Lehman, Aurora $3.89 million judgment offset motion denied by court

By Caroline Salls

Pittsburgh, Oct. 31 – A motion filed by Lehman Brothers Bank, FSB and Aurora Loan Services LLC for an offset against a previous judgment in favor of Security National Financial Corp. wholly owned subsidiary SecurityNational Mortgage Co. was denied by a federal judge, according to an 8-K filed Monday with the Securities and Exchange Commission by Security National.

Security National said the order also grants the motion by SecurityNational Mortgage opposing Lehman Brothers Bank’s motion for offset and replenishment in the case.

On April 15, 2005, SecurityNational Mortgage entered into a loan purchase agreement with Lehman Brothers Bank.

Lehman Brothers Bank claimed that some of the mortgage loans that it purchased several years ago contained alleged misrepresentations and early payment defaults. As a result, Lehman Brothers Bank contended it had the right to require SecurityNational Mortgage to repurchase some loans or be liable for related losses.

On Dec. 17, 2007, SecurityNational Mortgage entered into an indemnification agreement with Lehman Brothers Bank and Aurora under which it agreed to indemnify Lehman and Aurora for 75% of actual losses that they may incur on account of the alleged breaches.

The agreement also required SecurityNational to indemnify Lehman and Aurora for 100% of any future actual losses incurred on mortgage loans with breaches not covered by the 75% provision. A reserve account was set up for covering those losses.

In addition to initial payments into the reserve account, SecurityNational was to pay to Aurora each month the difference between the reserve account balance and $645,000, capped at $125,000 per month. Since the reserve account was established, $4.3 million was taken from the account to indemnify Lehman and Aurora.

On May 11, 2011, SecurityNational Mortgage filed a complaint against Aurora Bank FSB (formerly known as Lehman Brothers Bank) and Aurora Loan Services in the U.S. District Court for the District of Utah.

The allegations in the complaint include breach of the indemnification agreement. SecurityNational Mortgage claimed it was entitled to a judgment of $4 million for payments that should not have been taken from the reserve account.

On Dec. 24, 2014, the court awarded SecurityNational Mortgage $3.89 million plus prejudgment interest at a rate of 9%. The total amount of interest awarded was $1.67 million through May 31, 2014, with a per diem of $960 for each day after that until final judgment.

Additionally, the court stated that the offset that Lehman Brothers Bank and Aurora Loan Services pled as an affirmative defense had not yet been adjudicated by the court. SecurityNational Mortgage asserted that Lehman and Aurora had no rights to replenishment of the indemnification reserve account, or for any offset.

Based in New York, Lehman Brothers Holdings handles all bankruptcy-related actions from the former Lehman Brothers Inc., a financial services company.

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