1
EXHIBIT 10.10
LOAN PROGRAM
SUB-SERVICING AGREEMENT
THIS AGREEMENT ("Agreement"), made and entered into as of September 1,
1996, by and between PREFERRED EQUITIES CORPORATION, a Nevada corporation
("PEC") and MEGO MORTGAGE CORPORATION, a Delaware corporation, ("MMC").
WHEREAS, MMC, pursuant to its Loan Program ("LP"), originates or purchases
real estate secured and unsecured loans made under the U.S. Department of
Housing and Urban Development's ("HUD"), Federal Housing Administration ("FHA"),
Title One Insurance Program and also originates or purchases real estate secured
loans not insured by any governmental agency, (hereinafter collectively referred
to as "Loans"); and
WHEREAS, MMC desires that PEC shall perform certain accounting, payment
processing, and other administrative services in connection with such loans,
("SERVICING").
NOW, THEREFORE, MMC AND PEC MUTUALLY AGREE AS FOLLOWS:
ARTICLE 1. WARRANTIES AND REPRESENTATIONS OF PARTIES
A. PEC hereby makes the following warranties and representations:
the obligations of PEC under this Agreement have been duly authorized by
the Board of Directors of PEC, or are within the scope and coverage of a
general authorization adopted by its Board, which is in full force and
effect; the officers of PEC signatory hereto are authorized to sign this
agreement; and upon execution and deliver of this Agreement by PEC, the
obligations of PEC under this Agreement will be the legal, valid and
binding obligations of PEC, enforceable in accordance with the terms of
this Agreement. PEC is not subject to any charter, by-law, indenture,
mortgage, lien, lease, agreement, instrument, order, judgment or decree,
or any other restriction of any kind or character, which would prevent
the consummation of the transactions contemplated by this Agreement. The
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement will not constitute a default under the
provisions of any of the foregoing or result in a violation of any law,
rule, regulation, order, judgment or decree to which PEC or its property
is subject. There is no litigation pending or, to PEC's knowledge,
threatened, which, if determined adversely to PEC, would adversely affect
the execution, delivery or enforceability of this Agreement, or the
ability of PEC to perform all of its obligations under this Agreement or
which would have a material adverse effect on PEC's financial condition.
PEC holds all federal, state and other licenses, authorizations,
approvals, orders and contents, including, without limitation, those
required by FHA, as are reasonably necessary to PEC'S performance under
this Agreement in
1
2
compliance with applicable laws and secondary market requirements. PEC
is duly organized, validly existing, and in good standing under the laws
of the State of Nevada.
The representations and warranties given herein will be deemed to be made
anew at the time of transfer of any Loans to PEC for servicing hereunder. In
the event of any occurrence which would make any of the representations or
warranties above untrue or misleading, PEC agrees to notify MMC, in writing,
within five (5) business days of that occurrence.
B. MMC hereby makes the following warranties and representations, which
MMC acknowledges are a material inducement to PEC to enter into this Agreement
and which will be relied upon by PEC.
The execution of this Agreement by MMC and the performance of the
obligations of MMC under this Agreement have been duly authorized by the Board
of Directors of MMC, or are within the scope and coverage of a general
authorization adopted by its Board, which is in full force and effect and the
application of which includes the officers of MMC's signatory hereto. Upon
execution and delivery of this Agreement by MMC, the obligations of MMC under
this Agreement will be the legal, valid and binding obligations of MMC,
enforceable in accordance with the terms of this Agreement. MMC is not subject
to any charter, by-law, indenture, mortgage, lien, lease, agreement, instrument,
order, judgment or decree, or any other restriction of any kind or character,
which would prevent the consummation of the transactions contemplated by this
Agreement; and the execution of this Agreement and the consummation of the
transactions contemplated by this Agreement will not constitute a default under
the provisions of any of the foregoing or result in a violation of any law,
rule, regulation, order, judgment or decree to which MMC or its property is
subject. There is no litigation pending or, to MMC's knowledge, threatened,
which ,if determined adversely to MMC, would adversely affect, the execution,
delivery or enforceability of this Agreement, or the ability of MMC to perform
all of its obligations under this Agreement or which would have a material
adverse effect on MMC's financial condition. MMC holds all federal, state and
other licenses, authorizations, approvals, orders and contents, including,
without limitation, those required by FHA, as are reasonably necessary to its
performance under this Agreement in compliance with applicable law and secondary
market requirements. MMC is duly organized, validly existing, and in good
standing under the laws of the State of Delaware.
