Mortgage Daily

Published On: February 11, 2013

Several cases involving alleged breaches of representations and warranties have apparently been resolved through settlements or final judgments — though litigation continues in plenty of other repurchase cases.

In Washington Federal v. Countrywide Home Loans d/b/a Bank of America, a motion to dismiss counts five and six — breach of covenant of good faith and fair dealing and breach of fiduciary duty — of the amended complaint was filed on Jan. 31. A motion to seal an exhibit was also filed on Jan. 31. In the motion to dismiss, Countrywide said it was “merely seeking to reign in Washington Federal’s overreaching.” In the motion to seal exhibit, filed by Washington Federal, the bank asked the court to seal an exhibit because it contains borrowers’ names, addresses and loan-related information.

The case concerns 98 home mortgages — estimated to be a $400 million portfolio — originated before the housing bubble burst. Countrywide sold the loans to Washington Federal under a 2004 standing agreement between them known as a mortgage loan purchase and servicing agreement. Washington Federal accused Countrywide, and its successor, Bank of America, of breaching specific representations and warranties regarding the characteristics of loans purchased under the agreement and of breaching obligations to service and administer the loans in accordance with customary standards of practice of prudent mortgage servicers.

A lawsuit filed by CitiMortgage Inc. against Allied Mortgage Group was closed on Oct. 24, 2012. A notice of satisfaction of judgment was entered on Jan. 15.

A final pretrial conference has been set for Feb. 13 in CitiMortgage v. Mason Dixon Funding.

Residential Funding’s motion to certify judgment in its lawsuit against Terrace Mortgage Co. was granted on Jan. 22. A notice of appeal to the Eighth Circuit had been filed on June 29, 2012.

Lehman Brothers Holdings Inc. v. National Bank of Arkansas was closed on Aug. 31, 2012. The case was a breach of contract action brought by Lehman Brothers against the North Little Rock, Ark., bank alleging that it breached certain warranties and representations it made regarding mortgage loans it sold Lehman Brothers Bank, FSB, and that National Bank was obligated under a written contract to repurchase the loans or indemnify Lehman Brothers.

On Nov. 1, 2012, SunTrust Mortgage, Inc. v. Old Second National Bank was closed. The case was a breach of contract action brought under the warranty, repurchase, and indemnification provisions of a mortgage-loan purchase agreement.

SunTrust acquired a set of residential loans in 2007 from Old Second under a correspondent loan purchase agreement. In the agreement and accompanying seller guide, Old Second guaranteed that the information it provided to SunTrust in connection with the sale was not incomplete, inaccurate, false or misleading. The agreement also contained an indemnification clause. After SunTrust purchased the loans, it resold them to investors such as Fannie Mae and Freddie Mac.

SunTrust was later required to indemnify those investors when they discovered inaccuracies in the borrower’s stated income on two of the loans. Old Second refused to honor a demand from SunTrust that it repurchase the loans and indemnify SunTrust. So SunTrust filed a complaint on Feb. 9, 2012, alleging three claims breach of contract of indemnification, breach of express warranty and specific performance.

Also closed, on Dec. 5, 2012, was FHFA v. HSBC Finance Corporation and Decision One Mortgage Company, LLC. The case had been removed to U.S. District Court for the Southern District of New York on Oct. 19, 2012. The Federal Housing Finance Agency sued to force HSBC to buy back residential mortgage-backed securities. The agency sued HSBC, as successor-in-interest to Decision One Decision One — a now-defunct wholesale lender HSBC shed in 2007 — in New York state court, claiming it failed to repurchase certain securitized residential mortgages.

Homeward Residential Inc. v. Sand Canyon Corp. was removed to federal court in Manhattan on May 31, 2012. A notice of change of address was the last document filed in the case and that was done on Sept.19. There are several motions asking the court to allow attorneys to appear in the case who are not licensed to practice in that jurisdiction — a standard request in many cases. Sand Canyon was originally sued in New York state court by a loan trust servicer for breach of contract involving a pool of mortgages. Sand Canyon, an H&R Block Inc. unit formerly known as Option One Mortgage Corp., sold the trust more than 7,500 mortgage loans with a total initial principal balance of about $1.5 billion. The trust and its investors have alleged losses or more than $325 million and about 56 percent of the loans in the pool have been liquidated, modified or are “seriously delinquent.”

Sand Canyon stopped originating mortgage loans in 2007, sold its servicing assets to Texas-based Homeward — formerly known as American Home Mortgage Servicing Inc. — and discontinued remaining operations in 2008.

In Sand Canyon Corp. v. American Home Mortgage Servicing Inc., the proceedings were stayed on Jan. 17 pending a final determination by the appellate division on defendant Homeward’s appeal. The court denied a motion to dismiss the case on July 25.

Sand Canyon sued American Home in February 2012, accusing the company of providing electronic copies of loan files to trustees and insurers seeking to bring new claims or demands to repurchase loans or strengthen existing cases. Sand Canyon said providing the loan files violates an agreement between the two companies, which called on both parties to act as allies in the defense of certain liabilities. American Home moved to dismiss the suit in March, saying it’s required to act in the best interest of mortgage trust investors and must provide information to trustees and investors electronically.

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