Organizations that acquire claims in bankruptcy should acquire such claims by a sale without knowledge of the debtors’ claims against the original holder or prior transferees, and obtain an indemnification from the transferor of such claims.
On October 3, 2007, legislation was introduced in the U.S. Senate to amend provisions of the U.S. Bankruptcy Code that currently prevent homeowners from using bankruptcy to modify mortgage loans secured by their primary residence. Proponents of the legislation believe that permitting homeowners to modify mortgage loans in bankruptcy will encourage lenders to engage in voluntary modifications prior to bankruptcy.
A recent ruling by a federal court in New York has the potential to severely impact the $500 billion a year distressed debt market.
The United States Supreme Court held that reckless violations of the Fair Credit Reporting Act (“FCRA”) constitute a willful failure to comply, subjecting violators to liability for actual damages, statutory penalties and potentially punitive damages. Safeco Ins. Co. of America v. Burr, 551 U.S. _____ (June 4, 2007).
January 8, 2008 A Delaware bankruptcy court decided on Friday that mortgage servicing rights could be severed from a mortgage loan repurchase agreement that fell within applicable safe harbors of the Bankruptcy Code, at least where the loans were transferred “servicing retained.” The decision isCalyon New York Branch v. American Home Mortgage Corp., et al. (In re American Home Mortgage Corp.), Bankr. Case No. 07-51704 (CSS) (Bankr. D. Del. Jan. 4, 2008).
District Judge James D. Zagel of the United States District Court for the Northern District of Illinois on Nov. 9, 2007, ordered a Chapter 11 debtor-in-possession ("DIP") to "immediately" pay its so-called "commitment" and "DIP Facility Funding" fees. ("Loan Fees"). Arlington LF, LLC, v. Arlington Hospitality, Inc., 2007 WL 3334499 (N.D. Ill. 11/9/07). Reversing the bankruptcy court, the district court held that the DIP was not excused from paying the fees despite the lender's earlier refusal to advance further funds on its $6 million revolving loan agreement ("Revolver"). Id. at 5.
Late last year, government responses to the subprime mortgage crisis proliferated but most attention focused on those measures that could be, and in some cases were, rapidly implemented — measures like the Treasury Department’s urging holders of certain subprime adjustable rate mortgages (ARMs) to freeze interest rates temporarily or the Federal Reserve’s proposed tightening of lending requirements.
Creditors have recently made some headway in collecting the full amount to which they are contractually entitled pursuant to various debt instruments. In In re Calpine Corp.,1 reported in our summer 2007 newsletter, the Bankruptcy Court for the Southern District of New York permitted a secured creditor to collect damages (albeit in the form of an unsecured claim) caused by dashed expectations due to the early repayment of its debt.
The U.S. Court of Appeals for the Seventh Circuit has held that a dragnet clause within a master security agreement was effective, even though a subsequent loan agreement remained silent as to whether pre-existing collateral secured the new advance. Universal Guaranty Life Ins. Co. v. Coughlin, 481 F.3d 458 (7th Cir., March 14, 2007).
The Adelphia Creditors Committee filed an adversary proceeding against approximately 380 defendants, including bank lenders, investment banks and their agents, alleging wrongdoing in the defendants’ dealings with Adelphia’s former management who looted the company. The complaint asserted numerous claims for relief in connection with borrowing facilities under which Adelphia became liable to repay the banks for billions of dollars that went to the insiders.