The representations and warranties given herein will be deemed to be made
anew at the time of transfer of any Loans from MMC to PEC for servicing
hereunder. In the event of any occurrence which would make any of the
representations or warranties above untrue or misleading, MMC agrees to notify
PEC, in writing, within five (5) business days of that occurrence.
2
3
ARTICLE 2. DELIVERY OF LOAN INFORMATION
MMC has delivered and will deliver to PEC, a reconciliation with
respect to each Loan to be serviced by PEC.
ARTICLE 3. SERVICING OF LOAN PORTFOLIOS
A. On the day of receipt of such Loan information, PEC shall enter
such Loans into its computer system.
B. PEC shall mail to each borrower a monthly statement which shall
set forth the amount due and the due date for each payment. Each initial monthly
statement shall advise each borrower that PEC has been retained to service such
Loans on behalf of MMC and directing borrowers to make payments by check or
money order payable as directed.
C. PEC shall diligently service and use its best efforts to obtain
on behalf of MMC each such payment when due, or as soon thereafter as possible.
The obligation to contact Obligors will be assumed by MMC on loans that are more
than sixty (60) days delinquent. PEC shall use only such methods as are
acceptable to MMC and are in accord with the provisions of the Fair Debt
Collection Practices Act, and MMC shall have the right at any time to review
such methods. All interest calculations shall be made in conformance with the
terms and conditions set forth in MMC's Title I Note or non-Title I Note.
E. PEC shall promptly after receipt of any payment, but in no case
later than the next business day following the receipt of such payment, deposit
same in bank accounts established by MMC for such purpose. These accounts shall
be opened in the name of MMC and PEC shall be authorized to make deposits
thereto only.
F. PEC shall deposit the received monies due MMC into said MMC
accounts. PEC shall record the date, amount and type of these deposits in the
computer generated loan data compiled for the benefit of MMC, such deposits to
include the following:
1. All principal and interest payments received by PEC on behalf
of MMC.
2. "NSF" fees received by PEC on behalf of MMC.
3. Late fees received by PEC on behalf of MMC.
4. Any and all other monies received by PEC on behalf of MMC.
5. HUD Impounds.
3
4
G. PEC shall not waive or vary the terms of any loan in any manner
whatsoever or consent to a postponement of compliance by the borrower with any
of the terms or provisions thereof, or in any manner grant an indulgence,
reduction or forgiveness of the amount due on such Loan to the borrower, except
as directed in writing by MMC. PEC shall make a diligent effort to collect any
Loan in default for a period not to exceed sixty (60) days; thereafter, PEC
shall turn over any such Loan to MMC for further collection. All such Loans
shall remain in the principal balance of Loans PEC is Servicing until such time
any such Loan is (i) reinstated, in which case it shall be returned to PEC for
collection in the ordinary course and remain in the principal balance
calculation of Loans being serviced or (ii) until foreclosed upon or submitted
to HUD for claim by MMC, at which time any such Loan will be removed from the
principal balance calculation of Loans PEC is Servicing.
H. With respect to Loans insured by FHA and/or HUD, PEC shall
satisfy and comply with, and use its best efforts to obtain compliance by the
borrower with all applicable provisions and requirements of any laws relating to
FHA and/or HUD, and all rules and regulations promulgated pursuant thereto,
including the prompt and timely giving of all notices required to be given by
FHA and/or HUD. PEC shall be liable for damages for any insurance claims
rejected by FHA and/or HUD where such rejection arises out of PEC's grossly
negligent failure to perform any of its duties and obligations under this
Agreement or under FHA and/or HUD requirements.
I. PEC shall deliver to each borrower, after the end of each
calendar year, but not later than January 31, a statement indicating the total
amount of interest paid by each borrower during the calendar year. PEC shall
deliver to MMC a complete listing of such statements, including the principal
balance of each account as of December 31, and totals for both principal and
interest. Such listing shall be provided to MMC no later than January 31
following the end of the year which is the subject matter of this statement.
J. PEC shall prepare all reports as required by FHA, HUD, or the
Internal Revenue Service and reports as customary to such servicing agreements
and reasonably required by MMC.
K. PEC shall maintain such facilities, equipment, and personnel as
are at all times adequate for the performance of PEC'S duties hereunder.
L. PEC shall maintain adequate books and records setting forth
payments received and disbursements, if any, made pursuant to this Agreement,
which books and records shall clearly state the respective interest and
principal payments of each borrower. Said books shall be available for
examination and audit by MMC at any time during normal business hours. MMC
shall exercise good faith efforts to give PEC advance notice of MMC'S desire to
examine/audit said records in order to minimize the
4
5
disruption of the business operations of PEC. All such records shall be
maintained by PEC in accordance with generally accepted accounting practices.
