaccurate “statements . . . furnished in writing,” which breached Sections

3.01(a)(x) and 3.01(b)(ix) of the Agreement.181 Neither theory succeeds.

177 Cherry Tr. 601, 645-46. 178 Id. 179 Remedy can be programmed to include investor-specific guidelines and modification terms. Cherry Tr. 592. Certain Nationstar clients requested rates different from the brand rate. Lynx did not. Meacham Tr. 996-97. There is no obligation in the Agreement that Nationstar affirmatively offer Lynx a lower rate. Nor is there any provision of the Agreement or industry standard prohibiting Nationstar from overriding the default rate programmed into Remedy to effect downward adjustments below PMMS. See DelPonti Tr. 745. 180 Agreement § 4.01(a); see supra note 46 and accompanying text (quoting the provision). 181 Agreement §§ 3.01(a)(x), 3.01(b)(ix); see supra notes 39, 45 and accompanying text (quoting the provisions in full). 35 i. Customary Servicing Procedures

There is no specific industry standard requiring mortgage loan interest rates

to be set at or above PMMS.182 Lynx relies on DelPonti’s testimony and a single

publication to formulate one. DelPonti testified that, in his opinion, the industry

standard is to modify interest rates “at or above market rate . . . [i.e., the] PMMS

rate,” subject to the applicable government program maximums.183 And a paper

prepared by the Mortgage Servicing Collaborative—a research initiative of “key

industry stakeholders”—states that “[t]he interest rate on an FHA, VA, or [United

States Department of Agriculture (USDA)] loan is generally reset to the prevailing

market rate at the time of modification, even if it results in a rate increase for the

borrower.”184

Regulatory guidance is far more flexible, however. It generally treats PMMS

as a ceiling—not a floor.185 DelPonti admitted that under VA and USDA

forbearance programs, the modified interest rate “would be required to be below

PMMS” for borrowers whose existing rates were over 1% below the PMMS rate at

182 DelPonti Tr. 829; Ross Tr. 1307. 183 DelPonti Tr. 733; DelPonti Rep. 63-65. 184 JX 2 at 3; see id. at 2 (listing participants in the publication to include Nationstar representatives and one of Nationstar’s experts in this case). 185 See JX 834 (chart summarizing relevant agency guidelines setting maximums, not minimums, for modified interest rates); Latman Tr. 1163; Ross Tr. 1306; Cherry Tr. 598; see also Schiffer Tr. 211, 213; DelPonti Tr. 828-29. 36 the time of modification.186 The VA’s guidance permits servicers to “offer an

interest rate below the maximum allowable rate at their discretion.”187 The USDA’s

guidance similarly states that “[l]oan modifications may include a change in the

interest rate, even below the market rate if necessary and should focus on payment

reduction as a primary goal.”188

Without a firm standard requiring modified rates to meet or exceed PMMS,

Lynx’s claim under Section 4.02(a) of the Agreement fails.

ii. Emails About Rates

Before closing, Nationstar made statements to Lynx about rates it would use

for loan modifications in the future when servicing the loans.189 The discussed rates

were at or above PMMS. For example, on October 20, 2021, when PMMS was

3.05%, Nationstar’s Said reported to Lynx’s Watts that VA loans were being

modified to 3.25%.190 On November 16, 2021, Said told Watts that Nationstar had

modified VA loans to “PMMS plus 25 [basis points].”191 And on March 14, 2022,

186 DelPonti Tr. 828-29. 187 JX 32 at 4; see DelPonti Tr. 829-30. 188 JX 1178 at 341; see DelPonti Tr. 830. 189 E.g., JX 87 at 1, 5; JX 210 at 1; Watts Tr. 84-85; JX 743 at 1. 190 JX 87 at 5-6; see also JX 743 at 1. 191 JX 87 at 1-2. 37 Said wrote to Watts that the rate was “PMMS flat for FHA” and “PMMS +25 for

VAs.”192

None of Said’s emails represented that Nationstar would set modified interest

rates at or above PMMS. Instead, Said was confirming the modified interest rate he

believed applied to certain loan categories at specific times.193 His comments did

not address Nationstar’s rate-setting methods broadly or make promises about future

practices. Like Lynx’s claim based on pre-closing statements about modifications

in progress, this attempt to construe individual lines in emails as sweeping

misrepresentations falls short.

b. Servicing Timelines

Lynx maintains that Nationstar took too long to modify and redeliver loans,

in violation of regulatory guidance and industry standards.194 The FHA, VA, and

USDA each have different rules for appropriate servicing timelines.195

Lynx claims that Nationstar violated these guidelines by failing to:

(1) complete loss mitigation solutions within 120 days of borrowers exiting

forbearance; (2) complete loss mitigation solutions within 120 days of approval; and

(3) redeliver eligible mortgage loans into securitizations within 30 days of

192 JX 210 at 1; Watts Tr. 84-85. 193 JX 87 at 1. 194 Lynx’s Opening Post-trial Br. 31-37. 195 See Summers Tr. 442. 38 modification. In Lynx’s view, these delays violated “Applicable Requirements and

Customary Servicing Procedures”—and thus Section 4.01(a) of the Agreement.196

Lynx proved that its first theory constitutes a breach of the Agreement, but not its

second or third.

i. Loss Mitigation Completion Within 120 Days of Forbearance Exit

Nationstar had to service the loans Lynx purchased in accordance with

“Applicable Requirements and Customary Servicing Procedures.”197 “Applicable

Requirements” include federal agency guidelines that mandate timelines to complete

modification solutions.198

In 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security

(CARES) Act. The statute allowed borrowers with federally backed mortgages to

request a forbearance of their mortgage payments because of hardships caused by

the COVID-19 pandemic.199 The FHA and VA issued guidelines requiring mortgage

loan servicers to complete loss mitigation solutions within 120 days of loans exiting

the forbearance period.200 The FHA mandated that “[t]he Mortgagee must complete

196 Agreement § 4.01(a); see supra note 46 and accompanying text (quoting provision in full). 197 Id. § 4.01(a). 198 Id. § 1.01. 199 See DelPonti Tr. 733-34; 15 U.S.C. § 9056. 200 JX 34 (FHA); JX 32 (VA). 39 a loss mitigation option . . . no later than 120 Days from the earlier of the date of

completion or expiration of the forbearance.”201 The VA mandated that “[a]ll loan

documents are to be fully executed not later than 120 days after the borrower exits

the COVID-19 forbearance.”202 There is no dispute that these agency guidelines

applied to certain loans Nationstar sold to Lynx.203

Nationstar violated these guidelines when it failed to complete loss mitigation

within 120 days of loans exiting forbearances. In doing so, Nationstar violated its

representation and warranty in Section 4.01(a) of the Agreement.

