Myth – CMBS Servicers Look After The Owner’s Best Interest

We are litigating tens of millions of dollars of claims against CMBS special servicers. Companies like C-III, CWCapital and LNR Partners. Special servicers make their money when property owners are in trouble. Their industry is largely unregulated. And because of that lack of regulation, some servicers forget their mission. Instead of looking after the best interest of the lenders / noteholders, they sometimes acquire property for their own portfolio.

The owners lose. The noteholders lose. But the special servicers always make their money.

Often we talk to struggling owners. One told us that he was told to “miss a payment” so the loan could be assigned to a special servicer and then renegotiated. The owner listened. Instead of helping out the owner, the special servicer imposed late fees, default interest and made it impossible for the owner to ever catch up.

Some people might be thinking that we are biased. After all, we sue banks and loan servicers for a living. Fair enough. But if you don’t believe me, read the story, “Dispelling Eight Myths of CMBS Financing From Loan Payoffs to Modifications. The story, written by the CEO of a commercial real estate advisory firm, appeared this week in REBusiness Online.

Ann Hambly, the CEO of 1st Service Solutions, had much to say about the CMBS servicing industry. Of the 8 myths, one is “The special servicer doesn’t really want to own my property. As long as I have a good solution… the servicer will work with me rather than foreclose.” Myth? Absolutely and Hambly agrees.

Last year, there were more than 3 CMBS properties foreclosed for each one that had their loan modified.

 Another one of her myths says, “The servicer has an incentive or obligation to look out for the owner’s best interest following a securitization.” Hambly observes that the pooling and servicing agreements that specify the servicer’s duty are designed to protect bondholders. While technically accurate, we see situations where servicers are neither helping the lenders nor the property owners. Instead, they are trying to acquire the property for the lowest possible price.

If you find yourself staring down imminent foreclosure, we may be able to help. We take cases where servicers and lenders have breached their contractual obligations or failed to act in good faith. Unfortunately, that happens all too often.

Need more information or want to a second opinion? Give us a call. For more information contact attorney Christopher Katers at [hidden email] or by telephone at (414) 777-0778. You can also contact the author of this post, attorney Brian Mahany at [hidden email] or by telephone at (414) 704-6731 (direct).

MahanyLaw and Judge, Lang & Katers – America’s Lender Liability Lawyers