M. PEC shall furnish to MMC within one hundred twenty (120) days
after the end of PEC'S fiscal year (August 31) a certified audit relating to
PEC'S financial statements, as well as the statements of any subsidiaries of PEC
which perform services for MMC.
N. PEC shall handle any borrower inquiries and correspondence
received with copies to MMC in disputed matters, other than for Loans turned
over to MMC for collection after sixty (60) days of delinquency.
O. PEC shall service all Loans in the same diligent manner in which
it services its own receivables.
P. PEC shall, with the written consent of MMC, have the right to
subcontract any of its duties and responsibilities under this Agreement to a
duly licensed third party; however, no such subcontracting shall limit PEC's
liability under this Agreement.
ARTICLE 4. COMPENSATION
PEC shall xxxx MMC monthly for Servicing of Loans performed
hereunder. MMC shall pay PEC within ten (10) days of receipt of such billing, a
monthly servicing fee of one twelfth (1/12) of one half of one percent (0.50%)
of the outstanding principal balance of all Loans being serviced on the first
day of the prior month.
A. The parties agree that payment pursuant to this Article
represents full compensation to PEC for all duties and responsibilities required
under this Agreement.
B. Under no circumstances shall PEC have the right to assert any
lien or encumbrance against any of MMC'S Loans or have any right to deprive MMC
of title to or ownership of MMC Loans under this Agreement.
ARTICLE 5. INSURANCE
A. PEC shall maintain throughout the terms of this Agreement
Fidelity Coverage (or furnish a Direct Surety Bond issued in favor of MMC) on
policy forms normally used by servicers of the same class as PEC. Such coverage
shall be in the amount at least equal to a percentage of its total servicing
portfolio as set forth in the schedule below, and to be in compliance with HUD
and/or Xxxxxx Mae requirements. (Total servicing portfolio shall mean loans
serviced by PEC for itself, MMC or others).
5
6
0.4% First $ 50,000,000.00 of principal serviced
0.2% Next 50,000,000.00 of principal serviced
0.15% Next 400,000,000.00 of principal serviced
0.125% Next 500,000,000.00 of principal serviced
0.1% Over 1,000,000,000.00 of principal serviced
A deductible clause in the amount of $5,000.00 or 0.1% of the face amount
of Fidelity Coverage, whichever is higher, is permissible. Deviations from
foregoing requirements will be considered by PEC upon request.
B. PEC shall maintain throughout the term of this Agreement errors
and omissions insurance in the amount of $1,000,000.00 on those of its employees
having access to the Loan documents or to any amounts paid by MMC borrowers.
C. PEC shall maintain throughout the term of this Agreement valuable
papers insurance in amounts sufficient to protect against loss of documents
transmitted to PEC by MMC.
D. PEC shall forward to MMC evidence of payment by the renewal date
of each policy and within thirty (30) days of each policy renewal date insurance
renewal certificates to certify that such insurance remains in full force and
effect.
E. PEC shall promptly notify MMC if any insurance required by this
Agreement is canceled for any reason within ten (10) business days of PEC'S
knowledge of the cancellation. PEC shall promptly notify MMC of any insurer's
refusal to renew any insurance at the expiration of the premium period. PEC
shall also notify MMC of any more restrictive terms required by an insurer as a
condition for renewal.
ARTICLE 6. LOAN DATA PROPERTY OF MMC
Only the data relating to MMC's Loans contained in the computer
files of PEC is the property of MMC. PEC'S software is owned exclusively by
PEC. PEC agrees to furnish such data to MMC on a computer printout, or other
appropriate format, with instructions necessary to enable MMC to use such data.
Such data shall be furnished as required within four weeks following a special
request by MMC.
ARTICLE 7. INDEMNIFICATION
A. PEC agrees to indemnify, defend and hold harmless MMC for any
loss, damage, reasonable expense, claims, and/or causes of action that may be
asserted against MMC as a result of any gross negligence or willful misconduct
on the part of PEC, its agents or employees in the performance of the services
required by this Agreement.
6
7
B. PEC shall, within 48 hours, report to MMC all cases of
embezzlement or other fraudulent, criminal or dishonest acts by the officers,
employees or agents of PEC in the servicing of any Loans of MMC or others by
PEC.
ARTICLE 8. DURATION AND TERMINATION OF AGREEMENT
A. This Agreement shall be in effect for one (1) year from the date
hereof unless terminated sooner pursuant to paragraphs B through F below. Unless
written notice is provided by either party hereto not less than ninety (90) days
prior to the expiration of this one (1) year term, and the Agreement is not
otherwise terminated pursuant hereto, this Agreement shall be extended until
terminated under paragraphs B through F below.
