EMC

EMC Obtains Partial Dismissal of Repurchase Action

On May 29, Justice Eileen Bransten of the New York County Supreme Court denied in part and granted in part defendants’ motion to dismiss a loan repurchase lawsuit brought at the direction of certain certificate holders of four RMBS.  The complaint alleged that EMC Mortgage breached certain representations and warranties concerning loans in the trusts and also sought to hold certain JPMorgan entities vicariously liable for EMC’s alleged breaches.  Justice Bransten dismissed without prejudice the claims against the JPMorgan entities for failure to properly plead successor liability or parent liability.  As to EMC, the Court rejected EMC’s argument that the claims were limited to certain loans identified in timely repurchase demands, holding that the content of the specific repurchase demands at issue sufficiently and timely notified EMC of its alleged obligation to repurchase all allegedly breaching loans in the trusts.  Justice Bransten also relied on Plaintiff’s allegation that EMC discovered allegedly breaching loans during its pre-closing due diligence to hold that Plaintiff’s claims as to all allegedly breaching loans in the transaction were timely.  Justice Bransten refused to dismiss plaintiff’s unjust enrichment claims, which were based upon allegations that EMC withheld settlement funds received from loan originators that properly belonged to the Trust, holding that the PSA’s sole remedy clause does not preclude these claims.  Finally, Justice Bransten dismissed claims for consequential and rescissory damages as barred by the sole remedy provision, and dismissed plaintiff’s reimbursement claim because the PSA did not unmistakably provide for attorney’s fees in first-party actions.  Order.

Independent Foreclosure Review

On November 1, the OCC announced that, in connection with the enforcement actions taken against 14 large mortgage servicers in April 2011, borrowers with foreclosure proceedings on their primary residences initiated by those servicers between January 1, 2009 and December 31, 2010 can request an independent consultant to review the potential foreclosure deficiencies if the borrowers believe they have suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure proceedings. The Fed also announced that the four large mortgage servicers subject to enforcement actions that are supervised by the Fed (GMAC, HSBC, SunTrust, and EMC) will be required to conduct this program as part of their compliance with Fed procedures. The independent review is free of charge for borrowers. Requests for review by the servicers’ independent consultants must be received by April 30, 2012. OCC Release. Fed Release.

Bear Stearns RMBS Trustee Sues EMC Mortgage to Enforce Repurchase Obligations

On September 13, 2011, Wells Fargo, acting as Trustee for the Bear Stearns Mortgage Funding Trust 2007-AR2, sued EMC Mortgage in Delaware Chancery Court. In its breach of contract claim, Wells Fargo alleges that EMC Mortgage breached the parties’ Pooling and Servicing Agreement and Mortgage Loan Purchase Agreement by refusing to repurchase hundreds of loans it sold to the Trust that did not meet stated minimum quality standards. According to Wells Fargo, EMC Mortgage has twice refused to fulfill its repurchase obligations to the Trust after receiving written notice regarding nonconforming loan. Complaint.

Borrower Files Class Action Against EMC Mortgage Over Loan Modification Practices

On January 10, 2011, a putative class action was filed in the U.S. District Court for the Eastern District of Washington against loan servicer EMC Mortgage Corp. and its parent, Bear Stearns. The action is asserted on behalf of all EMC-serviced mortgagors in the State of Washington who have made payments pursuant to a temporary loan modification plan or repayment agreement while attempting to obtain a permanent loan modification (alleged to number in the “hundreds if not thousands”). It alleges that EMC has acted in bad faith, and engaged in improper accounting, bad recordkeeping, and misrepresentations during loan modification negotiations with mortgagors in the State of Washington. Specifically, the putative class representative alleges that, despite EMC’s repeated promises to modify her and other mortgagors’ loans and their compliance with the modification terms, EMC is improperly delaying permanent modification of the loans while at the same time charging excessive fees, inflating arrearages and continuing to threaten foreclosure. The Complaint alleges violations of the Washington Consumer Protection Act and EMC’s settlement with the Federal Trade Commission, along with claims for breach of contract, breach of the duty of good faith and fair dealing, promissory estoppel, and unjust enrichment. Complaint.