UBS Real Estate Securities Inc.

S.D.N.Y. Rejects “Pervasive Breach” Claim and Issues Numerous RMBS Rulings In Deciding Trusts’ and Issuer’s Motions for Summary Judgment

On January 9, 2015, in a series of rulings, Judge P. Kevin Castel of the United States Court for the Southern District of New York granted in part and denied in part motions for partial summary judgment brought by three MASTR Adjustable Rate Mortgages Trusts (2006-OA2, 2007-1, and 2007-3) (the Trusts) and UBS Real Estate Securities Inc. (UBS).  The Trusts filed this repurchase claim against UBS after purchasing 17,082 loans, which the Trusts claimed contained breaches of the Pooling and Servicing Agreements’ representations and warranties.  First, Judge Castel held that, as a general matter, the Trust could only proceed on loans which were the subject of timely repurchase demands – i.e., the demand’s 90-day cure period must have expired within the six-year statute of limitations period. Second, Judge Castel found that the Trusts could also recover on loans for which it proved UBS’ independent discovery of breaches of representations and warranties, even if those loans were not included in any breach notices. The Trust would be required to prove discovery as to individual loans at trial,   In addition, Judge Castel ruled that the Trusts could not recover under a theory of “pervasive breach.”  Judge Castel further held that the Trusts could recover losses incurred on liquidated or foreclosed properties, that evidence of default was not required in order to show a breach of representations and warranties, that summary judgment was inappropriate for determining whether loan files were incomplete at the time of origination, and that the Trusts could not recover rescissory damages.  Order.

New York Federal Court Denies Motion to Dismiss Repurchase Suit Against UBS

On August 15, Judge Harold Baer, Jr. of the District Court for the Southern District of New York denied UBS Real Estate Securities Inc.’s motion to dismiss a suit by several RMBS mortgage trusts in connection with the repurchase of $1.6 billion of mortgage loans.  The trusts allege that UBS failed to repurchase mortgage loans that violated representations and warranties in the underlying agreements.  UBS moved to dismiss the trusts’ request for monetary damages based on the contractual clause limiting the “sole remedy” for breaches of representations and warranties to repurchase.  In denying the motion to dismiss, the court rejected the trusts’ argument, holding that monetary damages could be available in lieu of specific performance of the sole remedies if specific performance was unavailable.  However, the court held that plaintiff would be limited to the “Purchase Price” as the contractual measure of damages and could not obtain damages beyond that amount.  Decision.