B. This Agreement may be terminated in whole or in part at any time
by mutual written agreement of MMC and PEC.
C. This Agreement may be terminated in whole or in part by MMC at any time
with or without cause upon ninety (90) days advance written notice to PEC.
D. This Agreement may be terminated in whole or in part by PEC at
any time with or without cause upon ninety (90) days advance written notice to
MMC.
E. MMC and PEC each retain the right to terminate this Agreement
immediately upon the occurrence of any of the following events affecting either
PEC or MMC:
1. The insolvency of either company;
2. The filing by or against either company of a petition
under any provision of bankruptcy law, or of an
assignment for the benefit of creditors;
3. The appointment by any public or supervisory authority
of any person or firm in charge of either company or
its assets;
4. A material breach by either company of any covenant,
representation, or warranty contained herein which
breach is not cured within ten (10) business days of
receipt by the breaching party of written notice
thereof from the party asserting that a breach has
occurred;
5. The issuance by an appropriate public monitoring or
supervisory authority of a cease and desist order or
its equivalent involving the safety, soundness or
financial
7
8
liability of either company or against either company's
directors and officers.
6. If MMC becomes delinquent in paying PEC; delinquency
shall be defined as any amounts which are thirty (30)
days past due.
F. Upon termination of this Agreement, PEC shall promptly deliver to
MMC all Loan payments received and supply all such reports, Loan documents and
information as may be required by MMC, to any person or entity designated by MMC
and shall use its best efforts to effect the orderly and efficient transfer of
administration to a new servicer designated by MMC including preparation of
accounting statements, and/or computer tapes, in such form as may be reasonably
requested by MMC. PEC shall in no event have the right to assert a lien or
claim on, or offset against, any Loan documents or Loan payments.
ARTICLE 9. GENERAL PROVISIONS
A. Loan shall mean a loan, evidenced by a Note, purchase contract or
otherwise originated by MMC under the FHA Title I Program of the National
Housing Act, or any other insured or uninsured lending programs.
B. There shall be no modification of this Agreement unless agreed to
by both parties in writing.
C. No waiver by either party of any covenant or condition of this
Agreement shall be valid unless in writing and signed by the party so waiving.
D. This Agreement shall be governed by the laws of the State of
Georgia.
E. Invalidation of any one of the provisions of this Agreement, by
judgment or court order, shall in no way affect any other provisions herein
contained, which provisions shall remain in full force and effect.
F. PEC contracts with MMC hereunder as an independent contractor.
G. PEC may not assign this Agreement or its duties hereunder without
the prior written consent of MMC, provided however that PEC may delegate/assign
one or more of the Servicing duties set forth in this Agreement to one of PEC's
wholly owned subsidiaries or to an agent(s) of PEC.
H. This Agreement and all obligations and rights arising hereunder
shall bind and inure to the benefit of MMC and PEC and their respective
successors in interest and permitted assigns.
8
9
I. Headings to sections of this Agreement are for convenience of
reference only and shall not be considered in the interpretation or performance
of this Agreement.
J. This Agreement shall be executed on one or more copies, but such
counterparts shall together constitute but one and the same Agreement.
K. In the event any Trustee or loan purchaser terminates MMC's
authority to service any of the Loans covered hereby, this Agreement shall
terminate as to such Loans.
L. All notices, requests and demands to or upon the respective
parties shall be deemed to have been given or made when personally delivered or
when deposited in the mail, first class, mail registered or certified, return
receipt requested and post prepaid as follows:
8.2.1 If to PEC, to:
Preferred Equities Corporation
0000 Xxxxxxxx Xxxx
Xxx Xxxxx, Xxxxxx 00000
Attention: Xxxxxxxxx X. Xxxxx, Executive Vice
President and Chief Operating Officer
8.2.2 If to MMC, to:
Mego Mortgage Corporation
0000 Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Executive Vice
President, Treasurer and Chief Financial
Officer
or to such other address as either such party shall notify the other.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the date hereof.
MEGO MORTGAGE CORPORATION PREFERRED EQUITIES CORPORATION
/s/ Xxxxx X. Xxxxxx /s/ Xxxxxxxxx X. Xxxxx
------------------------------- ------------------------------
By: Xxxxx X. Xxxxxx By: Xxxxxxxxx X. Xxxxx
Executive Vice President Executive Vice President
_______________________________ _______________________________
DATE DATE
9
