Residential Capital LLC

ResCap Liquidating Trust Repurchase Lawsuit Survives Motion to Dismiss in Part

On February 3, Judge Martin Glenn of the United States Bankruptcy Court of the Southern District of New York denied defendants’ motions to dismiss four adversary proceedings brought by the liquidating trust for Residential Capital LLC against several originators of residential mortgage loans. The court ruled that the ResCap Liquidating Trust was the real party in interest and therefore had standing to pursue claims against the originators for breach of representations and warranties. The defendants also argued that the Trust lacked standing to sue with regard to loans that had been securitized, because a predecessor ResCap entity had assigned its rights concerning those loans to third-parties. The court rejected this argument, holding that the scope of the assignments raised factual questions that could not be resolved at the motion to dismiss stage. The court granted defendants’ motion to dismiss claims with respect to certain loans as time-barred, holding that New York’s six-year statute of limitations expired as to all loans sold to ResCap prior to May 14, 2006 (six years before the adversary proceedings were filed). Finally, the Court declined to rule on the scope of the remedy available to the Trust at the pleading stage.  Memorandum Opinion and Order.

ResCap’s Claims Against Mortgage Originators in Minnesota Will Proceed

On November 12, Judge Susan Richard Nelson of the United States District Court for the District of Minnesota declined to dismiss claims by the Residential Capital LLC (ResCap) bankruptcy trust against six mortgage originators.  ResCap alleges that the six originators—Academy Mortgage Corp., First California Mortgage Corp., Provident Funding Associates, L.P., T.J. Financial, Inc., Universal American Mortgage Company, LLC, and Wells Fargo Financial Retail Credit, Inc.—breached representations and warranties in regard to almost $4 billion in RMBS.  ResCap asserts claims for breach of representation and warranty and for indemnification. Judge Nelson held that ResCap’s allegations stated a claim for breach of warranty without identifying specific allegedly breaching loans. The Court further held that ResCap had standing to bring these claims, and the claims were not time-barred because they were brought within the two-year period for debtor claims under the Bankruptcy Code.  Order.

Second Circuit Ruling Applied to Revive MBS Claims

On May 1, Judge Harold Baer, Jr. of the U.S. District Court for the Southern District of New York reinstated previously dismissed claims in two class actions brought by several pension fund plaintiffs against Royal Bank of Scotland Group PLC and Residential Capital LLC, among others.  Judge Baer had previously dismissed claims under the Securities Act of 1933 as to certain RMBS for lack of standing.  In light of a recent Second Circuit decision, NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012), Judge Baer reconsidered his prior orders and held that the plaintiffs had standing to assert claims on behalf of purchasers of all RMBS issued under the same shelf registrations that were backed by mortgages originated by the same lenders that originated the mortgages backing the certificates purchased by the named plaintiffs.  The court’s order revived claims with respect to a total of 49 offerings across both cases that previously had been dismissed.  Order.

FHFA Can Pursue Claims Against Non-Debtor Affiliates of Residential Capital

On July 17, Judge Denise Cote of the United States District Court for the Southern District of New York ruled that the Federal Housing Finance Agency (“FHFA”) can pursue certain RMBS-related claims against affiliates of Residential Capital LLC (“ResCap”). ResCap, which has filed for Chapter 11 bankruptcy, brought a motion before Judge Cote to enjoin the FHFA from pursuing claims against ResCap’s non-debtor affiliates or, in the alternative, to extend the automatic stay protection afforded by its Chapter 11 status. Judge Cote denied ResCap’s motion. The underlying FHFA complaint alleges that defendants (including Ally Financial, Ally Securities, and GMAC Mortgage) made false or misleading statements or omissions in the offering materials for $6 billion worth of RMBS. Decision.