Mortgage Loan Sale Agreement

First Department Affirms Partial Dismissal of RMBS Repurchase Claims

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On December 29, 2016, the New York Supreme Court, Appellate Division, First Department, in a 4‑1 decision, affirmed a 2015 New York Supreme Court order dismissing certain claims in an RMBS action brought by Trustee U.S. Bank National Association, solely in its capacity as Trustee of the J.P. Morgan Alternative Loan Trust 2007-A2 (the “Trustee“) against originator Greenpoint Mortgage Funding (“Greenpoint“). On May 31, 2013, the last day before the statute of limitations expired, the Trustee filed suit alleging that Greenpoint had breached certain representations and warranties with respect to mortgage loans that it originated. The Trustee, however, did not send out any breach notices until after it filed its action, and none of the breach notices provided for a 60‑day cure period, as required under the applicable Mortgage Loan Sale Agreement. The First Department affirmed the Supreme Court’s order dismissing the Trustee’s claims that Greenpoint was notified of breaching mortgages, but failed to cure. The panel held that the breach notices and the 60‑day cure period were conditions precedent to filing the lawsuit, and the breach notices could not “relate back because the inherent nature of a condition precedent to bringing suit is that it actually precedes the action.” The First Department, however, also affirmed the Supreme Court’s denial of Greenpoint’s motion to dismiss to the extent that the Trustee’s breach of contract claims were predicated on allegations of Greenpoint’s independent discovery of breaches. The First Department held that such allegations do not require breach notices to be sent before an action is commenced. The panel also held that allegations that Greenpoint created and had full access to the loan files, and therefore knew or should have known of the breaches, were sufficient to withstand a motion to dismiss. Order.

New York Supreme Court Holds RMBS Claims Are Timely, But Accrual Provision Unenforceable

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On March 3, 2015, Justice Marcy S. Friedman of the New York Supreme Court granted in part and dismissed in part Defendant Greenpoint Mortgage Funding, Inc.’s Motion to Dismiss an action in which it was said to have misrepresented the quality of loans underlying an RMBS transaction.  Plaintiff-Trustee, U.S. Bank National Association, argued that the case was timely under a provision of the governing Mortgage Loan Sale Agreement providing that no claim accrues for breach of a repurchase obligation until the purchaser discovers a breaching loan (or is so notified), the seller fails to cure such breach, and the purchaser makes a demand for cure.  The court rejected the plaintiff’s reliance on this accrual provision, citing earlier decisions holding that New York law precludes the extension of an applicable statute of limitations by contract.  The court nonetheless concluded that the action was timely, finding that the plaintiff had pled sufficient facts to state a claim that Greenpoint was aware of breaches within the limitations period.  Additionally, Justice Friedman granted the motion to dismiss the plaintiff’s claims for (1) reimbursement of attorney’s fees, as these were not encompassed by the MLSA’s indemnification provisions, (2) all claims that sought relief beyond that permitted under the contract’s sole remedy provision, and (3) claims for breach of the implied covenant of good faith and fair dealing, which the court found to be duplicative of the underlying contract claim.  Order.