Mortgage and Asset Backed Securities Litigation Handbook
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOKTable of ContentsCHAPTER 1I. § § § § § § § § § § § § II. § § § § § § § § § § § § § § § III. § § § § § §INDUSTRY BACKGROUNDLOAN ORIGINATION AND SECURITIZATION 1:1 1:2 1:3 1:4 1:5 1:6 1:7 1:8 1:9 1:10 1:11 1:12 Introduction Historical perspective The participants ―Loan originator/loan seller ―The sponsors/guarantors ―Certificate holders ―The investment bankers ―The servicers ―The rating agencies ―Trustee and fiscal agent The loan orig
Content
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK
Table of Contents
CHAPTER 1
I. § § § § § § § § § § § § II. § § § § § § § § § § § § § § § III. § § § § § §
INDUSTRY BACKGROUND
LOAN ORIGINATION AND SECURITIZATION 1:1 1:2 1:3 1:4 1:5 1:6 1:7 1:8 1:9 1:10 1:11 1:12 Introduction Historical perspective The participants ―Loan originator/loan seller ―The sponsors/guarantors ―Certificate holders ―The investment bankers ―The servicers ―The rating agencies ―Trustee and fiscal agent The loan origination process Key securitization documents
LOAN SERVICING 1:13 1:14 1:15 1:16 1:17 1:18 1:19 1:20 1:21 1:22 1:23 1:24 1:25 1:26 1:27 Introduction Servicer agreements Types of servicers: master and primary CMBS bifurcated servicing Servicing the credit-enhanced or guaranteed MBS Servicing conflicts among certificate-holders The administration of mortgage loans and roles of servicers generally Residential MBS servicing ―Primary servicer responsibilities ―Master servicer responsibilities Commercial MBS servicing ―Primary servicer responsibilities ―Master servicer responsibilities ―Special servicer responsibilities Conclusion
DEAL DOCUMENTS 1:28 1:29 1:30 1:31 1:32 1:33 Introduction Disclosure materials and underwriting agreements ―Public v. Private Sale or pooling agreements Servicing agreements Security and custodial agreements i
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 1:34 1:35 1:36 A. § § § § § § § § § § § 1:37 1:38 1:39 1:40 1:41 1:42 1:43 1:44 1:45 1:46 1:47 B. § § § § § § § § § § § § § § § § § § § § § § § § § 1:48 1:50 1:51 1:52 1:53 1:54 1:55 1:56 1:57 1:58 1:59 1:60 1:61 1:62 1:63 1:64 1:65 1:66 1:67 1:68 1:69 1:70 1:71 1:72 1:73 Credit enhancement Organizational documents Special purpose entities RMBS TRANSACTIONS Introduction Equity―offering document ―Underwriting agreement of placement agency agreement ―Mortgage loan purchase agreement ―Pooling and servicing agreement ―Servicing agreement; assignment, assumption and recognition agreement ―Custodial agreement Debt ―Indenture ―Servicing agreement ―Trust agreement CMBS DOCUMENTS Offering documents ―Collateral ――Mortgage pool disclosure ――Loan and property specific disclosure ――Appendices ―Mortgage loan seller underwriting guidelines ―Transaction parties and operative documents ―Securities structure ―Risk factors ―Yield and maturity considerations ―Miscellaneous provisions Pooling and servicing agreement ―Mortgage loan servicing ――Master servicer ――Special servicer ――Servicer interaction ―Controlling class and directing holders ―Distributions on certificates ―Trustee ―Certificates ―Indemnification ―Servicer defaults ―Miscellaneous Mortgage purchase agreement ―Conveyance of the mortgage loans
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 1:74 1:75 1:76 ―Representations, warranties, and covenants of the seller and depositor ―Notice of breach; cure, repurchase, and substitution ―Closing requirements
CHAPTER 2
§ § § § § § § 2:1 2:2 2:3 2:4 2:5 2:6 2:7
TRUST REPRESENTATION
Introduction Real party in interest Suit by a servicer Diversity jurisdiction Trustee delegation and limitation of power Privilege Conflicts of interest
CHAPTER 3 PRE-SECURITIZATION AND SECURITIZATION CLAIMS
I. § II. INTRODUCTION 3:1 Background
CLAIMS AGAINST SELLERS AND DEPOSITORS A. POTENTIAL CLAIMS Contractual claims ―Breach of contract ―Breach of warranty ――Types of warranties ―――The depositor and originator ―――The loans ―――Document defects ―――Early payment defaults ―Declaratory Judgment ―Attorney’s fees ―Indemnity Equitable claims―specific performance ―Implied contracts and covenants ―Unjust enrichment Tort claims―negligence ―Negligent misrepresentation ―Fraud ―Breach of fiduciary duty ―Securities fraud claims―the Securities Exchange Act ――The Securities Act iii
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3:2 3:3 3:4 3:5 3:6 3:7 3:8 3:9 3:10 3:11 3:12 3:13 3:14 3:15 3:16 3:17 3:18 3:19 3:20 3:21
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 3:22 3:23 3:24 B. § § § § § § § § § § § § § § § § § § III. § § § § § § § § § § § § § § § § 3:25 3:26 3:27 3:28 3:29 3:30 3:31 3:32 3:33 3:34 3:35 3:36 3:37 3:38 3:39 3:40 3:41 3:42 ――State Blue Sky laws ――Class certification ――Loans as securities POTENTIAL RESPONSES Procedural issues―standing ―Subject matter jurisdiction ―Motion to dismiss for failure to state a claim Specific denials and defenses―no breach ―Immaterial breach ―Known breach ―Proximate cause ―Prompt notice ―Mitigation ―Full credit bid rule ―Impossibility and sole remedy ―Purchaser caused the breach ―Breach of purchaser’s duty ―Cure ―Breach of good faith and fair dealing ―Limitations and laches ―Champerty ―Res judicata
LITIGATION OF SPECIFIC LPA AND PSA PROVISIONS 3:43 3:44 3:45 3:46 3:47 3:48 3:49 3:50 3:51 3:52 3:53 3:54 3:55 3:56 3:57 3:58 Specific representations and warranties ―Default ―Defense ―Environmental ― Escrow deposits ―Financing statements ―Fraud or untrue information ―Origination, underwriting, and/or servicing ―Terms ―Proceeds ―Qualified mortgage ―Waivers Litigation involving other LPA and PSA provisions―documents ―Modification ―Notice and repurchase ―Trustee obligation
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK
CHAPTER 4
§ § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § 4:1 4:2 4:3 4:4 4:5 4:6 4:7 4:8 4:9 4:10 4:11 4:12 4:13 4:14 4:15 4:16 4:17 4:18 4:19 4:20 4:21 4:22 4:23 4:24 4:25 4:26 4:27 4:28 4:29 4:30 4:31 4:32 4:33 4:34 4:35 4:36 4:37 4:38 4:39 4:40 4:41 4:42 4:43 4:44
POST SECURITIZATION CLAIMS
Introduction Potential claims―contractual claims ――Breach of contract―trustee ――――Duty to monitor ――――Document duties ――――Event of default ――――Payment ―――Servicer ――――Servicing standard ――――Documents ――Breach of Warranty ―――Trustee ―――Servicer ――Declaratory judgment ―――Trustee ―――Servicer ――Attorney’s Fees―trustee ―――Servicer ――Indemnification ―――Trustee ―――Servicer ―Tort claims ――Negligence ―――Trustee ―――Servicer ――Negligent Misrepresentation ――Fraud ―――Trustee ―――Servicer ――Securities laws ―――Trustee ―――Servicer ――Breach of fiduciary duty ―――Trustee ―――Servicer Potential responses ―Procedural―standing―third party beneficiaries ――No action clause ―――Applied ―――Did not apply―futility ―――Did not apply―exempt ――Subject matter jurisdiction ――Motion to dismiss ―Specific denials and defenses―damages
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 4:45 4:46 4:47 ――Limits on liability ――Certificates of opinions ――Ripeness
CHAPTER 5
I.