To assess the scope of this breach, DelPonti compared the date on which the

borrower exited forbearance to the date on which the workout was completed.204 He

identified 1,369 mortgage loans for which Nationstar failed to complete a loss

mitigation option within 120 days of exiting forbearance.205 His findings comport

with an audit of the U.S. Department of Housing and Urban Development’s (HUD)

Office of Inspector General, which found that “Nationstar did not provide proper

201 JX 34 at 11. 202 JX 32 at 5. E.g., JX 2130 at 2 (Nationstar recognizing that “FHA guidance states we must complete 203

workout within 120 days of forbearance ending . . . .”). 204 DelPonti Rep. 54-55. 205 DelPonti Tr. 757; DelPonti Rep. 56, tbl. 15. 40 loss mitigation assistance to more than 80 percent of borrowers with delinquent

FHA-insured loans after their COVID-19 forbearance ended.”206

Nationstar argues that its failure to comply with this 120-day timeline breach

the Agreement because delays could have been caused by borrowers.207 But in cases

where borrowers are dilatory in returning loan documents, guidelines permit

servicers to request extensions for HUD approval.208 Nationstar did not file any

extension requests. Its internal Remedy system was never programed to alert

Nationstar to the 120-day timeline.209 Nor was the head of Nationstar’s modification

group aware that the 120-day timeline applied to modifications.210 HUD’s denial of

a Nationstar request that HUD “expressly remove the 120-day timeline requirement

or else make that metric a suggestion and not a requirement” further demonstrates

that the 120-day timeline was mandatory.211

206 JX 722 at 3. 207 Nationstar’s Post-trial Answering Br. 51-54. 208 JX 722 at 29. 209 See Ross Tr. 1387-88 (confirming that Nationstar did not implement the 120-day rule); Latman Tr. 1193-94 (testifying that Nationstar did not program the 120-day rule into Remedy). 210 JX 2130 at 2. 211 See JX 696 at 1, 3. 41 ii. Loss Mitigation Completion Within 120 Days of Approval Lynx also asserts that Nationstar breached Section 4.01(a) of the Agreement

by failing to complete loss mitigation within 120 days of approval.212 Unlike

mitigation after forbearance, Lynx cites no agency guideline setting out this

timeframe. Its argument rests only on DelPonti’s opinions on industry standards.213

Lynx did not prove that any customary loan servicing procedure imposes a

rigid 120-day timeline to complete loss mitigation after approval.214 Loss mitigation

solutions are case-specific and can take longer than 120 days from approval.215 The

process is a bilateral one contingent upon borrower responsiveness. A borrower may

stop communicating with the servicer or fail to timely return documents, which

would delay the booking of a solution.216 DelPonti acknowledged that he did not

account for borrower delays falling outside of Nationstar’s control.217

Further, DelPonti conceded that a forbearance exit “generally occurs before

approval” of a modification.218 Given that, Lynx’s claimed industry standard

212 Lynx’s Opening Post-trial Br. 34-35. 213 See DelPonti Tr. 759-60; DelPonti Rep. 57. 214 DelPonti Tr. 806. 215 Ross Tr. 1322-24. 216 Id. 1325-26. 217 DelPonti Tr. 807-08. 218 DelPonti Rep. 57. 42 timeline is inconsistent the agency guidelines discussed above because the 120-day

clock would restart once a servicer approved a modification.

iii. Redelivery Within 30 Days of Modification Lynx next contends that Nationstar violated an industry standard requiring the

redelivery of loans into GNMA pools within 30 days of completing modifications.219

Neither the Agreement nor GNMA guidance imposes a thirty-day deadline.220 To

be eligible for re-pooling, GNMA requires that “the permanently modified

loan . . . be current as of the issuance date of the related security.”221 GNMA’s

guidance poses a hypothetical in which the modification-to-redelivery timeline

could span multiple months:

As of the pooling date, no more than one (1) monthly payment on the pooled mortgages can be due and unpaid. For example, if the pooling date of a January 1 single family security is December 28, then in order to be eligible for pooling, the November payment on the loan must have been paid, and the only payment that may be due is the December payment.222 The Agreement requires only that Nationstar “use commercially reasonable

efforts in good faith” to redeliver reperforming loans to GNMA pools. 223 The

219 Lynx’s Opening Post-trial Br. 35-37. 220 See Agreement § 4.04(b). 221 JX 911 at 2. 222 Id. 223 Agreement § 4.04(b). 43 provision lacks a time element.224 Factoring in the steps between modification and

redelivery, Lynx’s purported 30-day timeline falls apart. Much of the period could

elapse before Nationstar identified and approved loans for repurchase and

redelivery, which occurred at the beginning of each month.225

Even if there were a standard 30-day timeline to redeliver a loan into a GNMA

securitization after completing a modification, Lynx’s claim would fail. The timing

of redelivery hinges on Lynx’s acceptance of Nationstar’s repurchase—not

Nationstar’s completion of a modification.226 Section 4.04(b) of the Agreement

provides that Lynx’s repurchases must “be effectuated . . . not later than the first

GNMA pooling date immediately following the date on which [Nationstar] received

the related Reperforming Mortgage Loan Repurchase Notice[.]”227 That is, if Lynx

was slow in deciding whether to accept a repurchase offer, the 30-day timeline would

be frustrated. Nationstar alone should not bear the responsibility for these delays.

224 Id. 225 Ross Tr. 1318, 1321. 226 Agreement § 4.04(b); see also DelPonti Tr. 810-11 (confirming that it is Lynx’s acceptance of a repurchase offer that triggers the redelivery timeline). 227 Agreement § 4.04(b). 44 c. Completeness and Accuracy of MLRs

The next category of breach claimed by Lynx concerns modification pipeline

information Nationstar provided Lynx after closing. In January 2022, Lynx

requested “mod rate lock” reports (MLRs) from Nationstar.228 MLRs are daily

reports about loans in Lynx’s portfolio.229 This request was to optimize the hedging

strategies of Lynx’s affiliate, non-party Nomura.230 Lynx and its affiliate wanted to

know the post-modification rates and rate lock dates to better hedge the interest rates

associated with the loans.231

Nationstar initially supplied a “completed Mod Rate Lock report” that would

be run “daily.”232 Lynx perceived various inaccuracies in these MLRs.233 It asserts

that the reports violated Nationstar’s promise in Section 3.01(b)(ix) of the

Agreement to provide complete and accurate “statement[s], report[s] or other

document[s] furnished or to be furnished in writing by or on behalf of the Servicer

pursuant to th[e] Agreement or in connection with the transactions[.]”234

But the Agreement’s purpose was “to prescribe the manner of purchase by

228 See JX 119 at 1; JX 127 at 3-4. 229 Schiffer Tr. 174. 230 Id. at 204-05. 231 See Lee Dep. 77-78, 81; JX 773 (“Johannes Rep.”) 54-55. 232 JX 132 at 3. 233 See Johannes Rep. 44-46; see also JX 132 at 1; JX 294 at 1. 234 Agreement § 3.01(b)(ix); see Lynx’s Opening Post-trial Br. 74-76. 45 [Lynx] and the management, servicing and control of the Mortgage Loans.”235 There

is no mention of optimizing Lynx’s hedging strategy. Nor did the Agreement

contemplate data reporting to facilitate Lynx’s hedging strategy—much less the

hedging strategy of a third party.236 The MLRs, then, were not documents

“furnished . . . pursuant to th[e] Agreement or in connection with the transactions

[it] contemplated[.]”237 The fact that Nationstar accommodated Lynx’s request for

MLRs does not tie the reports to the Agreement or underlying loan sales, as Section

3.01(b)(ix) of the Agreement requires.

d. Resources Necessary for Sound Servicing

Nationstar confirmed in Section 3.01(b)(v) of the Agreement that it had the

“facilities, procedures, and experienced personnel necessary for the sound servicing

of mortgage loans[.]”238 Lynx contends that Nationstar breached this representation

because it “lacked key policies and procedures” and the “experienced personnel

necessary for sound servicing of Lynx’s loans.”239 This argument amounts to a

critique of Nationstar’s practices—not a legitimate breach of contract claim.

