Indemnities of servicer: Overview, definition, and example
What are indemnities of servicer?
Indemnities of servicer refer to the contractual obligations of the servicer (a party responsible for managing and administering an asset or loan, such as a loan servicer or property management company) to protect and compensate another party (such as the lender, investor, or property owner) for losses, damages, or liabilities that may arise during the servicer’s performance of its duties. These indemnities typically cover actions taken by the servicer, or failure to act, that may result in legal or financial harm to the other party.
Indemnities of servicer are commonly included in servicing agreements to ensure that the servicer is financially responsible for its actions, including mistakes, negligence, or breaches of duty, and that they will cover any resulting losses.
Why are indemnities of servicer important?
Indemnities of servicer are important because they provide a layer of protection for the parties that entrust the servicer with responsibilities. These indemnities ensure that the servicer is accountable for their actions and that they will compensate the affected party for any losses resulting from errors or misconduct.
For businesses and individuals, indemnities of servicer help allocate risk and clarify the servicer’s responsibilities. They also protect the interests of parties who rely on the servicer’s expertise and trust that the servicer will act in good faith and in accordance with the contract. For servicers, indemnities serve as a reminder of their duty to perform with care and diligence to avoid triggering liability.
Understanding indemnities of servicer through an example
Imagine a bank hires a loan servicer to manage mortgage payments for its borrowers. The servicer mistakenly applies a payment to the wrong account, resulting in financial losses for the bank. The indemnity clause in the servicer’s agreement requires the servicer to compensate the bank for the financial loss caused by this error, as well as for any legal fees incurred as a result of the mistake.
In another example, a property management company is hired to handle rental properties. The company fails to properly maintain the property, leading to damage that results in a lawsuit from a tenant. The indemnity of servicer clause in the agreement would require the property management company to cover any legal expenses and damages incurred by the property owner due to the company’s negligence.
Example of an indemnity of servicer clause
Here’s how an indemnity of servicer clause might appear in an agreement:
"The Servicer shall indemnify and hold harmless the Lender, its affiliates, and their respective officers, directors, and employees from any losses, damages, claims, or liabilities arising out of the Servicer’s breach of its obligations under this Agreement, including but not limited to errors, omissions, negligence, or failure to perform duties in accordance with applicable laws. This indemnity shall include reimbursement for any legal costs or expenses incurred as a result of such claims."
Conclusion
Indemnities of servicer are critical for ensuring accountability and protecting the interests of those who rely on the servicer’s expertise. They ensure that servicers are responsible for the consequences of their actions and that they compensate the affected party for any damages or liabilities incurred.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.