BORROWER LITIGATION
BORROWER V. TRUST A. ORIGINATION BASED CLAIMS Introduction Traditional financial markets and originator/lender liability Federal legislation ―Truth in Lending Act ―Home Ownership and Equity Protection Act The interplay between federal, state, and local legislation relating to predatory lending ―Federal and regulatory levels ―State and local levels ―Practical implications ―Pending legislation and regulation Standing and assignee claims and defenses ―Assignee claims and defenses Potential common law theories of assignee liability for securitized loans ―Aiding and abetting ―Civil conspiracy ―Joint Venture Conclusion SERVICING BASED CLAIMS Introduction Borrower claims arising from matters requiring lender consent “Due on Sale” provisions Due on encumbrance clauses and restrictions against subordinated debt and mezzanine debt Loan assumptions Prepayment lockouts and prepayment premiums Release of funds held in reserve accounts Approvals of leases and lease terminations Breach of contract claims ―Breach of oral agreements ―Breach of express agreements ―Breach of good faith and fair dealing
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5:1 5:2 5:3 5:4 5:5 5:6 5:7 5:8 5:9 5:10 5:11 5:12 5:13 5:14 5:15 5:16 5:17 B.
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5:18 5:19 5:20 5:21 5:22 5:23 5:24 5:25 5:26 5:27 5:28 5:29
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § § § § § § § § 5:30 5:31 5:32 5:33 5:34 5:35 5:36 5:37 5:38 5:39 5:40 Tort claims ―Fraud and misrepresentation in connection with workouts ―Breach of fiduciary duty ―Negligent loan administration ―Interference with contracts Statutory claims―Real Estate Settlement Procedures Act ―Fair Debt Collection Practices Act ―Fair Credit Reporting Act ―Gramm Leach Bliley Act ―Unfair trade practices Differences, pitfalls and practical considerations of litigating issues in a securitization context as opposed to a traditional lending transaction
II.
TRUST V. BORROWER A. FRAUD AND WASTE Introduction The origin and evolution of waste doctrine ―Definition of waste ―Tort claims for waste ―Contract claims for waste ―Statutory claims for waste ―Overlapping claims for waste Strategic considerations in pursuing waste claims―forum considerations ―Persons liable ―Evidence of conduct constituting waste ――Damage or removal of fixtures and improvements ――Negligence in failing to maintain a premises ――Failure to pay taxes or requirements as waste ――Diversion of rents as waste ――Other conduct constituting waste ―Timing of filing waste claims ―Expert proof considerations ―Affirmative defenses Remedies ―Limitations on recovery ――The debt ceiling ――Impairment of collateral ceilings ―Breach of contract damages v. tort damages ――Loss in value of collateral/security ――Difference in market value and cost to repair ―Lost rents ―Punitive damages
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5:41 5:42 5:43 5:44 5:45 5:46 5:47 5:48 5:49 5:50 5:51 5:52 5:53 5:54 5:55 5:56 5:57 5:58 5:59 5:60 5:61 5:62 5:63 5:64 5:65 5:66 5:67
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § 5:68 ―Injunctive relief § 5:69 ―Appointment of receiver § 5:70 ―Continuing mortgagor/mortgagee relationship considerations B. § § § § § § § § § § § § § § § § § § § § § § § § 5:71 5:72 5:73 5:74 5:75 5:76 5:77 5:78 5:79 5:80 5:81 5:82 5:83 5:84 5:85 5:86 5:87 5:88 5:89 5:90 5:91 5:92 5:93 5:94 GUARANTEES AND “BAD BOY” CARVE OUTS Introduction Nonrecourse loans and nonrecourse carve outs to nonrecourse liability Nonrecourse carve outs involving nonsecuritized loans Limited resource carve outs in nonsecuritized loans―impairing lender’s access to the collateral ―Transferring money to borrower’s affiliates without consent ―Failing to pay property taxes ―Committing waste by failing to pay property taxes Full recourse carve outs enforced in nonsecuritized loans ―Permitting liens on the mortgaged property ―Commencing bankruptcy proceedings not resolved within 90 days Nonrecourse carve out litigation involving securitized loans ―Violating single purpose entity covenants: LaSalle Bank N.A. v. Mobile Hotel Properties, LLC ―Transferring a portion of the mortgaged property: Blue Hills Office Park, LLC v. JP Morgan Chase Bank and CFSB 1999-C1 Royal Street, LLC ――Facts of the case―the loan ―――The zoning appeal ―――The zoning appeal settlement ―――Default and foreclosure ―――Events subsequent to foreclosure ――The court’s decision―the borrower had no right to access reserves and the lender had no duty to work out the loan ――――The zoning appeal and $2 million settlement payment were mortgaged property ――――The transfer of mortgaged property made the borrower fully liable ――――The transfer of mortgaged property made the guarantors fully liable ――――The borrower’s violation of single purpose entity covenants was an independent ground for full recourse liability ――――Prejudgment interest and attorneys’ fees increased the full recourse judgment to $17.5 million
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § 5:95 5:96 5:97 5:98 C. § 5:99 ――――The role of counsel for the borrowers and guarantors ―――Lessons of the case ―Obtaining subordinate financing without consent: CFSB. 2001-CP4 Princeton Park Corporate Center, LLC v. SB Rental I, LLC, et al. Conclusion FORECLOSURE Introduction 1. § § § § § § § § § § § § § § § § § § § § § § § § § § 5:100 5:101 5:102 5:103 5:104 5:105 5:106 5:107 5:108 5:109 5:110 5:111 5:112 5:113 5:114 5:115 5:116 5:117 5:118 5:119 5:120 5:121 5:122 5:123 5:124 5:125 LOAN ENFORCEMENT ISSUES SPECIFIC TO SECURITIZATION TRUSTS