235 Agreement 5. 236 See id. § 7.01 (outlining Nationstar’s reporting obligations as seller and servicer). 237 Id. § 3.01(b)(ix). 238 Id. § 3.01(b)(v). 239 Lynx’s Opening Post-trial Br. 76-77. 46 Nationstar is the largest loan servicer in the country (including subservicing)

and the fourth largest servicer in terms of MSRs owned.240 It is a top-rated servicer,

ranked Tier 1 (Grade A) by HUD.241 Fitch Ratings has commended Nationstar for

its “high performance in overall servicing ability” and “experienced senior

management and staff.”242

Nationstar maintained extensive written policies and procedures governing

loan servicing, including “hundreds” of policies and procedures addressing loss

mitigation.243 It has defined policies and procedures for setting interest rates—a

process involving a collaborative effort among various business groups to

incorporate federal guidance into Nationstar’s automated systems.244

Lynx primarily focuses on purported deficiencies in Nationstar’s override

practices.245 An override is a manual process by which a Nationstar employee rejects

an interest rate supplied by Remedy for a loan modification and applies a different

(often lower) rate.246 Nationstar had no formal policies or procedures governing

240 See Said Tr. 296-97; Ross Tr. 1289; Latman Tr. 1139. 241 JX 1824 at 3. 242 JX 1655 at 24; JX 1541 at 1. 243 Latman Tr. 1141-42, 1152-53. 244 McDow Tr. 1223-25; see supra note 179 and accompanying text. 245 Lynx’s Opening Post-trial Br. 28-31, 77. 246 Cherry Tr. 628. 47 overrides.247 But overrides are ubiquitous throughout the loan servicing industry.248

And Nationstar maintained controls to ensure that overrides applied in limited

circumstances by personnel with the authority to approve them. 249

Lynx fares no better in challenging the experience of Nationstar’s servicing

personnel. It seizes on perceived buck-passing by Nationstar employees who

disclaimed knowledge of or involvement in the day-to-day of processing loss

mitigation workouts or loan modifications. Lynx itself commissioned two third-

party firms to rate Nationstar’s servicing capabilities, both of which praised the

strength of Nationstar’s procedures and senior management.250 Although trial

revealed knowledge gaps,251 Lynx did not prove that Nationstar lacked the personnel

needed for sound servicing.

3. Nationstar’s Alleged Breaches Post-Termination

Lynx asserts that Nationstar breached the Agreement after its termination as

servicer.252 These claimed breaches take three forms: (1) initially refusing to step

down as servicer; (2) refusing to pay the Servicing Rights Value; and (3)

247 See Cherry Tr. 631-62; see also Ross Tr. 1398-99. 248 See Ross Tr. 1310-11; Ross Rep. 65-66; DelPonti Tr. 745. 249 Latman Tr. 1174; Ross Rep. 65. 250 JX 891 at 20; JX 1560 at 3. 251 E.g., Hassan Tr. 506-7, 510, 574; Richardson Tr. 568-76; JX 506. 252 See Lynx’s Opening Post-trial Br. 78. 48 misappropriating funds from the escrow account. The second and third theories are

the inverse of Nationstar’s counterclaims, which I take up further below.253

As to the first theory, Lynx invoked its right to terminate Nationstar as servicer

on December 13, 2022.254 This right is provided by Section 9.01 of the Agreement,

which specifies various “Events of Default” by Nationstar as servicer that merit

termination.255 An event of default occurs if:

[A]ny statement, certification, representation or warranty made by [Nationstar] [in the Agreement] or in any statement or certificate furnished by or on behalf of [Nationstar] in connection with th[e] Agreement, is untrue in any material respect or contains any misstatement of fact as of the date of the issuance or making thereof.256

Nationstar refused to step down when Lynx terminated it, triggering expedited

litigation.257 Nationstar only resigned as servicer after litigation was filed and a

motion to expedite hearing was set.258 Its initial refusal breached Section 9.01

insofar as Lynx cited valid events of default.259

253 See infra Section II.B. 254 JX 591 at 6-7. 255 Agreement § 9.01. 256 Id. § 9.01(c). 257 See Dkt. 1; see also Watts Tr. 103-04. 258 See Dkt. 8. 259 Lynx proved certain breaches of the Agreement in Nationstar’s capacity as servicer, as discussed above. See supra Sections II.A.1.a.i, II.B.1, II.B.2.b. 49 Lynx seeks its attorneys’ fees and costs of bringing this litigation to carry out

the transfer to Servbank. This request is derivative of Lynx’s separate demand for

attorneys’ fees under a prevailing party provision. My resolution of this relief awaits

Lynx’s fee petition, which it has requested leave to file.260

B. Lynx’s Claims and Nationstar’s Counterclaims Regarding Servicing Rights and Advances

As noted above, Lynx claims that Nationstar breached the Agreement after its

termination as servicer by refusing to pay the Servicing Rights Value.261 Nationstar

counterclaims that Lynx breached the Agreement by failing to procure and pay a fair

market valuation of the same MSRs.262

Nationstar also counterclaims that Lynx and Servbank failed to reimburse

unpaid servicing advances after the transfer.263 This theory relates to Lynx’s claim

that Nationstar breached the Agreement by taking funds from the servicing escrow

account instead of transferring them to Servbank.264

260 See infra Section IV. 261 See Lynx’s Opening Post-trial Br. 78-80. 262 See Nationstar’s Post-trial Answering Br. 89-99. Alternatively, Nationstar asserts that Lynx’s actions breached the implied covenant of good faith and fair dealing. See id. at 104-06. 263 See id. at 99-104. 264 See Lynx’s Opening Post-trial Br. 81-84. 50 I resolve the valuation dispute in favor of Lynx. As to the escrow funds and

unpaid servicing advances, both parties’ positions have merit. I address how relief

will be apportioned for those claims in the remedies section that follows.265

1. Refusal to Pay Servicing Rights Value Under Section 10.02 of the Agreement, Nationstar’s termination as servicer

and transfer of the associated MSRs required Lynx to engage a “nationally

recognized” third party “Servicing Rights Valuation Provider.”266 The Servicing

Rights Valuation Provider is authorized to determine the “Servicing Rights Value,”

which is defined as the “aggregate fair market value” of the MSRs.267 After Lynx

raised concerns that Nationstar had tainted the original Servicing Rights Valuation

Provider (Situs), the parties agreed that MIAC would become the Servicing Rights

Valuation Provider.268 MIAC accepted the engagement.269

a. MIAC’s Expertise MIAC is a nationally recognized provider of MSR valuations.270 It issues

MSR valuations related to tens of trillions of dollars’ worth of unpaid principal

265 See infra Section III.B. 266 Agreement § 10.02; see supra Section I.F. 267 Agreement § 10.02. 268 PTO ¶ 73; JX 636 at 5; Said Tr. 371-72; Watts Tr. 109-10; see supra notes 73-77 and accompanying text. 269 JX 661 at 18. 270 Said Dep. 321. 51 balance.271 MIAC continually updates its loan performance model based on its

insight into the performance of millions of mortgage loans.272 Nationstar’s valuation

expert, John Britti, admitted that MIAC’s discounted cash flow model was “standard

in the industry.”273 Nationstar itself licenses MIAC’s model to value Nationstar’s

MSR portfolio.274

The MIAC team performing the valuation was led by Michael Carnes, the

Managing Director of MIAC’s MSR Valuation and Brokerage Group.275 He has

spent nearly three decades valuing MSRs.276 He is involved with approximately

1,000 MSR valuations per year.277 He is also the author of the chapter “What is an

MSR” in The Mortgage Professional’s Handbook, Volume III.278

b. The Valuation

The valuation process involved input from Nationstar’s Said and Lynx’s

Watts. At the outset, Said told MIAC that he did not think Lynx’s subservicing costs

271 Carnes Tr. 911. 272 Id. at 974 (testifying that MIAC “see[s] virtually every MSR in the entire country” which “has enabled [it] to build tools that [it is] very, very proud of and very, very confident in”). 273 Britti Tr. 1439. 274 Said Dep. 324. 275 Carnes Tr. 912; PTO ¶ 32. 276 Carnes Tr. 912-14. 277 Id. at 914. 278 Id. at 914-15. 52 should be considered in a fair market valuation.279 MIAC agreed to exclude them.

