Multiple lawsuits filed by a former unit of Residential Capital LLC against some big-name lenders over repurchase demands have been allowed to proceed.
Residential Funding Company LLC was among 28 ResCap-related entities to file a voluntary petition for relief under Chapter 11 of the U.S. Bankruptcy Code in May 2012.
Among entities that RFC acquired loans from prior to its bankruptcy were Central Pacific Bank, National Bank of Kansas City and Wells Fargo Bank, N.A.
Many of the loans defaulted or became delinquent — leading to significant investor losses and allegedly leaving RFC exposed to billions of dollars in liability.
RFC claims that the lenders didn’t live up to representations and warranties in the client contracts they executed.
“In the ensuing litigation, investors and their insurers discovered that many of the loans underlying their investments had significant underwriting problems,” court documents state. “The paperwork for many loans was either incomplete or included inaccurate information about key aspects of the loans, such as borrower income, loan-to-value ratios, and property values. The loans also defaulted at higher than normal rates.”
While in bankruptcy, RFC settled with investors for $10 billion to resolve proofs of claim.
Its remaining rights and interests were assigned to the ResCap Liquidating Trust.
It then filed dozens of lawsuits against the companies it bought loans from — including three against the aforementioned firms and three others against Broadview Mortgage Corp., First Equity Mortgage Bankers Inc. and Lenox Financial Mortgage Corp.
The six cases were filed in U.S. District Court for the District of Minnesota.
RFC alleges in its actions a breach of the client contracts and incorporated client guides against five defendants and also alleges a claim for indemnification in all six cases.
The six defendants all filed motions to dismiss and agreed to a consolidated hearing on the motions given the significant overlap in factual and legal issues.
All six motions were denied on Tuesday.