Overview ―Comparison of RMBS and CMBS loans ―The servicing of defaulted securitized mortgage loans ―The servicing of defaulted RMBS loans ―The servicing of defaulted CMBS loans Potential difficulties in establishing a securitization trust’s standing in a foreclosure action ―General overview of standing ―Establishing ownership of the loan ――By possession of the note ――By assignment of the mortgage ―Establishing ownership of an RMBS loan ―Establishing ownership of a CMBS loan ―The consequences of failing to establish standing ――Judicial foreclosure ――Non-judicial foreclosure ―――Void vs. voidable foreclosure sales Conflicts of interest which may arise in connection with a foreclosure ―Foreclosure of a RMBS loan ―Foreclosure of a CMBS loan Factors which may impact a “work out” or modification of a securitized mortgage loan ―General issues which may impact a RMBS loan ―General issues which may impact a CMBS loan ―Disincentives for RMBS servicers to “work out” or modify a defaulted loan ―Incentives for CMBS servicers to “work out” or modify a defaulted loan The dilemma of investor tranches Contractual limitations on a “work out” or modification
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § 5:126 5:127 5:128 5:129 ―Organizational obstacles to a “work out” of a RMBS loan ―Organizational obstacles to a “work out” of a CMBS loan 2. SUBPRIME MORTGAGE INITIATIVES Generally Industry proposals 3. SPECIAL CONSIDERATIONS CONCERNING CMBS LOANS AND OTHRE LOANS MADE TO OWNERS OF INCOME PRODUCING PROPERTIES
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5:130 5:131 5:132 5:133 5:134 5:135 5:136 5:137 5:138
Generally Controlling cash flow from income producing properties Cash management Assignments of leases and rents Lender’s direct exercise of rights under an assignment of leases and rents Receiver of rents Deficiency actions in connection with a CMBS loan ―Anti-deficiency statutes ―One-action rules
CHAPTER 6
§ § § § § § § § § § § § § § § § § § § § § 6:1 6:2 6:3 6:4 6:5 6:6 6:7 6:8 6:9 6:10 6:11 6:12 6:13 6:14 6:15 6:16 6:17 6:18 6:19 6:20 6:21
RATING AGENCY CLAIMS
Introduction Rating agency roles ―Rating process ―Use of ratings ―NRSO status Potential claims―Securities Act 12(a)(2) ―Securities Exchange Act §10(b) ――Omission ――Reliance on the “Bespeaks caution” doctrine ――Scienter ―Negligent misrepresentation and fraud ―Breach of contract ――Third party beneficiary claims ―――Adoption and entanglement Potential responses ―First Amendment ――Opinions ――Actual malice ―――Pleading ――Protection affirmed ――Protection denied
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § § 6:22 6:23 6:24 6:25 6:26 ―Securities Act §11 exemption ―Regulation FD exemption ―Investors Advisers Act of 1940 exemption ―Public policy ―Credit Rating Agency Reform Act
CHAPTER 7 SECURITIZED LOANS IN BANKRUPTCY
§ § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § 7:1 7:2 7:3 7:4 7:5 7:6 7:7 7:8 7:9 7:10 7:11 7:12 7:13 7:14 7:15 7:16 7:17 7:18 7:19 7:20 7:21 7:22 7:23 7:24 7:25 7:26 7:27 7:28 7:29 7:30 7:31 7:32 Introduction Cash collateral Bankruptcy remote entities―purpose and characteristics ―Independent director litigation issues ―Substantive consolidation litigation ―“Creeping” substantive consolidation Automatic stay ―Scope ―Relief Dismissal ―Inability to confirm pan ―Bad faith filings ―Procedure ―Treatment of nonrecourse claims under §1111(b) ―Secured and unsecured claims section 506 ―Applicable interest rate and default interest ―Prepayment premiums (yield maintenance) Contract/lease rejection issues ―Standing of securitization trust ―Rejection claims ―REMIC issues Bankruptcy sales Remedies against non-debtor guarantors―recourse carve-out guarantees ―Stay of litigation against guarantor Chapter 11 plain issues―disclosure statement/solicitation process ―Exclusivity ―Potential treatment of the trust’s claims ―Strategies and tactics The securitization trust and the roles of the master servicer, special servicer, and trustee in bankruptcy―the securitization trust as lender ―Servicer standing ―Transfer of securitized loan to SPE Before bankruptcy occurs: workouts and forbearance agreements in anticipation of bankruptcy xi
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § 7:33 7:34 Servicer bankruptcy issues―termination of servicing rights ―Property of the estate
CHAPTER 8
I. § § § § § § § § § § § § § § § § II.
OTHER CONSIDERATIONS
PERSONAL JURISDICTION AND VENUE 8:1 8:2 8:3 8:4 8:5 8:6 8:7 8:8 8:9 8:10 8:11 8:12 8:13 8:14 8:15 8:16 Personal jurisdiction ―Standards generally ―Applying standards to securitized trusts ――Courts lacking jurisdiction ――Courts exercising jurisdiction ―Practical considerations Venue ―No forum selection clause―standards generally ――Applying standards to securitized trusts ―――Improper venue ―――Proper venue ―Forum selection clause―standards ―――Mandatory ―――Permissive ――Applying standards to securitized trusts―improper venue ―――Proper venue
COMPLEX LOAN STRUCTURES A. OVERVIEW OF COMPLEX SECURITIZED REAL ESTATE FINANCINGS Introduction SINGLE LOAN STRUCTURES Overview of single loan structures Co-lending and syndication agreements ―A comparison of pari passu and senior/subordinate note structures ―The parties involved ―Servicing standard ―Note holder consent and/or consultation rights; controlling holder ―The documents involved Participations ―The parties involved ―The documents involved
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8:17 B.