During the process, Said noted that MIAC’s model assumed loans remained in

GNMA securities based on a tag in the original data tape and asked MIAC to re-run

the valuation with the contrary assumption to exclude advances of delinquent

principal and interest.280 MIAC took Said’s instruction and adjusted its valuation by

removing certain principal and interest advances.281

On March 22, 2023, MIAC delivered a valuation for the MSRs of negative

$23.6 million in fair market value.282 Carnes endorsed this valuation as the product

of his and MIAC’s “best expert judgment.”283

Under Section 10.02(2) of the Agreement, a negative value required

Nationstar to, “within ten (10) business days after [its] receipt of the Servicing Rights

Valuation, pay [Lynx]” the sum.284 Nationstar has refused to do so.

279 Said Dep. 381-84, 386; JX 625 at 1; see also JX 635 at 1. 280 JX 661 at 1. 281 Id. 282 See JX 662; Carnes Tr. 968; see also Watts Tr. 112-14. 283 Carnes Tr. 961. 284 Agreement § 10.02(2) (“If the Servicing Rights Valuation states that the Servicing Rights Value of the Servicing Rights related to all Bifurcated Mortgage Loans is equal to or less than zero dollars ($0.00), then (a) [Nationstar] shall, within ten (10) Business Days after [Nationstar’s] receipt of the Servicing Rights Valuation, pay to [Lynx] the sum of (i) the absolute value of the Servicing Rights Value of the Servicing Rights related to all Bifurcated Mortgage Loans, plus (ii) all amounts that are due and payable by [Nationstar] to [Lynx] pursuant to this Agreement . . . .”). 53 c. Nationstar’s Challenge

The Agreement lacks a dispute resolution mechanism for the Servicing Rights

Valuation. It does not contemplate substantive judicial review. It says only that the

sum “shall” be paid within ten days of receipt of the valuation.285 Under New York

law, an agreement that a valuation will occur “within . . . contractual limits . . . is

‘entitled to every reasonable intendment and presumption of validity.’”286

New York law permits a party to challenge a contractually mandated valuation

only for “fraud, bias, or bad faith on the part of the neutral appraiser.”287 There is

no evidence of fraud, bias, or bad faith by MIAC. Carnes confirmed that the

valuation was not swayed by Nationstar or Lynx.288 Said testified that he has no

reason to believe MIAC acted unethically, was biased towards Lynx, intentionally

285 Id. §§ 10.02(1), (2). 286 Coral Crystal, LLC v. Fed. Ins. Co., 2020 WL 5350306, at *5 (S.D.N.Y. Sept. 3, 2020) (quoting Glicksman v. N. River Ins. Co., 86 A.D.2d 760, 760 (N.Y. App. Div. 1982)). Delaware law similarly provides that courts will not second-guess an expert valuation where the contract “did not provide for any substantive judicial review at all.” Senior Hous. Cap., LLC v. SHP Senior Hous. Fund, LLC, 2013 WL 1955012, at *3 (Del. Ch. May 13, 2013). 287 101 W. 23 Owner I LLC v. 715-723 Sixth Ave. Owners Corp., 174 A.D.3d 447, 448 (N.Y. App. Div. 2019) (citation omitted); see also Certain Underwriters at Lloyd’s London v. Bioenergy Dev. Grp. LLC, 189 A.D.3d 573, 574 (N.Y. App. Div. 2020) (“Because the award was made pursuant to the procedures set forth in the parties’ agreement and they do not claim fraud, bias, or bad faith, [it] should not be disturbed.”); Johnson Kirchner Hldgs, LLC v. Galvano, 150 A.D.3d 1001, 1002 (N.Y. App. Div. 2017) (“[A]n appraisal will not be set aside absent proof of fraud, bias, or bad faith.”); Rice v. Ritz Assocs., Inc., 88 A.D.2d 513, 514 (N.Y. App. Div. 1982) (applying a fraud, bias, or bad faith standard). 288 See JX 661 at 1; Carnes Tr. 960-61; Carnes Dep. 360-61. 54 reached an erroneous conclusion, or was subject to undue pressure.289 Although Said

feels that the valuation results indicate MIAC relied on inaccurate data, he cannot

cite any specific inaccuracy.290

Nationstar argues instead that the valuation should be set aside due to a

“palpable mistake.”291 Some New York courts have observed that a “determination

by a designated third party” can be challenged where there is evidence of “fraud, bad

faith, or palpable mistake by the third party.”292 This “palpable mistake” standard is

against the weight of the majority of modern New York valuation cases, however,

which generally cite a “fraud, bias, or bad faith” standard.293

Even if “palpable mistake” were the operative standard, Nationstar’s

challenge would fail. New York courts have described a palpable mistake as one

where the appraiser failed to perform a valuation called as defined by the contract.294

289 Said Dep. 365-67. 290 Id. at 392-93. 291 Nationstar’s Post-trial Answering Br. 89. 292 See Lear Siegler Aerospace Prods. Holding Corp. v. Smiths Indus., Inc., 1990 WL 422417, at *5 (S.D.N.Y. Mar. 16, 1990); Schwartzberg v. Kingsbridge Heights Care Ctr., 28 A.D.3d 463, 465 (N.Y. App. Div. 2006). 293 Certain Underwriters at Lloyd’s, 189 A.D.3d at 574; see supra note 287 (listing cases). 294 See Lear Siegler, 1990 WL 422417, at *5 (denying summary judgment because triable fact issue existed as to whether third party’s “accounting techniques … deviate[d] from the procedures set forth in the Agreement”); Cities Serv. Co. v. Derby & Co., 654 F. Supp. 492, 500-01 (S.D.N.Y. 1987) (recognizing that independent expert determinations should be set aside when “customary practice or procedure is not followed when making the determination or certification” or for “failure of [the] independent third party to follow the 55 But MIAC exercised its expert judgment and rendered a fair market valuation in

accordance with the Agreement.

