to a more stable servicing agent and to terminate the existing Servicing Agreement with NYGMC. Accordingly, on June 26, 1989, FNMA terminated the Servicing Agreement and NYGMC's right to service FNMA mortgages and participation interests. (Nichols Aff. Ex. A).
FNMA and NYGMC immediately began negotiations to arrange for the orderly transfer of portfolio documents from NYGMC to FNMA. These discussions culminated in a verbal agreement, pursuant to which NYGMC agreed to transfer the servicing rights back to FNMA or its designee, in exchange for $ 8,799,187.
FNMA and NYGMC also agreed that any liabilities FNMA incurred due to NYGMC's servicing errors or deficiencies and any extraordinary charges and expenses FNMA incurred due to the transfer would be offset against the $ 8,799,187 payment and that offsets in excess of $ 8,799,187 would be owed to FNMA. The specific categories of offsets were to be memorialized later in a written agreement.
The Midlantic Agreement
FNMA soon approached Midlantic Home Mortgage Corporation ("Midlantic") about the possibility of Midlantic's taking over the mortgage servicing responsibilities of the FNMA portfolio. In October 1989, following four months of discussions, FNMA and Midlantic entered into an interim servicing agreement pursuant to which Midlantic agreed to take over servicing responsibilities from the period June 30, 1989 through December 1990 (the "Midlantic Agreement"). Midlantic demanded and the Midlantic Agreement provided for the payment of a one-time servicing fee of 50 basis points, over and above the normal servicing fee, to compensate Midlantic for taking over the management of the troubled FNMA portfolio. (Carpenter Aff. Ex. A, at 4). This fee, which amounted to approximately $ 4.5 million, was calculated based on the average principal balance outstanding at the end of each month of the Midlantic Agreement. Id.
The Appointment of an Independent Receiver
On July 11, 1989, defendant Michael H. Soroka was appointed by this court to serve as the Independent Receiver for NYGMC. Shortly after his appointment and as part of his responsibilities, Soroka began to negotiate a formal written agreement memorializing the terms of the June 1989 portfolio transfer between NYGMC and FNMA and settling all claims and obligations between the parties. A primary purpose of these negotiations was to limit NYGMC's potential exposure to liabilities. Towards that end, the parties engaged in regular discussions concerning the nature and identity of the offsets that were to be deducted from the $ 8,799,187 purchase price.
Between August 1989 and August 1990, FNMA forwarded to Soroka a series of schedules which provided estimates for each "offset" category on an Account-by-Account basis. (Pearce Reply Aff. Ex. C). With respect to the offset entitled "Out-of-Pocket Transfer Expenses," FNMA's schedules consistently projected these expenses to be only $ 100,000. Although the negotiations endured for one full year, the estimated figures supplied by FNMA did not change.
Date of FNMA Schedule Estimated Expenses
August 31, 1989 $ 100,000
October 17, 1989 100,000
October 26, 1989 100,000
November 22, 1989 100,000
February 26, 1990 100,000
April 3, 1990 100,000
April 20, 1990 100,000
August 14, 1990 100,000
August 27, 1990 100,000
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