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8:18 8:19 8:20 8:21 8:22 8:23 8:24 8:25 8:26 8:27
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 8:28 8:29 8:30 C. § § § § § § § § § § 8:31 8:32 8:33 8:34 8:35 8:36 8:37 8:38 8:39 8:40 D. § § § § 8:41 8:42 8:43 8:44 Securitizations of single loans ―The parties involved ―The documents involved MULTIPLE LOAN STRUCTURES Overview of multiple loan structures Senior/subordinate mortgage loan structures ―The parties involved ―The documents involved Mortgage/mezzanine loan structures ―The parties involved ―The documents involved Mortgage/loan preferred equity investment structures ―The parties involved ―The documents involved POTENTIAL LITIGATION ARISING FROM COMPLEX LOAN STRUCTURES Overview Administrative issues ―Proving ownership of a complex loan in connection with the exercise of remedies against the applicable borrower ―Giving notice to the parties that own the applicable loan (or interests therein) in connection with the exercise of rights under an intercreditor, participation or other similar agreement Litigation issues ―Determining which entity in a single loan structure is entitled to enforce the loan ―Determining what duties, if any, are owed to the other lenders or interest holders in a single loan structure ―Conflicts of interest which may arise in connection with the enforcement of a complex loan structure ―Disputes among note holders or participants in connection with consent rights in single loan structures ―Protection of a subordinate lender’s or interest holder’s interest in a complex loan structure ―Legal and practical restraints on the ability to modify a loan which is part of a multiple loan structure ―Rights against prior owners of the loan or interests therein Issues which arise in connection with a bankruptcy of a borrower, lender, or interest holder ―”Cram down” risk associated with complex loans
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8:45 8:46 8:47 8:48 8:49 8:50 8:51 8:52 8:53 8:54
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § 8:55 8:56 E. § § § § § § § § § § § § § § § 8:57 8:58 8:59 8:60 8:61 8:62 8:63 8:64 8:65 8:66 8:67 8:68 8:69 8:70 8:71 ―Risks associated with a subordinate mortgage lenders’ bankruptcy ―Risks created by the bankruptcy of an interest holder in a single loan structure COMPLEX COLLATERAL The effect of complex collateral on loan enforcement ―Resort properties ――Operating businesses ――Bankruptcy lien issues ―Casino properties ―Foreign properties ――Limitations on ownership of foreign properties ――Currency risk issues ――Sovereign or political issues ―Nursing home properties ――Nursing home expenses ――Nursing home revenue ――Nursing home regulatory issues ―Opco/propco structuring ――Opco/propco bankruptcy risks
III. COLLECTION OF LIQUIDATED AMOUNTS COMMONLY PAYABLE UNDER SECURITIZED LOANS § 8:72 A. § § § § 8:73 8:74 8:75 8:76 B. § § § § § § § 8:77 8:78 8:79 8:80 8:81 8:82 8:83 Introduction PREPAYMENT PREMIUMS Payment in the absence of a contractual or statutory provision Contractual provisions prohibiting prepayment Statutory provisions prohibiting prepayment Bankruptcy considerations regarding the right to prepay ENFORCEABILITY OF PREPAYMENT PREMIUMS Lender’s right to be compensated for the privilege of prepayment Borrower’s objections to prepayment premiums ―Unlawful penalty ―Unlawful restraint on alienation ―Involuntary prepayment upon acceleration ―Involuntary prepayment by reason of a due-on-sale clause ―Involuntary prepayment caused by circumstances beyond the borrower’s control
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 8:84 8:85 8:86 C. § § § § § § § 8:87 8:88 8:89 8:90 8:91 8:92 8:93 D. § § § § 8:94 8:95 8:96 8:97 E. § § § § 8:98 8:99 8:100 8:101 ―Excessive fee Statutory provisions regarding prepayment premiums Bankruptcy considerations regarding prepayment premiums LATE PAYMENT CHARGES Generally Application of late payment charges to escrow amounts and the unpaid principal balance Late payment charges after acceleration and/or commencement of suit Approaches to enforceability―the liquidated damages approach ―The usury approach Late payment charges in bankruptcy State and federal regulation DEFAULT INTEREST Generally Usury analysis The MetLife approach Default interest in bankruptcy ATTORNEY’S FEES The need for a contractual provision State regulation The amounts recoverable Who is liable ENVIRONMENTAL ISSUES ENVIRONMENTAL RISKS IN MORTGAGE LENDING Background The Fleet Factors decision Brownfield laws The rise of state environmental laws A practical view of environmental risks for lenders ENVIRONMENTAL ISSUES IN LOAN ORIGINATION Environmental underwriting Divergence of interests in environmental due diligence
PART IV A. § § § § § 8:102 8:103 8:104 8:105 8:106 B. § § 8:107 8:108
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK C. § 8:109 D. § 8:110 E. § § § § 8:111 8:112 8:113 8:114 ENVIRONMENTAL ISSUES AT POOLING AND SECURITIZATION Generally ENVIRONMENTAL ISSUES IN SERVICING PERFORMING CMBS LOANS The servicing standard ENVIRONMENTAL ISSUES IN NON-PERFORMING CMBS ASSETS Typical environmental standards in pooling and servicing agreements Pre-foreclosure environmental due diligence Breach claims Other means to realize on environmentally challenged collateral INSURANCE Generally Potential liabilities insured under D&O policies Potential liabilities covered under E&O policies and BPL policies Insurance coverage for D&O, E&O, and BPL liabilities ―Current claims concerns under D&O policies―basic description of D&O coverage ――Timeliness of coverage ――Need for insurer’s consent ――Panel counsel ――Multiple counsel ――Need to keep insurers informed ――Potential insurer defenses ―Current claims concerns under E&O and BPL insurance policies―description of E&O and BPL insurance policies ――Typical coverage issues arising under E&O and BPL policies Commercial general liability policies Credit risk insurance Conclusion
PART V § § § § § § § § § § § § § § § § 8:115 8:116 8:117 8:118 8:119 8:120 8:121 8:122 8:123 8:124 8:125 8:126 8:127 8:128 8:129 8:130
CHAPTER 9 TRENDS AND PRACTICAL CONSIDERATIONS
PART I SUBPRIME LEGISLATION xvi
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK
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9:1 9:2 9:3 9:4 9:5 9:6 9:7 9:8 9:9
Introduction The Mortgage reform and Anti-Predatory Lending Act of 2007 The Home Ownership Preservation and Protection Act of 2007 Bush administration proposal Congressional bankruptcy proposals―the Senate ―The House FHA Modernization Act of 2007 Additional legislation Conclusion INDUSTRY Growth and disruption in mortgage backed securities ―Historical―1980’s ――1998 ――2001 ――Subprime growth ――Subprime crisis ―――Suggested causes ―CMBS crisis Trends and research―governmental action ―Bankruptcy ―Foreclosure ―Origination ―Servicing ―Rating Investor trends and research JUDICIAL ASPECTS OF THE SECURITIZATION Introduction Standing Use of a discovery master Presentations to the court Trial considerations