Nationstar points out that MIAC initially misapprehended that the loans at

issue were in GNMA securities.295 MIAC acknowledged and corrected for this

mistake—the result of an isolated error in the underlying loan tape—after Nationstar

flagged it.296 Even so, MIAC understood that it was valuing the servicing rights of

EBO loans that are—by definition—loans bought out of a GNMA securitization.297

Carnes exercised his judgment to address the issue Nationstar raised, which caused

the valuation to change from approximately negative $30 million to the final

negative $23.6 million value.298

Nationstar, relying on Britti’s expert opinion, insists that MIAC’s correction

of its mistaken assumption was incomplete. Britti highlights purported valuation

standards or procedures prescribed in the contract,”), aff’d, 835 F.2d 1429 (2d Cir. 1987); Turner v. N.Y. Cent. & H.R.R. Co., 168 A.D. 359, 365 (N.Y. App. Div. 1915). 295 See Carnes Tr. 923; Carnes Dep. 282-84; Watts Tr. 148; Britti Tr. 1443 (discussing JX 3006, the data tape provided to MIAC by Watts, which “MIAC would have read [] to indicate that the loans were in a [GNMA] pool and were not EBO loans”); see also Nationstar’s Post-trial Answering Br. 91. 296 JX 661 at 1-2 (discussing “a line item expense for interest on principal and interest advances totaling over $7M” which Carnes confirms is due to the fact that “the data was reported to MIAC with GNMA II investor”); Carnes Tr. 976. 297 Carnes Tr. 919 (“As a rule, once a loan gets bought out of its pool, which these were, the MSR ceases to exist at that point in time.”); id. at 946 (“The fact that . . . all of these assets were EBOs would imply that they’ve all obviously been seriously delinquent.”); see also JX 661 at 18-19; Press Rep. 17. 298 Carnes Tr. 977-78. 56 errors related to MIAC’s treatment of foreclosure costs, which are greater for loans

in a GNMA pool.299 According to Britti, MIAC improperly included “FHA Lost

Interest” (the difference between the mortgage interest rate the servicer advances

and the amount reimbursed to the servicer), which he opined should be excluded

from a valuation of EBO loans.300 Correcting for the consequences of this purported

error would yield a valuation of positive $10.5 million, according to Britti.301

Britti’s critique—even if legitimate—amounts to a mere disagreement with

MIAC’s exercise of its expert judgment. MIAC provided a sensible rationale for its

approach.302 Purchasers of EBO loans are likely to redeliver the assets into a GNMA

pool and incur the same advance and foreclosure costs in the future.303 EBO loans

are associated with delinquent borrowers who carry “a significantly higher

probability of default than . . . a borrower that had never been delinquent before.”304

Carnes characterized Lynx’s EBO portfolio as “one of the most toxic portfolios [he

had] ever valued in [his] life.”305 It was not a “palpable error” for MIAC to

incorporate assumptions consistent with loans in GNMA pools in its valuation.

299 See Britti Tr. 1460-70. 300 JX 779 (“Britti Rep.”) 42; see Britti Tr. 1469-70; see also JX 661 at 3-4. 301 Britti Tr. 1471, 1424-25. 302 Carnes Tr. 973-74. 303 Id. at 979-80. 304 Id. at 955-56. 305 Id. at 987. 57 Carnes persuasively and steadfastly denied any error in MIAC’s modeling.306

Even if there were an error, Nationstar has not proved that it supports overturning

MIAC’s valuation.307 Nationstar did not bargain for a dispute resolution process that

would allow it to revisit the valuation on that basis. Thus, Lynx has prevailed on its

breach of contract claim; Nationstar’s related counterclaim fails.308 Nationstar must

pay to Lynx $23.6 million under Section 10.02 of the Agreement.

2. Escrow Funds Post-Termination

The parties’ final dispute concerns funds that Nationstar retained for

unreimbursed servicing advances.

When Nationstar was terminated as servicer, it needed to transfer the MSRs

to Servbank. Section 12.01 of the Agreement, titled “Successor to the Servicer,”

provides:

[Nationstar] shall promptly (but not later than five (5) Business Days after appointment of such successor) deliver to the successor the funds in the funds in the Custodial Account, and the Escrow Account . . . . The successor [Servbank] shall make arrangements as it may deem appropriate to reimburse [Nationstar] for amounts [Nationstar] actually expended pursuant to th[e] Agreement which the successor is entitled to retain hereunder and which would otherwise have been

306 Carnes Dep. 341. 307 See Penn Cent. Corp. v. Consol. Rail Corp., 56 N.Y.2d 120, 130 (1982) (explaining that under New York’s approach to appraisals, “factual errors do not ordinarily affect the validity of an award”). 308 E.g., Amirsaleh v. Bd. of Trade of City of N.Y., Inc., 2009 WL 3756700, at *5 (Del. Ch. Nov. 9, 2009). 58 recovered by [Nationstar] pursuant to th[e] Agreement but for the appointment of the successor servicer.309 The “Escrow Account” is defined as “the separate trust account or accounts created

and maintained by [Nationstar] pursuant to Section 4.08.”310 Section 4.08 of the

Agreement, in turn, states that: “[Nationstar] shall segregate and hold all funds

collected and received pursuant to each Mortgage Loan which constitute Escrow

Payments separate and apart from any of its own funds and general assets and shall

establish and maintain one or more Escrow Account.”311

Accordingly, the Agreement obligated Nationstar to deliver the funds in the

escrow account to Servbank within five days of Servbank’s appointment as

successor servicer. Servbank was expected to arrange to reimburse Nationstar for

the servicing advances it “actually expended,” in a manner Servbank deemed

appropriate.312 Nationstar paid approximately $53.9 million of servicing advances

on Lynx’s behalf, with the expectation that it would be repaid. 313 But Servbank

(until trial) made no reimbursement arrangement.314

309 Agreement § 12.01. 310 Id. § 1.01. 311 Id. § 4.08. 312 Id. § 12.01. 313 JX 690 ¶ 11. 314 See Dkts. 95, 97. 59 When Nationstar transferred the escrow account to Servbank, it netted out and

retained approximately $13.2 million of servicing advances it was owed before

transferring the remaining funds in the escrow account to Servbank.315 Nationstar

now seeks reimbursement of approximately $40.7 million in unpaid servicing

advances. Lynx, for its part, asserts that Nationstar breached the Agreement by

retaining $13.2 million from the escrow account and seeks that sum in damages.

a. Nationstar’s Entitlement to Servicing Advances

Section 12.01 of the Agreement gives Nationstar the “right to recover and be

reimbursed for Servicing Advances.”316 Servicing advances are often reimbursed

during a servicing transfer, but the terms of any agreement control.317 Lynx and

Servbank failed to make arrangements “to reimburse the Servicer for amounts the

Servicer actually expended pursuant to th[e] Agreement . . . .”318 The question, then,

is when and how Nationstar must be repaid.

Section 4.01(a) of the Agreement contemplates that Nationstar is “solely

liable for . . . all Servicing Advances related to the Mortgage Loans” and states that

Lynx “shall not be personally liable to advance or reimburse [Nationstar] for” such

315 JX 712 ¶ 8; JX 690 ¶ 11. The exact amount is $13,227,883.37. 316 Agreement § 12.01. 317 See Ehinger Tr. 1110 (Nationstar’s SVP of Servicing testifying that it is “standard” to “send a single wire [at or shortly] after transfer for reimbursement of expenses”); see also Ross Rep. 9. 318 Agreement § 12.01. 60 amounts.319 This provision did not survive the termination of Nationstar as

servicer.320 Nationstar therefore contends that it was entitled to full reimbursement

immediately after it transferred the MSRs.

Nationstar’s position overlooks that Servbank, as the successor servicer, has

discretion to determine when and how Nationstar receives the reimbursement.321 For

example, Servbank could make arrangements to reimburse Nationstar as it receives

the advanced funds from borrowers or government guarantors. Until trial, however,

neither Servbank nor Lynx proposed a reimbursement plan.

