Last week, Lehman Brothers Holdings Inc. (“LBHI”) filed two new motions in its ongoing Southern District of New York Bankruptcy Court litigation against approximately 130 loan originators and brokers: (1) an Omnibus Motion for Leave to File Third Amended Complaints Pursuant to Rule 7015 of the Federal Rules of Bankruptcy Procedure (“Motion for Leave to Amend Complaint”); and (2) a Motion for Leave to Amend and Extend the Scope of the Alternative Dispute Resolution Procedures Orders for Indemnification Claims of the Debtors against Mortgage Loan Sellers (“ADR Motion”).
On March 8, the Bankruptcy Court for the Southern District of New York concluded a lengthy “claims estimation” trial to determine the appropriate final settlement price for a resolution of lawsuits filed on behalf of investors in residential mortgage-backed securities (RMBS) created by Lehman Brothers Holdings prior to its bankruptcy in September 2008. The judge determined that the final settlement value of this particular set of claims was $2.38 billion – down from the $37 billion initially demanded, and the $11.4 billion sought by the plaintiffs in this claims estimation trial.
Thousands of mortgage lenders across the country either recently received, or will soon be receiving, this document from Lehman Brothers Holdings, Inc. (LBHI).
Wednesday, February 1 brought a welcome development for the many correspondent lenders currently defending against claims filed by (or threatened with future lawsuits by) Residential Funding Company (“RFC”) and its successor-in-interest, the ResCap Liquidating Trust (“ResCap”).
Despite the improvement in the economy since the advent of the “Great Recession,” many businesses nevertheless continue to struggle. Accordingly, lenders are well advised to stay up to date on “best practices” when facing a potential restructure of a troubled loan. In a series of posts, we will address a number of considerations in dealing with a post default loan situation.
Part 1. Good Faith Obligations
A “UCC-3 Termination Statement” is commonly used in secured transactions by a secured party to put the world on notice that the perfected security interest referenced in the UCC-3 filing is terminated. On October 17, 2014, the Supreme Court of the State of Delaware, in Official Comm. of Unsecured Creditors of Motors Liquidation Co. v. JPMorgan Chase Bank, N.A.
In an effort to minimize the risk of loss in connection with a loan default, lenders often employ creative means to make it difficult, if not impossible, for a borrower to file bankruptcy. Lenders are generally aware that the right to seek bankruptcy protection is a fundamental constitutional right, given the inclusion of Congressional power to establish uniform laws on bankruptcy set forth in Article 8 of the U.S. Constitution.
For 40 years, Scott L. Baena, a senior partner of Bilzin Sumberg and chair of the firm’s Restructuring and Bankruptcy Group, has witnessed drastic changes in the practice of bankruptcy law. It has emerged, he recently told a group students, from a “small arcane undesirable practice” to a sophisticated subset of the legal profession where specialists navigate a matrix of rules designed to give debtors and creditors a level playing field to resolve their financial disputes.
It is no surprise to anyone involved in the restructuring community that bankruptcy filings continue to decline. As reported by the American Bankruptcy Institute, corporate chapter 11 filings have decreased 34 percent since 2013.
A recent bankruptcy auction of a Texas powerplant by Optim Energy LLC provided an important lesson for potential bidders at bankruptcy auctions and their representatives on the importance of developing a clear bidding strategy in advance of the auction, and making sure the representative understands both the bidding strategy and the scope of his or her authority at the auction sale.