PART II § § § § § § § § § § § § § § § 9:10 9:11 9:12 9:13 9:14 9:15 9:16 9:17 9:18 9:19 9:20 9:21 9:22 9:23 9:24
PART III CASE § § § § § 9:25 9:26 9:27 9:28 9:29
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Table of Contents
CHAPTER 1
I. § § § § § § § § § § § § II. § § § § § § § § § § § § § § § III. § § § § § §
INDUSTRY BACKGROUND
LOAN ORIGINATION AND SECURITIZATION 1:1 1:2 1:3 1:4 1:5 1:6 1:7 1:8 1:9 1:10 1:11 1:12 Introduction Historical perspective The participants ―Loan originator/loan seller ―The sponsors/guarantors ―Certificate holders ―The investment bankers ―The servicers ―The rating agencies ―Trustee and fiscal agent The loan origination process Key securitization documents
LOAN SERVICING 1:13 1:14 1:15 1:16 1:17 1:18 1:19 1:20 1:21 1:22 1:23 1:24 1:25 1:26 1:27 Introduction Servicer agreements Types of servicers: master and primary CMBS bifurcated servicing Servicing the credit-enhanced or guaranteed MBS Servicing conflicts among certificate-holders The administration of mortgage loans and roles of servicers generally Residential MBS servicing ―Primary servicer responsibilities ―Master servicer responsibilities Commercial MBS servicing ―Primary servicer responsibilities ―Master servicer responsibilities ―Special servicer responsibilities Conclusion
DEAL DOCUMENTS 1:28 1:29 1:30 1:31 1:32 1:33 Introduction Disclosure materials and underwriting agreements ―Public v. Private Sale or pooling agreements Servicing agreements Security and custodial agreements i
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 1:34 1:35 1:36 A. § § § § § § § § § § § 1:37 1:38 1:39 1:40 1:41 1:42 1:43 1:44 1:45 1:46 1:47 B. § § § § § § § § § § § § § § § § § § § § § § § § § 1:48 1:50 1:51 1:52 1:53 1:54 1:55 1:56 1:57 1:58 1:59 1:60 1:61 1:62 1:63 1:64 1:65 1:66 1:67 1:68 1:69 1:70 1:71 1:72 1:73 Credit enhancement Organizational documents Special purpose entities RMBS TRANSACTIONS Introduction Equity―offering document ―Underwriting agreement of placement agency agreement ―Mortgage loan purchase agreement ―Pooling and servicing agreement ―Servicing agreement; assignment, assumption and recognition agreement ―Custodial agreement Debt ―Indenture ―Servicing agreement ―Trust agreement CMBS DOCUMENTS Offering documents ―Collateral ――Mortgage pool disclosure ――Loan and property specific disclosure ――Appendices ―Mortgage loan seller underwriting guidelines ―Transaction parties and operative documents ―Securities structure ―Risk factors ―Yield and maturity considerations ―Miscellaneous provisions Pooling and servicing agreement ―Mortgage loan servicing ――Master servicer ――Special servicer ――Servicer interaction ―Controlling class and directing holders ―Distributions on certificates ―Trustee ―Certificates ―Indemnification ―Servicer defaults ―Miscellaneous Mortgage purchase agreement ―Conveyance of the mortgage loans
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 1:74 1:75 1:76 ―Representations, warranties, and covenants of the seller and depositor ―Notice of breach; cure, repurchase, and substitution ―Closing requirements
CHAPTER 2
§ § § § § § § 2:1 2:2 2:3 2:4 2:5 2:6 2:7
TRUST REPRESENTATION
Introduction Real party in interest Suit by a servicer Diversity jurisdiction Trustee delegation and limitation of power Privilege Conflicts of interest
CHAPTER 3 PRE-SECURITIZATION AND SECURITIZATION CLAIMS
I. § II. INTRODUCTION 3:1 Background
CLAIMS AGAINST SELLERS AND DEPOSITORS A. POTENTIAL CLAIMS Contractual claims ―Breach of contract ―Breach of warranty ――Types of warranties ―――The depositor and originator ―――The loans ―――Document defects ―――Early payment defaults ―Declaratory Judgment ―Attorney’s fees ―Indemnity Equitable claims―specific performance ―Implied contracts and covenants ―Unjust enrichment Tort claims―negligence ―Negligent misrepresentation ―Fraud ―Breach of fiduciary duty ―Securities fraud claims―the Securities Exchange Act ――The Securities Act iii
§ § § § § § § § § § § § § § § § § § § §
3:2 3:3 3:4 3:5 3:6 3:7 3:8 3:9 3:10 3:11 3:12 3:13 3:14 3:15 3:16 3:17 3:18 3:19 3:20 3:21
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 3:22 3:23 3:24 B. § § § § § § § § § § § § § § § § § § III. § § § § § § § § § § § § § § § § 3:25 3:26 3:27 3:28 3:29 3:30 3:31 3:32 3:33 3:34 3:35 3:36 3:37 3:38 3:39 3:40 3:41 3:42 ――State Blue Sky laws ――Class certification ――Loans as securities POTENTIAL RESPONSES Procedural issues―standing ―Subject matter jurisdiction ―Motion to dismiss for failure to state a claim Specific denials and defenses―no breach ―Immaterial breach ―Known breach ―Proximate cause ―Prompt notice ―Mitigation ―Full credit bid rule ―Impossibility and sole remedy ―Purchaser caused the breach ―Breach of purchaser’s duty ―Cure ―Breach of good faith and fair dealing ―Limitations and laches ―Champerty ―Res judicata
LITIGATION OF SPECIFIC LPA AND PSA PROVISIONS 3:43 3:44 3:45 3:46 3:47 3:48 3:49 3:50 3:51 3:52 3:53 3:54 3:55 3:56 3:57 3:58 Specific representations and warranties ―Default ―Defense ―Environmental ― Escrow deposits ―Financing statements ―Fraud or untrue information ―Origination, underwriting, and/or servicing ―Terms ―Proceeds ―Qualified mortgage ―Waivers Litigation involving other LPA and PSA provisions―documents ―Modification ―Notice and repurchase ―Trustee obligation
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK
CHAPTER 4
§ § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § 4:1 4:2 4:3 4:4 4:5 4:6 4:7 4:8 4:9 4:10 4:11 4:12 4:13 4:14 4:15 4:16 4:17 4:18 4:19 4:20 4:21 4:22 4:23 4:24 4:25 4:26 4:27 4:28 4:29 4:30 4:31 4:32 4:33 4:34 4:35 4:36 4:37 4:38 4:39 4:40 4:41 4:42 4:43 4:44
POST SECURITIZATION CLAIMS
Introduction Potential claims―contractual claims ――Breach of contract―trustee ――――Duty to monitor ――――Document duties ――――Event of default ――――Payment ―――Servicer ――――Servicing standard ――――Documents ――Breach of Warranty ―――Trustee ―――Servicer ――Declaratory judgment ―――Trustee ―――Servicer ――Attorney’s Fees―trustee ―――Servicer ――Indemnification ―――Trustee ―――Servicer ―Tort claims ――Negligence ―――Trustee ―――Servicer ――Negligent Misrepresentation ――Fraud ―――Trustee ―――Servicer ――Securities laws ―――Trustee ―――Servicer ――Breach of fiduciary duty ―――Trustee ―――Servicer Potential responses ―Procedural―standing―third party beneficiaries ――No action clause ―――Applied ―――Did not apply―futility ―――Did not apply―exempt ――Subject matter jurisdiction ――Motion to dismiss ―Specific denials and defenses―damages
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 4:45 4:46 4:47 ――Limits on liability ――Certificates of opinions ――Ripeness
CHAPTER 5
I.