This inaction is inconsistent with Section 12.01 of the Agreement, which

entitles Nationstar to reimbursement of servicing advances it made on Lynx’s

behalf.322 Nationstar “actually expended” $53.9 million of unpaid servicing

319 Id. § 4.01(a). 320 Id. § 10.01 (stating that only “the provisions of Article III, VIII, IX, X, XI, and XII, shall survive notwithstanding the termination or resignation of the Servicer [Nationstar] . . . .”). 321 Id. § 12.01; see supra note 309 and accompanying text (quoting the relevant provision in full). 322 Nationstar claims in the alternative that Lynx breached the implied covenant of good faith and fair dealing or was unjustly enriched. See Nationstar’s Post-trial Answering Br. 104-06. Because Nationstar has prevailed on its contract-based claim, the implied covenant and unjust enrichment counterclaims are moot. Cf. Pappas v. Tzolis, 20 N.Y.3d 228, 234 (2012) (“The doctrine of unjust enrichment invokes an ‘obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties concerned.” (citation omitted)); Catlyn & Derzee, Inc. v. Amedore Land Developers, LLC, 166 A.D.3d 1137, 1140 (N.Y. App. Div. 2018) (dismissing a claim for breach of implied covenant of good faith and fair dealing as duplicative of a breach of contract claim). 61 advances.323 The advances would have been recoverable in time, but for the

servicing transfer.324 Servbank must therefore arrange to reimburse Nationstar.

Below, I address its belated plan to do so.325

b. Nationstar’s “Netting” Although Nationstar is entitled to reimbursement of advanced funds, it

engaged in self-help when it retained approximately $13.2 million of the escrow

funds it transferred to Servbank. Lynx had to provide those funds to Servbank out

of pocket at the time of transfer.326 Nothing in the Agreement permitted Nationstar

to retain the $13.2 million.327

Nationstar relies on Section 4.10 of the Agreement, which permits

withdrawals from the escrow account “for any other reason as may be permitted by

Customary Servicing Procedures.”328 But Article 4 did not survive termination, and

Nationstar did not prove the existence of an applicable industry standard that

323 Agreement § 12.01. 324 JX 690 ¶ 11. 325 See infra Section III.B. 326 Dkt. 349 at 79. 327 See Katel Liab. Co. v. AT&T Corp., 607 F.3d 60, 66 (2d Cir. 2010) (explaining that evidence of custom or practice “should not be admitted to create an ambiguity in an otherwise clear and unambiguous agreement); see also Ehinger Tr. 1135-36 (testifying that whether netting servicing advances in a transfer is permitted “depends on the agreement”). 328 Agreement § 4.10(x); see Nationstar’s Post-trial Reply Br. on Countercls. (Dkt. 340) 106. 62 authorizes netting.329 Sections 10.01 and 12.01 of the Agreement required

Nationstar to transfer the escrow funds in full.330 Below, I address how Nationstar’s

improper retention of the funds will be reconciled with its entitlement to

reimbursement for servicing advances.331

III. DAMAGES

Lynx prevailed on its breach of contract claims regarding undisclosed

modifications in progress and the failure to complete loss mitigation solutions within

120 days of exiting forbearance.332 Lynx is entitled to indemnification damages of

$13,604,135 for these breaches. It is also entitled to payment from Nationstar of the

$23,635,329 Servicing Rights Value. In addition, Lynx proved that it is owed

$13,227,883.37, which amount Lynx paid to Servbank after Nationstar withheld it

from the transferred escrow funds.333

Nationstar prevailed on its counterclaim insofar as it is owed reimbursement

for the servicing advances it made on Lynx’s behalf. It is entitled to a portion of the

balance now. Servbank must make arrangements to repay the rest.

329 See supra note 320; Young Tr. 693 (stating that it is “not uncommon for the escrow funds to be sent in full”). 330 Agreement §§ 10.01, 12.01. 331 See infra Section III.B. 332 See supra Sections I.A.1.a, I.A.2.b.i. 333 Lynx and Servbank’s Suppl. Submission Regarding Arrangements for Reimbursement of Servicing Advances (Dkt. 346) (“Opening Suppl. Submission”) ¶ 18. 63 A. Lynx’s Damages for Breaches of the Agreement

Lynx seeks repurchase damages under Section 3.03(a) of the Agreement or,

in the alternative, indemnification damages under Section 3.03(c). Lynx’s damages

calculations draw from the expert opinion of Jennifer Press, a Managing Director at

investment banking advisor Lincoln International LLC.334 Press has over 20 years

of experience in valuing fixed-income structured products, including trillions of

dollars of mortgage loans and MSRs.335 Her assignment involved computing loan-

by-loan losses for, among other things, undisclosed modifications in progress and

servicing delays.336

Press calculated both repurchase and indemnification damages. I decline to

award repurchase damages. But I adopt Press’s approach to indemnification

damages, which total $13,604,135. As addressed above, Lynx is also entitled to the

Servicing Rights Value of $23,635,329 as calculated by MIAC. Pre-judgment

interest will be added to these amounts.

1. Repurchase Damages

Section 3.03(a) of the Agreement gives Lynx a qualified right to cause

Nationstar to repurchase loans that are the subject of a breach. The provision

334 Press Rep. 1. Press later submitted a supplement to her report. JX 2108. 335 Press Tr. 1034. 336 Press Rep. 8-9. 64 requires Lynx to first give Nationstar notice of the breach, followed by a 30-day cure

period. If an uncured breach “materially and adversely affects” the loan value, then

Nationstar must “repurchase the related Mortgage Loan at the applicable Repurchase

Price.”337 The “Repurchase Price” is equivalent to the unpaid principal balance and

unpaid interest on each loan, multiplied by the premium above par that Lynx paid to

buy the loan.338

For undisclosed modifications in progress, Lynx seeks $24,611,671 in

repurchase damages—compared to its claimed injury of $5,648,846.339 As to

servicing timeline failures after the end of forbearance periods, it seeks $24,071,425

in repurchase damages compared to $7,955,289 in losses.

I decline to award Lynx repurchase damages for several reasons.

The repurchase remedy explicitly requires that the purported breach of

Section 3.01 have a “material[] and adverse[] effect” on the value of the loan.340 This

is a logical requirement. The damaged party recovers indemnification damages

unless it shows that a breach caused a material adverse effect on the loan’s value, in

which case it may seek repurchase damages.

