The U. S. District Court for the Middle District of Georgia has joined district courts from Alabama, Nevada, and Tennessee in holding that for purposes of res judicata, privity exists between a loan servicer and trustee. As a result, the court held that because the borrower's earlier suit against the servicer had been dismissed with prejudice, res judicata barred the borrower's subsequent suit against the trustee. This decision has the potential to assist in combating abusive borrower litigation and enabling interested parties to repossess property more efficiently and with fewer associated costs.

In Bailey v. Deutsche Bank Trust Company Americas, a defaulted borrower filed suit against the trustee of the trust containing the borrower's mortgage. The borrower sought to enjoin a dispossessory action resulting from a prior foreclosure on her property. As a basis for her claim, the borrower alleged that the prior foreclosure was wrongful and/or negligent, and the dispossessory action should be barred.

Before filing the action against the trustee, however, the borrower had filed suit against her loan servicer for wrongful foreclosure and a variety of related claims in the Northern District of Georgia. After giving the borrower an opportunity to amend her complaint to remedy various pleading deficiencies, the court entered a dismissal with prejudice on the borrower's asserted claims against the servicer.

In holding that res judicata barred the borrower's subsequent suit against the trustee, the court noted that the 11th Circuit had not yet addressed the issue of whether privity exists between loan servicers and lenders or transferees. The court further noted, however, that several district courts had considered the question and found privity existed between these parties. The court found those opinions persuasive and held that privity exists between the servicer and trustee because both parties share "a concurrent interest in collecting the debt owed by [p]laintiff and enforcing the same property right, which was secured by the [plaintiff's] Property." The court also held that all of the other elements of res judicata were satisfied – the prior decision was rendered by a court of competent jurisdiction, the dismissal with prejudice operated as a decision on the merits, and the borrower's claims against the trustee could have been raised in the earlier suit.

The court also remarked that the borrower's most recent suit appeared to be yet another attempt to forestall her "imminent eviction" and that the borrower had been engaged in such litigation for more than three years. The filing of successive lawsuits is a common tactic that borrowers employ to retain possession of the property as long as possible after default. The Middle District of Georgia's decision seems to recognize this reality of the foreclosure process.