BORROWER LITIGATION
BORROWER V. TRUST A. ORIGINATION BASED CLAIMS Introduction Traditional financial markets and originator/lender liability Federal legislation ―Truth in Lending Act ―Home Ownership and Equity Protection Act The interplay between federal, state, and local legislation relating to predatory lending ―Federal and regulatory levels ―State and local levels ―Practical implications ―Pending legislation and regulation Standing and assignee claims and defenses ―Assignee claims and defenses Potential common law theories of assignee liability for securitized loans ―Aiding and abetting ―Civil conspiracy ―Joint Venture Conclusion SERVICING BASED CLAIMS Introduction Borrower claims arising from matters requiring lender consent “Due on Sale” provisions Due on encumbrance clauses and restrictions against subordinated debt and mezzanine debt Loan assumptions Prepayment lockouts and prepayment premiums Release of funds held in reserve accounts Approvals of leases and lease terminations Breach of contract claims ―Breach of oral agreements ―Breach of express agreements ―Breach of good faith and fair dealing
§ § § § § § § § § § § § § § § § §
5:1 5:2 5:3 5:4 5:5 5:6 5:7 5:8 5:9 5:10 5:11 5:12 5:13 5:14 5:15 5:16 5:17 B.
§ § § § § § § § § § § §
5:18 5:19 5:20 5:21 5:22 5:23 5:24 5:25 5:26 5:27 5:28 5:29
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § § § § § § § § 5:30 5:31 5:32 5:33 5:34 5:35 5:36 5:37 5:38 5:39 5:40 Tort claims ―Fraud and misrepresentation in connection with workouts ―Breach of fiduciary duty ―Negligent loan administration ―Interference with contracts Statutory claims―Real Estate Settlement Procedures Act ―Fair Debt Collection Practices Act ―Fair Credit Reporting Act ―Gramm Leach Bliley Act ―Unfair trade practices Differences, pitfalls and practical considerations of litigating issues in a securitization context as opposed to a traditional lending transaction
II.
TRUST V. BORROWER A. FRAUD AND WASTE Introduction The origin and evolution of waste doctrine ―Definition of waste ―Tort claims for waste ―Contract claims for waste ―Statutory claims for waste ―Overlapping claims for waste Strategic considerations in pursuing waste claims―forum considerations ―Persons liable ―Evidence of conduct constituting waste ――Damage or removal of fixtures and improvements ――Negligence in failing to maintain a premises ――Failure to pay taxes or requirements as waste ――Diversion of rents as waste ――Other conduct constituting waste ―Timing of filing waste claims ―Expert proof considerations ―Affirmative defenses Remedies ―Limitations on recovery ――The debt ceiling ――Impairment of collateral ceilings ―Breach of contract damages v. tort damages ――Loss in value of collateral/security ――Difference in market value and cost to repair ―Lost rents ―Punitive damages
§ § § § § § § § § § § § § § § § § § § § § § § § § § §
5:41 5:42 5:43 5:44 5:45 5:46 5:47 5:48 5:49 5:50 5:51 5:52 5:53 5:54 5:55 5:56 5:57 5:58 5:59 5:60 5:61 5:62 5:63 5:64 5:65 5:66 5:67
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § 5:68 ―Injunctive relief § 5:69 ―Appointment of receiver § 5:70 ―Continuing mortgagor/mortgagee relationship considerations B. § § § § § § § § § § § § § § § § § § § § § § § § 5:71 5:72 5:73 5:74 5:75 5:76 5:77 5:78 5:79 5:80 5:81 5:82 5:83 5:84 5:85 5:86 5:87 5:88 5:89 5:90 5:91 5:92 5:93 5:94 GUARANTEES AND “BAD BOY” CARVE OUTS Introduction Nonrecourse loans and nonrecourse carve outs to nonrecourse liability Nonrecourse carve outs involving nonsecuritized loans Limited resource carve outs in nonsecuritized loans―impairing lender’s access to the collateral ―Transferring money to borrower’s affiliates without consent ―Failing to pay property taxes ―Committing waste by failing to pay property taxes Full recourse carve outs enforced in nonsecuritized loans ―Permitting liens on the mortgaged property ―Commencing bankruptcy proceedings not resolved within 90 days Nonrecourse carve out litigation involving securitized loans ―Violating single purpose entity covenants: LaSalle Bank N.A. v. Mobile Hotel Properties, LLC ―Transferring a portion of the mortgaged property: Blue Hills Office Park, LLC v. JP Morgan Chase Bank and CFSB 1999-C1 Royal Street, LLC ――Facts of the case―the loan ―――The zoning appeal ―――The zoning appeal settlement ―――Default and foreclosure ―――Events subsequent to foreclosure ――The court’s decision―the borrower had no right to access reserves and the lender had no duty to work out the loan ――――The zoning appeal and $2 million settlement payment were mortgaged property ――――The transfer of mortgaged property made the borrower fully liable ――――The transfer of mortgaged property made the guarantors fully liable ――――The borrower’s violation of single purpose entity covenants was an independent ground for full recourse liability ――――Prejudgment interest and attorneys’ fees increased the full recourse judgment to $17.5 million
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § 5:95 5:96 5:97 5:98 C. § 5:99 ――――The role of counsel for the borrowers and guarantors ―――Lessons of the case ―Obtaining subordinate financing without consent: CFSB. 2001-CP4 Princeton Park Corporate Center, LLC v. SB Rental I, LLC, et al. Conclusion FORECLOSURE Introduction 1. § § § § § § § § § § § § § § § § § § § § § § § § § § 5:100 5:101 5:102 5:103 5:104 5:105 5:106 5:107 5:108 5:109 5:110 5:111 5:112 5:113 5:114 5:115 5:116 5:117 5:118 5:119 5:120 5:121 5:122 5:123 5:124 5:125 LOAN ENFORCEMENT ISSUES SPECIFIC TO SECURITIZATION TRUSTS