337 Agreement § 3.03(a). 338 Id. § 1.01 (defining the formula to calculate the “Repurchase Price”). 339 Press Rep. 72, tbl. 23; id. at App. 19. 340 Agreement § 3.03(a). 65 Lynx has made no attempt to set a materiality threshold for its losses. Nor has

it endeavored to demonstrate that the price impact or risk of loss is significant for

loans on which it claims repurchase damages. Instead, Press calculated repurchase

damages for any loans where there were indemnification damages greater than

zero.341 Repurchase damages were sought even where the price impact amounted to

just 0.003% of the loan’s value.342

Lynx believes that any loss—no matter how slight—satisfies the contractual

materiality standard. It argues that, under New York law, a “material and adverse

effect” exists if the breach “would have altered the price that a willing purchaser

would pay for the loan or otherwise changed the risk of loss on the loan.”343 But

New York law—like Delaware—requires that “words and phrases should be given

their plain meaning, and the contract should be construed so as to give full meaning

and effect to all of its provisions.”344 Lynx’s approach would read the word

“material” out of Section 3.03(a) of the Agreement.345 As the Southern District of

341 Press Dep. 119; see also Press Tr. 1076-77 (testifying that she was “not opining on materiality”). 342 See Press Tr. 1081. 343 Lynx Opening Post-trial Br. 62 (quoting U.S. Bank, 205 F. Supp. 3d at 464); see also Homeward Residential, Inc. v. Sand Canyon Corp., 298 F.R.D. 116, 131 (S.D.N.Y. 2014). 344 LaSalle Bank Nat’l Ass’n v. Nomura Asset Capital Corp., 424 F. 3d 195, 206 (2d Cir. 2005). 345 E.g., Assured Guar. Mun. Corp. v. Flagstar Bank, FSB, 892 F. Supp. 2d 596, 602 (S.D.N.Y. 2012) (recognizing that “‘material’ means ‘[o]f such a nature that knowledge of the item would affect a person’s decision-making; significant; essential’” (quoting Black’s 66 New York has recognized, material adverse effect provisions do not invite “all

breaches [to] trigger a cure or repurchase obligation.”346

Lynx also seeks repurchase damages on 122 loans that were excluded from

the schedules to Lynx’s December 13, 2022 and August 7, 2023 demand letters.347

Nationstar was never given notice of or an opportunity to cure any breaches affecting

these loans, in contravention of Section 3.03(a) of the Agreement. Repurchase

damages are unavailable on these loans.

Accordingly, Lynx has not met its burden of proving its entitlement to

repurchase damages.

2. Indemnification Damages

With respect to indemnification damages, the Agreement permits Lynx to

recover “any and all out-of-pocket costs, damages, expenses, fees . . . and other

losses” arising from Nationstar’s breaches.348 Lynx overpaid for loans affected by

undisclosed modifications in progress. Lynx also suffered actual losses because of

Law Dictionary (7th ed. 1999))); MASTR Adjustable Rate Mortgs. Tr. 2006-OA2 v. UBS Real Est. Sec. Inc., 2015 WL 764665, at *15 (S.D.N.Y. Jan. 9, 2015) (“The Trusts may rely upon proof that as to a specific loan, there is a material or significant increase in the risk of loss.” (emphasis added)). 346 MASTR, 2015 WL 764665, at *10. 347 See supra notes 60-62, 86 and accompanying text. 348 Agreement § 3.03(c). 67 Nationstar’s failure to complete loss mitigation within 120 days forbearance periods

ending. Press calculated the associated amounts of Lynx’s damages.

a. Undisclosed Modifications in Progress

Lynx was damaged by Nationstar’s failure to disclose rate modifications in

progress on purchased loans.349 An undisclosed rate modification negatively affects

the cash flows an investor can expect from the loan, thus reducing its value.350 If the

modifications in progress had been disclosed, Lynx would have paid less for the

loans.351

For loans with undisclosed modifications in progress, Press began with the set

of 1,593 affected loans identified by DelPonti.352 Her methodology was to compare

what Lynx paid for each loan against what Lynx would have been willing to pay had

Nationstar given it accurate information. Press created a loan-level discounted cash

flow model to understand the effect of the modifications in progress on pricing.353

Key inputs to her model included: “(i) characteristics of the loans as reported in the

349 See supra Section II.A.1.a. 350 See Press Tr. 1039. 351 See id. at 10. 352 JX 2109 (Press Appendices) App. 20; see also DelPonti Rep. 12. 353 Press Rep. 98-99. Although Lynx similarly weighted resolution paths in its contemporaneous pricing model (JX 1152; JX 50), Press could not simply input the correct information for specific loans into them. Lynx’s models were at the pool—not loan— level. Press Tr. 1040. 68 relevant loan tapes, (ii) historical EBO resolution performance data, (iii) [‘to-be-

announced’ (TBA) prices used to trade MBS], (iv) forward interest rates, and (v)

other relevant market data.”354

Because a typical investor would rely on such data to determine the value it

placed on a transaction, Press used it to create “a probabilistic loan level model that

takes into account each of the possible [r]esolution [p]aths a mortgage loan can

follow to ultimately resolve and either be redelivered to [GNMA] . . . , [r]efinanced,

[p]aid in [f]ull, or [l]iquidated.”355 She performed a discounted cash flow analysis

for each of the resolution paths she considered and weighted them.356

The weighting Press assigned was different from Lynx’s historical weighting

when it originally priced the loans. Press rationally concluded that looking

backwards to the COVID-19 period was a poor way to predict performance, and so

she used available market information to create forward-looking projections.357 Data

shared by Nationstar’s Said, which reflects prepayment rates Nationstar experienced

in September 2021, informed and supported Press’s modeling assumptions.358

354 Press Rep. 76-77. 355 Id.; see id. 18-20 (describing the possible resolution paths for EBO loans she assessed). 356 See Press Tr. 1044. 357 Id. at 1047; Press Rep. 98-99; JX 102 (JP Morgan Monthly MBS Strategy report supplying short term projections). 358 JX 50; Press Tr. 1048. 69 Press’s model supplied two sets of weighted resolution paths for loans with

undisclosed modifications in progress. The first assigned probabilities to resolution

path outcomes based on the original MLS data for the loans.359 The second

forecasted probabilities using data collected by DelPonti to account for undisclosed

modifications.360 There were significant differences between the resolution path

weightings of these sets. For example, the original MLS tape indicated that about

43.1% of the loans would be redelivered through a partial claim. 361 But using the

corrected data, the fact that a loan was in the process of modification meant that a

partial claim redelivery was no longer expected.362

Press applied her model to each of the loans DelPonti identified as a breach.363

She concluded that some of the loans lacked associated damages. Just 1,353 loans

identified by DelPonti had a negative price impact (meaning that 241 loans had no

damages).364 For the 1,353 affected loans, Press concluded that Lynx overpaid

Nationstar by $5,648,846.365

359 Press Rep. 114, tbl. 21. 360 Id. at 114-15, tbl. 22. 361 Id. at 101-02, 114. 362 Id. 363 See id. at Apps. 10, 13, 16; Press Tr. 1049-50. Press supplied the native Excel spreadsheets showing the loan-by-loan assessment of damages. JX 2109 App. 16. 364 JX 2109 App. 20. 365 Press Rep. 114, tbl. 23. 70 I adopt this amount as a responsible estimate of Lynx’s losses. None of the

critiques lodged by Nationstar or its expert meaningfully undercut the soundness of

Press’s methodology.366

b. 120-Day Post-Forbearance Timeline Failure

Lynx was also harmed by Nationstar’s failure to complete loss mitigation

solutions within 120 days of loans exiting forbearance.367 Lynx priced its loan

purchases on the expectation that Nationstar would abide by relevant federal

regulations, including servicing timelines. But Nationstar violated the 120-day rule.

