U.S. Bank

Bank of America and U.S. Bank Agree to Settle MBS Suit with Pension Funds

On October 30, Bank of America notified Judge Katherine B. Forrest of the United States District Court for the Southern District of New York of a planned settlement of an action brought by pension funds in 2012.  The funds had alleged that Bank of America and U.S. Bank violated their duty to ensure that the loans underlying 19 Washington Mutual RMBS portfolios did not contain missing, defective, or incomplete documents, and to ensure that defective loans were removed from the trusts.  The complaint included claims for violating the Trust Indenture Act of 1939, breach of contract, and breach of the implied covenant of good faith and fair dealing.  LetterComplaint.

Breach of Contract Claims against J.P. Morgan and EMC Dismissed as Time-Barred

On August 19, in an oral ruling from the bench, Vice Chancellor J. Travis Laster of the Delaware Chancery Court dismissed as time-barred loan repurchase claims brought by U.S. Bank as trustee of an RMBS trust against JPMorgan and EMC Mortgage.  U.S. Bank alleged that EMC misrepresented the quality of more than US$500 million worth of mortgages that were sold to the trust in 2006 and that both EMC and JPMorgan, which took over as the servicers of the trust in 2011, failed to notify the trustee of the faulty loans.  Vice Chancellor Laster, following the Delaware Chancery Court’s 2012 decision in Central Mortgage Co. v. Mortgage Stanley Capital Holdings LLC., held that Delaware’s three-year statute of limitations for breach of contract claims began to run on the day the allegedly false representations were made.  He held that the contract’s accrual provision could not extend the statute of limitations and that no other tolling doctrines applied to render plaintiff’s claims timely.  He also held that the alleged failure to notify claim was derivative of the underlying claim for breach of representation and subject to the same limitations period.  Vice Chancellor Laster did not dismiss U.S. Bank’s claims for unjust enrichment and failure to provide documents, finding them well pled and not time barred.  Hearing Transcript.

New Jersey Federal Judge Partially Dismisses Claims Against RMBS Trustee

On April 23, Judge William J. Martini of the U.S. District Court for the District of New Jersey granted in part U.S. Bank’s motion to dismiss investor VNB Realty, Inc.’s claims against the bank as trustee of two RMBS trusts.  VNB alleges that U.S. Bank knew of wrongdoing in the trusts, including robo-signing and flawed underwriting practices by loan originators, but did not notify investors due to a conflict of interest.  The court dismissed claims alleging breach of the duty of loyalty and breach of fiduciary duty as intrinsically part of VNB’s negligence claim.  The court also dismissed plaintiff’s breach of contract claim and its related claim for breach of the implied covenant of good faith and fair dealing for failure to identify any specific duty that was allegedly breached.  The court denied, however, the Trustee’s motion to dismiss the entire complaint based on the “no-action” clauses in the applicable Pooling and Servicing Agreements, based on its conclusion that demand would be futile because the plaintiff effectively would have been asking the Trustee to sue itself.  The court also permitted claims alleging negligence and violations of the Trust Indenture Act to proceed.  Decision.

Federal Court Dismisses RMBS Breach of Contract Action Against GreenPoint as Time-Barred

On January 10, Judge Shira A. Scheindlin of the United States District Court for the Southern District of New York dismissed a lawsuit brought by U.S. Bank National Association as trustee for Lehman XS Trust, Series 2006-4N against GreenPoint Mortgage Funding, Inc.  Judge Scheindlin held that the Trustee’s claims for alleged breach of representations and warranties by GreenPoint were barred by the six-year statute of limitations governing contract claims.  Relying on recent authority from the Supreme Court of the State of New York Appellate Division, First Department, the court held that claims subject to cure or repurchase requirements accrue at the time of the breach and not at the time of the demand to cure or repurchase.  The Court held that the trustee’s claims were untimely because they were filed more than six years from the agreement at issue.  Opinion.

Minnesota Federal Court Dismisses, In Part, Put-Back Claims Against Mortgage Originators

On September 30, a Minnesota federal judge granted in part and denied in part WMC’s and EquiFirst’s motions to dismiss three suits brought by U.S. Bank, as Trustee for an RMBS trust, alleging that WMC and EquiFirst breached representations and warranties in the purchase agreements relevant to each securitization.  As to U.S. Bank’s breach of contract claims, Judge John R. Tunheim concluded that the contracts’ sole remedy provisions barred claims for monetary damages and limited the Trustee to specific performance of the contractual repurchase provision.  The court also granted the motions to dismiss with respect to the Trustee’s claims for contractual indemnification and declaratory relief.  However, Judge Tunheim denied the motion to dismiss the Trustee’s claim that the defendants were liable as a result of their failure to notify the Trustee of breaches when the defendants discovered them.  The court also permitted the Trustee’s claim for damages based on gross negligence to proceed.  Finally, in the same order the court granted, in part, WMC’s motion for summary judgment in a fourth related action.  Opinion.

