Kasowitz Successfully Resolves RMBS Loan Putback/Repurchase Action After Lengthy Litigation and Trial

After a two-week bench trial in the New York State Supreme Court, Commercial Division, Kasowitz prevailed in an action for breach of representations and warranties it brought on behalf of the Trustee of the Home Equity Asset Trust 2007-1, securing a $66.6 million judgment against DLJ Mortgage Capital, Inc. (“DLJ”).  This was one of only a handful of residential mortgage-backed securities (“RMBS”) cases to go to trial in the aftermath of the 2008 financial crisis.  

A $66.39 million settlement became final in February, more than thirteen years after the action was commenced, after multiple interlocutory appeals, and the approval of the Minnesota state court and expiration of the appeal period in a required Trust Instruction Proceeding. 

The New York trial court, Justice Joel M. Cohen, found that the Trustee had convincingly proved that DLJ materially breached its representations and warranties to the Trustee in the governing Pooling & Servicing Agreement as to the nature and quality of many of the loans pooled by DLJ for securitization in the Trust.  The court held DLJ liable for material breaches in over 200 of the loans at issue in the Trust. 

This trial victory is significant because the Court held DLJ liable for damages to the Trust equal to the repurchase price of the loans that breached DLJ’s contractual representations by failing to comply with the applicable underwriting guidelines, which effectively means these loans should never have been securitized by DLJ.  

The Kasowitz team was led by partners Hector Torres and David J. Abrams, counsel David J. Mark, special counsel Jessica Sutliff, and associates Jonah M. Block and Binta Watkins.