To calculate the economic effect of processing loans too slowly, Press used

TBA prices to assess the value Lynx would have received upon redelivery of the

loan if Nationstar had timely completed its servicing activities according to the

applicable timelines.368 “TBA prices are an industry-standard proxy for calculating

value, because they represent the market price for a given mortgage loan with similar

characteristics.”369 Press used TBA prices in her analysis because those are the

366 See Lynx and Servbank’s Post-trial Reply Br. 52-54 (Dkt. 338) (responding to Nationstar’s criticisms). Press’s methodology is thorough and comports with industry standards for valuing EBO loans. She is highly experienced in this field. I afford limited weight to the criticisms lodged by Nationstar’s damages expert, whose experience valuing EBO loans is limited to this case. Smith Tr. 1526-27. 367 See supra Section II.A.2.b.i. 368 Press Rep. 116. 369 Id. at 116 n.102. 71 prices at which the loans are ultimately expected to be resold.370 She calculated

Lynx’s damages as the difference between the TBA price on the expected

modification date and the TBA price on the actual modification date.371

Press performed this analysis for each of the 1,369 loans DelPonti identified

where Nationstar breached the requirement to complete a loss mitigation solution

within 120 days of forbearance exit.372 Within that universe, Press identified 1,193

loans with price impacts.373 She calculated $7,955,289 in indemnification damages

for those loans.374

I adopt this amount as a responsible estimate of Lynx’s losses.

3. Pre-Judgment Interest

Under New York law, pre-judgment interest at a statutory rate of 9%,

computed from the day of breach, is mandatory for breach of contract damages.375

Lynx is entitled to pre-judgment interest on the $13,604,134 of indemnification

damages awarded to it plus the Servicing Rights Valuation of $23,635,329.

370 Press Tr. 1055. 371 See Press Rep. App. 17. 372 DelPonti Rep. 10. 373 JX 2108 at 1, tbl. 26. 374 Id. 375 N.Y. C.P.L.R. §§ 5001(a), 5004; see Rosenblum v. Rosenblum, 214 A.D.3d 440, 442 (N.Y. App. Div. 2023). 72 B. Damages Related to the Escrow Fund and Servicing Advances

The parties previously stipulated to a proposed order that addressed the

servicing advance funds, which resolved Nationstar’s preliminary motion. That

stipulated order (the “Servicing Advances Order”) requires that funds for

reimbursement of servicing advances would be held by a third-party escrow agent

pending further order of the court.376 At post-trial argument, I requested

supplemental submissions on reimbursement of servicing advances could proceed

after the Servicing Advances Order is lifted.

Lynx and Servbank ask me to address Nationstar’s “wrongful self-

reimbursement” by crediting the first $13.2 million in reimbursed servicing

advances to Lynx.377 Under this plan, reimbursement above that amount would be

made to Nationstar up until Nationstar is made whole for the amounts it expended.

Servbank proposed to reimburse Nationstar on a loan-by-loan basis by the 25th

376 Dkt. 145. 377 Opening Suppl. Submission ¶ 14. Nationstar argues that Lynx and Servbank waived the ability to make this reimbursement proposal. It relies on Emerald Partners v. Berlin for the principle that “a party waives an argument by not including it in its brief.” 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003), aff’d, 840 A.2d 641 (Del. 2003). Delay in fulfilling a contractual obligation is not, however, equivalent to waiving a claim or legal argument in litigation. Servbank was dilatory in waiting until post-trial argument to propose an arrangement for reimbursement of Nationstar’s servicing advances. But Section 12.01 grants Servbank latitude to arrange for reimbursement and imposes no time limitation. 73 calendar day of each month that Servbank recovers the advance on a particular

loan.378

Nationstar makes a different proposal. It seeks immediate recovery of its

servicing advances in full.379 It believes that Lynx and Servbank should have paid

it $40.7 million in servicing advances upon transfer, after netting the $13.2 million

that Nationstar already retained.380

I adopt the proposal advanced by Lynx and Servbank. As discussed, the

Agreement affords Servbank the discretion to craft a reimbursement plan of its

choosing.381 The Agreement does not set the cadence of or deadline for

reimbursement. Although Nationstar prefers to receive the advances in a lump sum

immediately, the Agreement does not grant it the right to make that call.

When the Servicing Advances Order is lifted, Servbank must promptly

implement a plan to pay Nationstar the servicing advances Servbank has recovered

378 Opening Suppl. Submission ¶ 12. 379 JX 690 at 8. 380 Nationstar’s Response to Countercl. Defs.’ Suppl. Submission Regarding Arrangements for Reimbursement of Servicing Advances (Dkt. 351) ¶ 15. 381 Agreement § 12.01 (“The successor shall make arrangements as it may deem appropriate to reimburse the Servicer for amounts the Servicer actually expended pursuant to this Agreement . . . .”); see also Ross Tr. 1368-69 (acknowledging that Section 12.01 gives Servbank “some latitude” to arrange for reimbursement); Meacham Tr. 1005 (“My understanding of [Section 12.01] is that the successor servicer has the latitude to determine how they’re going to pull together the funds . . . as they deem appropriate, they can make the arrangements to reimburse.”); see supra Section II.B.2. 74 to date. Servbank and Lynx estimate that about $30 million of advances have been

recovered.382 To address the escrow account funds that Lynx was caused to pay to

Servbank, the first approximately $13.2 million (out of the $30 million) will be paid

to Lynx. The remainder will be paid to Nationstar.383

That leaves approximately $24 million to be reimbursed to Nationstar. Going

forward, Servbank must monthly remit to Nationstar the servicing advances

Servbank recoups. Servbank must make the reimbursement payment to Nationstar

by the 25th calendar day of each month, as Servbank proposed.384

Nationstar is not entitled to pre-judgment interest on the servicing advances it

is reimbursed. It did not bargain for a reimbursement deadline.

IV. CONCLUSION

Nationstar breached Sections 3.01(a)(x), 3.01(b)(ix), 3.02(a), and 4.01(a) of

the Agreement, as set forth above. Lynx is entitled to indemnification damages

totaling $13,604,134, and to pre-judgment interest on that sum.

Nationstar also breached Section 9.01 of the Agreement by refusing to step

down as servicer upon Lynx’s termination. Lynx seeks certain attorneys’ fees and

costs related to that breach. Lynx also reserves the right to file a fee petition. Within

382 Opening Suppl. Submission ¶¶ 17-18. 383 Id. ¶ 14. Lynx is entitled to pre-judgment interest on this amount to be paid by Nationstar, beginning on the date that Lynx paid the $13.2 million to Servbank. 384 Id. ¶ 12. 75 14 days of this decision, Lynx is asked to tell the court by letter whether it intends

to do so. If it declines to file a fee petition, it may submit a fee affidavit under Rule

88 for the reasonable fees incurred due to Nationstar’s breach of Section 9.01.

Lynx also proved that it is owed the full amount of the Servicing Rights

Valuation calculated by MIAC, totaling $23,635,329. It is entitled to pre-judgment

interest on that amount.

Lynx further proved that Nationstar failed to comply with Section 12.01 by

withholding $13.2 million in escrow funds when Servbank was appointed successor

servicer. Lynx is entitled to the repayment of those funds from the servicing

advances Servbank has recovered to date, which are held in escrow. Nationstar will

pay Lynx pre-judgment interest on this sum.

Nationstar prevailed on its counterclaims insofar as it is entitled to

reimbursement of servicing advances. Servbank is obligated to promptly reimburse

Nationstar for all servicing advances it has recovered to date, less the approximately

$13.2 million owed to Lynx. Servbank is to provide monthly servicing advances for

the relevant loans to Nationstar, as set forth above. Nationstar and Lynx must

cooperate with one another and with Servbank in good faith, including by sharing

documentation or information, during the reimbursement process.

76 Within 30 days, the parties are asked to confer on and file a proposed order to

implement this decision. That proposed order should include a provision to lift the

Servicing Advances Order.