breach of contract

JPMorgan Sued Over $959 Million RMBS Trust

On October 10, the Bank of New York Mellon, suing as trustee for the J.P. Morgan Mortgage Acquisition Trust, Series 2006-WMC3 trust, filed a summons with notice in the Supreme Court for the State of New York against WMC Mortgage LLC, J.P. Morgan Mortgage Acquisition Corp., and JPMorgan Chase Bank.  The trustee alleges that the defendants breached contractual representations and warranties and discovered such breaches during origination, due diligence, and servicing of the loans, but failed to adhere to their notice and repurchase obligations with respect to at least 334 of mortgage loans in the $959 million RMBS trust.  Bank of New York Mellon also asserts that JPMorgan Chase Bank, as servicer, breached its servicing obligations through, among other things, ineffective collection activities, delays in foreclosure, and improper modifications.  The trustee seeks damages of no less than $475 million related to the alleged contractual breaches, rescissory damages, an order of specific performance of repurchase, reimbursement of expenses, and pre- and post-judgment interest.  Summons with Notice.

Greenpoint’s Motion to Dismiss Loan Misrepresentation Suit Granted in Part

On October 15, Judge Donovan Frank of the U.S. District Court for the District of Minnesota, granted in part and denied in part Greenpoint Mortgage Funding’s motion to dismiss a lawsuit filed by Residential Funding Co., an affiliate of Residential Capital.  Residential Funding alleged that Greenpoint breached representations and warranties in connection with $88 million in mortgage loans it sold to Residential Funding and that Residential Funding securitized.  Following a bankruptcy court’s 2013 approval of a global settlement of Residential Funding’s RMBS-related liabilities, Residential Funding sued Greenpoint seeking indemnification and damages for breach of contract.  Judge Frank dismissed the breach of contract claim as time barred under Minnesota’s six-year statute of limitations because the alleged breaches at issue occurred when the loans were acquired, which was more than six years before Residential Funding filed suit.  Judge Frank did not dismiss the indemnification claim, which Greenpoint argued was not properly assigned to Residential Funding, because whether Residential Funding was the proper plaintiff was a factual question that could not be resolved on the pleadings.  Order.

First Department Affirms Dismissal of Ambac’s Contract Claims Against EMC

On October 16, the Appellate Division, First Department of the Supreme Court of New York affirmed the dismissal of Ambac Assurance Corporation’s breach of contract claims against EMC Mortgage arising out of an RMBS transaction that Ambac insured.  The court held that Ambac, as a third-party beneficiary to the pooling and servicing agreement for the transaction, lacked standing to enforce the repurchase protocol set forth in the PSA, which is the sole available remedy for alleged breaches of representations and warranties related to mortgage loans in the transaction.  Instead, the PSA provides the trustee the exclusive right to enforce the repurchase protocol.  Opinion.

District Judge Reaffirms Denial of Motion to Dismiss RMBS Repurchase Suit

On January 7, Judge Alvin K. Hellerstein of the United States District Court for the Southern District of New York denied WMC’s motion to reconsider the denial of its motion to dismiss in light of the intervening New York state appellate decision in ACE Securities v. DB Structured Products (covered in the January 6, 2014 edition of the Week in Review).  Judge Hellerstein had relied on the trial court decision in ACE as support for his original ruling that the plaintiff trustee’s claims accrued when WMC refused to repurchase loans that allegedly breached certain representations, not when the representations first were made.  WMC moved to reconsider after the First Department; Appellate Division reversed the trial court in ACE and held that breach of contract claims accrue when the representations are made.  Judge Hellerstein denied the motion, stating that while he had read the ACE appellate decision, it did not change his view that “the contract was breached not at the time of closing but at the time of failure to cure.”  Order Denying Motion to DismissOrder Denying Reconsideration.

Investor Group Sues Countrywide to Enforce Contractual Buy-Back Provision

On February 23, 2011, a group of holders of RMBS certificates represented by Plaintiffs’ lawyer David Grais filed a breach of contract claim against Countrywide Home Loans (now part of Bank of America) in New York State court, alleging that they were defrauded into purchasing over $1 billion in RMBS. The plaintiffs, who allege that they collectively own more than 25% of the voting rights in the issuer, sue derivatively on behalf of the Trustee, the Bank of New York Mellon, which is named as a nominal defendant. Plaintiffs ask the court to enforce a buyback provision in the Pooling and Servicing agreement or alternatively to award damages. Complaint.