Overview ―Comparison of RMBS and CMBS loans ―The servicing of defaulted securitized mortgage loans ―The servicing of defaulted RMBS loans ―The servicing of defaulted CMBS loans Potential difficulties in establishing a securitization trust’s standing in a foreclosure action ―General overview of standing ―Establishing ownership of the loan ――By possession of the note ――By assignment of the mortgage ―Establishing ownership of an RMBS loan ―Establishing ownership of a CMBS loan ―The consequences of failing to establish standing ――Judicial foreclosure ――Non-judicial foreclosure ―――Void vs. voidable foreclosure sales Conflicts of interest which may arise in connection with a foreclosure ―Foreclosure of a RMBS loan ―Foreclosure of a CMBS loan Factors which may impact a “work out” or modification of a securitized mortgage loan ―General issues which may impact a RMBS loan ―General issues which may impact a CMBS loan ―Disincentives for RMBS servicers to “work out” or modify a defaulted loan ―Incentives for CMBS servicers to “work out” or modify a defaulted loan The dilemma of investor tranches Contractual limitations on a “work out” or modification
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § 5:126 5:127 5:128 5:129 ―Organizational obstacles to a “work out” of a RMBS loan ―Organizational obstacles to a “work out” of a CMBS loan 2. SUBPRIME MORTGAGE INITIATIVES Generally Industry proposals 3. SPECIAL CONSIDERATIONS CONCERNING CMBS LOANS AND OTHRE LOANS MADE TO OWNERS OF INCOME PRODUCING PROPERTIES
§ § § § § § § § §
5:130 5:131 5:132 5:133 5:134 5:135 5:136 5:137 5:138
Generally Controlling cash flow from income producing properties Cash management Assignments of leases and rents Lender’s direct exercise of rights under an assignment of leases and rents Receiver of rents Deficiency actions in connection with a CMBS loan ―Anti-deficiency statutes ―One-action rules
CHAPTER 6
§ § § § § § § § § § § § § § § § § § § § § 6:1 6:2 6:3 6:4 6:5 6:6 6:7 6:8 6:9 6:10 6:11 6:12 6:13 6:14 6:15 6:16 6:17 6:18 6:19 6:20 6:21
RATING AGENCY CLAIMS
Introduction Rating agency roles ―Rating process ―Use of ratings ―NRSO status Potential claims―Securities Act 12(a)(2) ―Securities Exchange Act §10(b) ――Omission ――Reliance on the “Bespeaks caution” doctrine ――Scienter ―Negligent misrepresentation and fraud ―Breach of contract ――Third party beneficiary claims ―――Adoption and entanglement Potential responses ―First Amendment ――Opinions ――Actual malice ―――Pleading ――Protection affirmed ――Protection denied
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § § § 6:22 6:23 6:24 6:25 6:26 ―Securities Act §11 exemption ―Regulation FD exemption ―Investors Advisers Act of 1940 exemption ―Public policy ―Credit Rating Agency Reform Act
CHAPTER 7 SECURITIZED LOANS IN BANKRUPTCY
§ § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § § 7:1 7:2 7:3 7:4 7:5 7:6 7:7 7:8 7:9 7:10 7:11 7:12 7:13 7:14 7:15 7:16 7:17 7:18 7:19 7:20 7:21 7:22 7:23 7:24 7:25 7:26 7:27 7:28 7:29 7:30 7:31 7:32 Introduction Cash collateral Bankruptcy remote entities―purpose and characteristics ―Independent director litigation issues ―Substantive consolidation litigation ―“Creeping” substantive consolidation Automatic stay ―Scope ―Relief Dismissal ―Inability to confirm pan ―Bad faith filings ―Procedure ―Treatment of nonrecourse claims under §1111(b) ―Secured and unsecured claims section 506 ―Applicable interest rate and default interest ―Prepayment premiums (yield maintenance) Contract/lease rejection issues ―Standing of securitization trust ―Rejection claims ―REMIC issues Bankruptcy sales Remedies against non-debtor guarantors―recourse carve-out guarantees ―Stay of litigation against guarantor Chapter 11 plain issues―disclosure statement/solicitation process ―Exclusivity ―Potential treatment of the trust’s claims ―Strategies and tactics The securitization trust and the roles of the master servicer, special servicer, and trustee in bankruptcy―the securitization trust as lender ―Servicer standing ―Transfer of securitized loan to SPE Before bankruptcy occurs: workouts and forbearance agreements in anticipation of bankruptcy xi
MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § 7:33 7:34 Servicer bankruptcy issues―termination of servicing rights ―Property of the estate
CHAPTER 8
I. § § § § § § § § § § § § § § § § II.
OTHER CONSIDERATIONS
PERSONAL JURISDICTION AND VENUE 8:1 8:2 8:3 8:4 8:5 8:6 8:7 8:8 8:9 8:10 8:11 8:12 8:13 8:14 8:15 8:16 Personal jurisdiction ―Standards generally ―Applying standards to securitized trusts ――Courts lacking jurisdiction ――Courts exercising jurisdiction ―Practical considerations Venue ―No forum selection clause―standards generally ――Applying standards to securitized trusts ―――Improper venue ―――Proper venue ―Forum selection clause―standards ―――Mandatory ―――Permissive ――Applying standards to securitized trusts―improper venue ―――Proper venue
COMPLEX LOAN STRUCTURES A. OVERVIEW OF COMPLEX SECURITIZED REAL ESTATE FINANCINGS Introduction SINGLE LOAN STRUCTURES Overview of single loan structures Co-lending and syndication agreements ―A comparison of pari passu and senior/subordinate note structures ―The parties involved ―Servicing standard ―Note holder consent and/or consultation rights; controlling holder ―The documents involved Participations ―The parties involved ―The documents involved
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8:17 B.
