In foreclosure actions based on assets of a failed bank, borrowers sometimes attempt to discover whether and how much the FDIC has reimbursed the acquiring institution for its loss under the loan. In doing so, borrowers hope to claim that their liability for the debt should be set-off by any amount the acquiring institution has received in order to prevent a “windfall.”
The acquiring institution can challenge these discovery requests as irrelevant, because, the amount received by the acquiring institution under the Loss-Share Agreement goes to the net amount “paid” by it for the loan. Florida law is clear that the amount paid by a third party to purchase a loan does not affect the amount owed on that loan; therefore, the amount that the acquiring institution paid to the FDIC has no relevance to the amount of any claim against the borrowers. To hold otherwise would support the impermissible argument that an assignee is not entitled to enforce the full debt amount, and would effectively destroy the secondary market for notes and mortgages. Moreover, the structure by which acquiring institution is reimbursed for its losses but also shares its recovery with the FDIC, as set forth in the Loss-Share Agreement, operates to prevent any sort of “windfall” to acquiring institutions. This has been recognized by Florida’s Second District Court of Appeals in Branch Banking and Trust Company v. Kraz, LLC.
Additionally, the long-standing “collateral source rule” can be used to bar a set-off defense based on FDIC payments in litigation to enforce the loan. The rule is typically used to prohibit the introduction of evidence regarding the receipt of collateral insurance benefits and the set-off of any such collateral benefits from the damages awarded. It applies to contract actions, and therefore would apply to actions based on loan documents. Thus, logically, any payments received from a collateral source—i.e., payments from the FDIC pursuant to a Loss-Share Agreement—could not form the basis of any set-off defense to the acquiring institution’s claim.
Finally, Loss-Share Agreements expressly disclaim third-party beneficiaries. Florida courts have held that contract provisions expressly disclaiming any third-party beneficiaries conclusively establish that the parties did not intend to primarily and directly benefit any non-party. Therefore, a borrower cannot base a claim against the acquiring institution on any provision of a Loss-Share Agreement because the borrower is not an intended third-party beneficiary and lacks standing to enforce the agreement.