Discovery in foreclosure cases: Who has cyber insurance?

You might have to fight for it, but if you ask nicely, firmly and persistently this one question might lay bare the realities of the whole “who’s on first?” routine of Abbott and Costello, as adapted by Wall Street investment banks.

Cyber insurance is a specific type of insurance that guards against losses or claims arising out of hacks or breaches of computer security. Anyone in banking, lending, servicing or finance maintaining original secure data would be required by other vendors and customers to have cyber insurance, because no system is 100% secure.

A recent birdie came to visit me in a dream. She told me that ONLY the party responsible for the secure server would be able to qualify for that insurance although others could be third party beneficiaries.

She also said that in most cases the insured is Black Knight — not Ocwen, Bayview, SPS, SLS, or any other name you might have heard used or represented as servicer. And she said that there is another insurance policy that covers the lock box operated by Black Knight which specifically identifies borrower payments.

In my dream, she thought I might be interested. I am.

If the “servicer” whom we all love to hate is not actually receiving payments from borrowers and some third party vendor is in total control of those payments, then a few things are true.

  1. The named servicer is not employing anyone who is making entries on the books and records at or near the time of a transaction.
  2. The named servicer (Ocwen for example) is merely witness to entries made by people and technology operated, owned, controlled and maintained by a third party (Black Knight fka Lender Processing Systems for example).
  3. The named servicer would therefore have no knowledge or control over who received money from borrower payments after they were received under the lockbox contract. This means that servicer records and testimony about boarding loans when “servicers” are changed are pure fiction.
  4. Records from such a named servicer would therefore be inadmissible as hearsay on hearsay and lacking in legal foundation and competence.
  5. If the named servicer does not carry Cyber insurance then it has no data to insure. Ordinarily you must have an insurable interest in order to be the insured under any insurance policy.
  6. If a third party vendor has the cyber insurance then that is the real servicer — who is most likely functioning under contract with one or more investment banks.
  7. If the named servicer does not carry lock box insurance, then it has no receipts to protect. Ordinarily you must have an insurable interest in order to be the insured under any insurance policy.
  8. If a third party vendor has the lockbox insurance then that who is receiving payments. And only their records are admissible in evidence as proof of payment history.
  9. If the named servicer is only claiming to represent a REMIC trust and the actuals service is working for the investment bank, this creates an obvious inference that the real party in interest in the litigation is the investment bank and into the trust.
  10. If the trustee named in the REMIC trust does not maintain insurance that covers losses from mishandling funds for investors, then the trustee is not handling funds for investors.
  11. If the trustee is not handling funds for investors then neither is the trust who can only act through the trustee.

So the questions in discovery would be directed the existence of insurance, the name of the insured or beneficiary, and the subject matter insured.

*Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.*


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  • But it is also true that challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 12 years or more. 

*Please visit for more information.

4 Responses

  1. ANON: thanks for commenting on all Neil’s posts. You and java and several others are keeping the balls in the air.

  2. Love the “First Base” and “birdie” analogies Neil. And, John, love the Russian doll. I love when put in form a story.

    BOB G, like Neil, is correct, There is no accounting. I know a deposition where attorney asked the non-bank Servicer the same question – over and over —
    Attorney” “What do you do with the payments. that you get?

    Answer from non-bank servicer representative (NBSR) – “we apply some of it to interest, and some of it to principal.

    Attorney: “I understand that, but then what do you do with the money?”

    NBSR: “We apply some of it to interest, and some of it to principal.

    Attorney: “I get that, but where then does the go? ”

    This went on and on and on for a long time.

    Then NBSR says ” well, I think we, servicer, keep the principal portion, and interest goes elsewhere”

    Attorney: “Where is elsewhere?” “Who accounts for receipt of the money on a balance sheet?”

    NBSR — “I don’t know.”

    And you know vendors are vendors, they work for someone. Not sure investment banks anymore. I am afraid the power is even bigger. .

  3. the plaintiff’s attys are going to object to such discovery and say that all this cyber insurance stuff is speculative, conjectural, and irrelevant. plaintiff has the note and mortgage and proof of default. case closed.

    but like a broken record, i’m telling you again to force the plaintiff to prove up that the plaintiff has accounting records showing that it paid value for the note. without the accounting records proving that the plaintiff paid value for the note, the plaintiff cannot prove that it has suffered a financial injury. now it’s your turn to say case closed.

  4. This whole business is like the little Russian dolls that have one inside another and another – except this is reversed, each ” doll ” removed exposes a larger one and on and on. If the stakes were not so ominous, it might be a bit humorous. It goes without saying the only humor about this c— is ” Black “.I sincerely hope one day there is a literal parade of ” suits ” doing the notorious ” perp walk “.

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