§ § § § § § § § § §
8:18 8:19 8:20 8:21 8:22 8:23 8:24 8:25 8:26 8:27
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 8:28 8:29 8:30 C. § § § § § § § § § § 8:31 8:32 8:33 8:34 8:35 8:36 8:37 8:38 8:39 8:40 D. § § § § 8:41 8:42 8:43 8:44 Securitizations of single loans ―The parties involved ―The documents involved MULTIPLE LOAN STRUCTURES Overview of multiple loan structures Senior/subordinate mortgage loan structures ―The parties involved ―The documents involved Mortgage/mezzanine loan structures ―The parties involved ―The documents involved Mortgage/loan preferred equity investment structures ―The parties involved ―The documents involved POTENTIAL LITIGATION ARISING FROM COMPLEX LOAN STRUCTURES Overview Administrative issues ―Proving ownership of a complex loan in connection with the exercise of remedies against the applicable borrower ―Giving notice to the parties that own the applicable loan (or interests therein) in connection with the exercise of rights under an intercreditor, participation or other similar agreement Litigation issues ―Determining which entity in a single loan structure is entitled to enforce the loan ―Determining what duties, if any, are owed to the other lenders or interest holders in a single loan structure ―Conflicts of interest which may arise in connection with the enforcement of a complex loan structure ―Disputes among note holders or participants in connection with consent rights in single loan structures ―Protection of a subordinate lender’s or interest holder’s interest in a complex loan structure ―Legal and practical restraints on the ability to modify a loan which is part of a multiple loan structure ―Rights against prior owners of the loan or interests therein Issues which arise in connection with a bankruptcy of a borrower, lender, or interest holder ―”Cram down” risk associated with complex loans
§ § § § § § § § § §
8:45 8:46 8:47 8:48 8:49 8:50 8:51 8:52 8:53 8:54
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § 8:55 8:56 E. § § § § § § § § § § § § § § § 8:57 8:58 8:59 8:60 8:61 8:62 8:63 8:64 8:65 8:66 8:67 8:68 8:69 8:70 8:71 ―Risks associated with a subordinate mortgage lenders’ bankruptcy ―Risks created by the bankruptcy of an interest holder in a single loan structure COMPLEX COLLATERAL The effect of complex collateral on loan enforcement ―Resort properties ――Operating businesses ――Bankruptcy lien issues ―Casino properties ―Foreign properties ――Limitations on ownership of foreign properties ――Currency risk issues ――Sovereign or political issues ―Nursing home properties ――Nursing home expenses ――Nursing home revenue ――Nursing home regulatory issues ―Opco/propco structuring ――Opco/propco bankruptcy risks
III. COLLECTION OF LIQUIDATED AMOUNTS COMMONLY PAYABLE UNDER SECURITIZED LOANS § 8:72 A. § § § § 8:73 8:74 8:75 8:76 B. § § § § § § § 8:77 8:78 8:79 8:80 8:81 8:82 8:83 Introduction PREPAYMENT PREMIUMS Payment in the absence of a contractual or statutory provision Contractual provisions prohibiting prepayment Statutory provisions prohibiting prepayment Bankruptcy considerations regarding the right to prepay ENFORCEABILITY OF PREPAYMENT PREMIUMS Lender’s right to be compensated for the privilege of prepayment Borrower’s objections to prepayment premiums ―Unlawful penalty ―Unlawful restraint on alienation ―Involuntary prepayment upon acceleration ―Involuntary prepayment by reason of a due-on-sale clause ―Involuntary prepayment caused by circumstances beyond the borrower’s control
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK § § § 8:84 8:85 8:86 C. § § § § § § § 8:87 8:88 8:89 8:90 8:91 8:92 8:93 D. § § § § 8:94 8:95 8:96 8:97 E. § § § § 8:98 8:99 8:100 8:101 ―Excessive fee Statutory provisions regarding prepayment premiums Bankruptcy considerations regarding prepayment premiums LATE PAYMENT CHARGES Generally Application of late payment charges to escrow amounts and the unpaid principal balance Late payment charges after acceleration and/or commencement of suit Approaches to enforceability―the liquidated damages approach ―The usury approach Late payment charges in bankruptcy State and federal regulation DEFAULT INTEREST Generally Usury analysis The MetLife approach Default interest in bankruptcy ATTORNEY’S FEES The need for a contractual provision State regulation The amounts recoverable Who is liable ENVIRONMENTAL ISSUES ENVIRONMENTAL RISKS IN MORTGAGE LENDING Background The Fleet Factors decision Brownfield laws The rise of state environmental laws A practical view of environmental risks for lenders ENVIRONMENTAL ISSUES IN LOAN ORIGINATION Environmental underwriting Divergence of interests in environmental due diligence
PART IV A. § § § § § 8:102 8:103 8:104 8:105 8:106 B. § § 8:107 8:108
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MORTGAGE AND ASSET BACKED SECURITIES LITIGATION HANDBOOK C. § 8:109 D. § 8:110 E. § § § § 8:111 8:112 8:113 8:114 ENVIRONMENTAL ISSUES AT POOLING AND SECURITIZATION Generally ENVIRONMENTAL ISSUES IN SERVICING PERFORMING CMBS LOANS The servicing standard ENVIRONMENTAL ISSUES IN NON-PERFORMING CMBS ASSETS Typical environmental standards in pooling and servicing agreements Pre-foreclosure environmental due diligence Breach claims Other means to realize on environmentally challenged collateral INSURANCE Generally Potential liabilities insured under D&O policies Potential liabilities covered under E&O policies and BPL policies Insurance coverage for D&O, E&O, and BPL liabilities ―Current claims concerns under D&O policies―basic description of D&O coverage ――Timeliness of coverage ――Need for insurer’s consent ――Panel counsel ――Multiple counsel ――Need to keep insurers informed ――Potential insurer defenses ―Current claims concerns under E&O and BPL insurance policies―description of E&O and BPL insurance policies ――Typical coverage issues arising under E&O and BPL policies Commercial general liability policies Credit risk insurance Conclusion
PART V § § § § § § § § § § § § § § § § 8:115 8:116 8:117 8:118 8:119 8:120 8:121 8:122 8:123 8:124 8:125 8:126 8:127 8:128 8:129 8:130
CHAPTER 9 TRENDS AND PRACTICAL CONSIDERATIONS
PART I SUBPRIME LEGISLATION xvi
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§ § § § § § § § §
9:1 9:2 9:3 9:4 9:5 9:6 9:7 9:8 9:9
Introduction The Mortgage reform and Anti-Predatory Lending Act of 2007 The Home Ownership Preservation and Protection Act of 2007 Bush administration proposal Congressional bankruptcy proposals―the Senate ―The House FHA Modernization Act of 2007 Additional legislation Conclusion INDUSTRY Growth and disruption in mortgage backed securities ―Historical―1980’s ――1998 ――2001 ――Subprime growth ――Subprime crisis ―――Suggested causes ―CMBS crisis Trends and research―governmental action ―Bankruptcy ―Foreclosure ―Origination ―Servicing ―Rating Investor trends and research JUDICIAL ASPECTS OF THE SECURITIZATION Introduction Standing Use of a discovery master Presentations to the court Trial considerations
PART II § § § § § § § § § § § § § § § 9:10 9:11 9:12 9:13 9:14 9:15 9:16 9:17 9:18 9:19 9:20 9:21 9:22 9:23 9:24
PART III CASE § § § § § 9:25 9:26 9:27 9:28 9:29
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