Judge Denies Dexia’s Bid to Dismiss MBS Claims as Time-Barred

On June 6, Judge Shira A. Scheindlin of the U.S. District Court for the Southern District of New York denied Dexia Real Estate Capital Markets’ (Dexia) motion to dismiss breach of contract claims brought by U.S. Bank National Association (U.S. Bank), in its capacity as trustee for a CMBS trust.  U.S. Bank alleges that Dexia breached a representation concerning the enforceability of all agreements related to a particular loan and then refused to repurchase the loan when notified of the breach.  Moving to dismiss, Dexia argued that U.S. Bank’s claim was untimely because it was filed more than 6 years after the governing agreements were entered into and the representation at issue was made.  Rejecting Dexia’s argument, Judge Scheindlin concluded that under the terms of the governing agreements, U.S. Bank was only entitled to make a repurchase demand upon Dexia once a breach had “materially and adversely” affected a loan.  She further found that U.S. Bank’s complaint pled facts sufficient to suggest, in connection with the particular representation breach alleged by U.S. Bank, that there was no material and adverse effect until a 2011 Minnesota state court decision holding that a guaranty securing the loan was unenforceable.  Order.

U.S. Bank Sued Over Management of 28 RMBS Trusts

On May 24, several banks and asset management companies sued U.S. Bank in a Missouri state court over U.S. Bank’s alleged mismanagement of 28 RMBS trusts.  Plaintiffs allege that U.S. Bank disregarded its duties as trustee by, among other things, ignoring master servicer Wells Fargo’s alleged misconduct related to its foreclosure practices in connection with loans owned by the trusts.  Plaintiffs further allege that U.S. Bank’s inaction made it difficult and costly to pursue foreclosures on mortgages in the trusts, thus causing them substantial damage.  Plaintiffs seek unspecified monetary and injunctive relief against U.S. Bank under claims for breach of contract, breach of the duty to avoid conflict of interest, breach of fiduciary duty, negligence and breach of express contract.  Complaint.

District Court Denies Banks’ Motions to Dismiss Litigation Concerning Role of MBS Trustees

On May 6, Judge Katherine Forrest of the United States District Court for the Southern District of New York denied Bank of America and U.S. Bank’s motions to dismiss an action relating to their roles as trustees of Washington Mutual mortgage-backed securities.  Plaintiffs, including the Policemen’s Annuity and Benefit Fund of Chicago and other entities, claimed the trustees failed to notify certificate-holders of breaches of the Pooling and Servicing Agreements relating to the completeness of mortgage files and compliance with loan underwriting guidelines.  The court held the Trust Indenture Act plausibly applies to the securities at issue and requires trustees to provide notice of all defaults known to it within ninety days.  The court also held that Plaintiffs adequately pleaded that defaults occurred, such as the failure of certain entities to correct flaws in the mortgage files, and that defendants plausibly knew that certain representations in the Pooling and Servicing Agreements had been breached.  Judge Forrest noted that Plaintiffs must ultimately prove that the trustees had actual, rather than constructive, knowledge of the alleged breaches and that the existence of even pervasive practices is not necessarily sufficient evidence of actual knowledge.  Order.

Trustee Brings Putback Action Against Merrill Lynch

On December 18, 2012, U.S. Bank, acting in its capacity as Trustee for two Merrill Lynch RMBS trusts that issued over $1 billion in RMBS certificates, filed a complaint in New York Supreme Court against Merrill Lynch.  The Trustee alleges that Merrill Lynch breached representations and warranties concerning the borrowers’ income and employment, the borrowers’ debts and debt-to-income ratio at the time the mortgages were originated, property value and loan-to-value ratios, and the owner-occupancy rates of the underlying properties.  The Trustee asserts seven causes of action for breach of contract, anticipatory breach, and declaratory judgment, and seeks to require Merrill Lynch to repurchase the loans.  Complaint. 

OCC Issues Consent Orders Against Eight Major Banks, Lender Processing Services, and MERSCORP for Foreclosure Practices

On April 13, 2011, the Office of the Comptroller of the Currency (“OCC”) announced consent orders and enforcement actions against eight national bank mortgage servicers (Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo) and two third-party servicers (Lender Processing Services and subsidiaries, and MERSCORP and subsidiaries (including MERS)). The enforcement actions require each servicer to correct claimed deficiencies identified in the OCC’s 2010 Fourth Quarter review, make improvements in servicing and foreclosure processing practices, establish oversight and control over third-party vendors (including outside legal counsel that provide default management or foreclosure services), and perform a multi-faceted review of foreclosure actions from January 1, 2009 to December 31, 2010 through an independent firm. The independent review must assess whether the servicers complied with federal and state laws regarding foreclosures and whether they caused any financial injury to borrowers. The servicers must also remedy all financial injuries to borrowers identified in the independent review. The consent orders do not preclude civil money penalties, which the OCC may assess at a future date. OCC Press Release. Interagency Review of Foreclosure Practices.