If you thought the fallout from the residential mortgage foreclosure had run its course by now, you’d be wrong. For in the New York courts (and many others, I’m sure), litigation over bad mortgages lives on, and once again finds its way to the New York Court of Appeals. This time, the Court is asked to decide a number of procedural issues in lawsuits over breaches of the representations and warranties about the quality of the mortgages placed in a number of RMBS trusts, and will hear oral arguments tomorrow, January 9, 2019.
Nos. 6 & 7 U.S. Bank National Association v DLJ Mortgage Capital, Inc. (and other actions)
In these breach of contract actions, DLJ placed thousands of mortgages worth nearly $4 billion into residential mortgage backed securities trusts for which U.S. Bank was the trustee. In No. 6, an investor in the trusts, the Federal Housing Finance Agency, sued DLJ for breach of its representations and warranties about the mortgages, but was forced to substitute U.S. Bank because the trust agreement strictly limited suits by investors. Only the trustee could bring suit on behalf of the investors, the agreement said, so FHFA lacked standing. After U.S. Bank was substituted, Supreme Court dismissed the action with prejudice anyway, which barred U.S. Bank from refiling it under CPLR 205(a).
The Appellate Division, First Department affirmed the dismissal with prejudice, reasoning that U.S. Bank was not a “plaintiff” to which the 6-month CPLR 205(a) extension to refile could apply. Nor could U.S. Bank’s claims relate back to the prior action because, the Court held, there was no “valid preexisting action” to which the newly filed action could relate back to.
In No. 7, the issue is slightly different. U.S Bank actually filed this action directly, but failed to comply with a condition precedent to suit, namely, serving notice on both DLJ and Ameriquest as the originator of the loans that it was invoking the trust agreement’s repurchase obligations. Because U.S. Bank failed to comply with the condition precedent before commencing the action, Supreme Court dismissed the action, without prejudice to refiling. The Appellate Division, First Department again affirmed, this time reasoning that U.S. Bank could refile within 6 months under CPLR 205(a) after complying with the stated condition precedent to suit.
I’ve always wanted to know who qualifies as a “plaintiff” under CPLR 205(a), and now we’ll all get to find out! Also notably, one of these cases is being argued by #AppellateTwitter luminary Bob Loeb (@BobLoeb on Twitter). I’ll be heading down to the Court to watch the arguments in person tomorrow, but if you aren’t in Albany, then I strongly recommend watching the Court of Appeals’ livestream of arguments, which can be found here.